TaxTMI 
TaxTMI 
2011 (8) TMI 461
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....lowing substantial question of law: "Whether, under the facts and circumstances of the case, the Hon'ble ITAT was correct in holding that the assessee had not contravened the provisions of section 13 (1) (c) and 13 (3) of the I.T. Act, 1961 even though it was conclusively proved by the A.O. that the loan was given without interest to the person referred to in section 13(3), which is in contravention to the provisions of section 13(2)(a) of the I.T. Act, 1961." 2. The brief facts of the case are that the assessee is a society registered under the Societies Registration Act, U.P. w.e.f. 18.12.1990 and is running an educational institution. The assessee is also registered under Section 12-A of the Income-tax Act, w.e.f. 01.04.1994. Durin....
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....er, neither principal amount nor interest on the loan given to Sri Virendra Singh was reflected in the balance sheet and in this regard, the relevant coloumns of Annexure to Form 10B filed along with the return of income, were silent. He also submits that a resolution was passed by the assessee but it was silent regarding repayment of principal amount. When no schedule for the repayment of the principal amount has been decided in the resolution, how could the charging of interest be decided. He further submits that the so-called resolution was only an afterthought and the Tribunal has wrongly relied upon it, while deciding the issue. Lastly, he justified the order and made a prayer to set aside the impugned order passed by the Tribunal. ....
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.... primarily on the ground that it had contravened the provision of section 13(2) and 13 (1) (c) of the Act. Sub-clause (ii) of section 1 (c) of the Act states that any part of income or property, which is applied directly or indirectly for the benefit of any person, referred to in section 13 (3), will form part of the income of the trust. According to him, against the loan, a security in the form of surety was given. 5. We have heard both the parties at length and gone through the material available on record. From the record, it appears that the assessee is a society registered under the Societies Registration Act, w.e.f. 18.12.1990 with the Registrar of the Societies and Sri Virendra Singh is the Treasurer of the society. The assesse....
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....):- "(a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both;" Section 13(3):- (3) The persons referred to in clause (c) of sub-section (1) of sub-section (2) are the following namely :- (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, [that is to say, any person whose total contribution up to the end of the relevant previous year exceeds [fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a membe....
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....he A.O. has rightly denied the exemption to the assessee under Section 11 of the I.T. Act. 8. It may be mentioned that clause (c) of section 13(1) renders the entire income of trust or charitable institution liable to tax even if only part of income is directed to be applied for the benefit of the specified persons. The Legislature, however, also creates a fiction and enumerates in clauses (a) to (h) of sub-section (2) a list of circumstances in which the income shall be deemed to have been used or applied for the benefit of the specified persons. These clauses comprehend various types of benefits such as by way of interest free loans, loans without security, permission or licence to use land or other property without charging adequate r....