TaxTMI 
TaxTMI 
2012 (8) TMI 728
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....ion 11(2) of the Income-tax Act, 1961 is not restricted under the provisions of section 11(5) of the Income-tax Act, 1961. 3.That the Authorities below have also failed to consider and appreciate that the loans given by the Appellant Trust are not covered by the scope of investment and/or deposits, hence the invocation of provisions of section 13(1)(d) of the Income-tax Act, 1961 is unwarranted and unsustainable in law. 4.That the order of the Ld. CIT (A)-II Kanpur to the extent indicated in the above grounds of appeal is insupportable in law and on facts and is also contrary to the principles of natural justice and equity. 5.That any other relief or reliefs as may be deemed fit on the facts and circumstances of the case be granted." 3. From the above grounds, it would be clear that the only grievance of the assessee relates to the exemption under section 11 denied by the AO by invoking the provisions of section 13(1)(d) of the Income-tax Act,1961. The said action of the AO has been confirmed by the ld. CIT(A). 4. The facts of the case, in brief, are that the assessee is registered under section 12A of the I.T.Act and is running an education institu....
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....Rs. 1,16,19,274. (3)That in the year 2002-03, Shri Ram Lakhan Bhatt, started another society under the name and style of Ram Lakhan Shiksh Samiti for starting a Degree College in South, Kanpur. To provide Financial support for acquisition of Land and Building for Degree College, the assessee society provided short term fund to the said society out of its free reserves i.e. out of savings and above threshold limit of 75-85 per cent for minimum expenditure required to be spent out of current income in each year. The said society purchased land for raising a Degree College Building and has already been submitted its Building Plan to Kanpur Development Authority which is still pending. The said land was wholly and exclusively purchased for raising Degree College Building for the poor and deserving students in the area of South, Kanpur. (4)That the amount given to M/s. Ram Lakhan Siksha Samiti is thus not out of 75-85 per cent minimum expenditure or any other set apart fund within the meaning of section 11(2) of the Income-tax Act, 1961. Your goodselt will also kindly appreciate that the funds given to M/s. Ram Lakhan Siksha Samiti are wholly and exclusively f....
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....Expenditure from Financial years 1996-97 to 2002-03, which the AO had reproduced vide para 4.3 of the assessment order dated 20-12-2008, for the cost of repetition, the same is not reproduced herein. The AO held that the assessee was not entitled for claim of deduction under sections 11 and 12 in view of the exclusion provided by section 13(1) of the I.T. Act by observing as under : "4.4 Further it has been noticed that the loans were given to Ram Lakhan Shiksha Samiti in F.Y. 2002-03 and during F.Y. 2002-03 the donee society was not registered under section 12AA of the Act. M/s. Ram Lakhan Shiksha Samiti was granted registration under section 12AA on 25-5-2005 with effect from 1-4-2004 by the Ld. CIT-1, Kanpur. Thus, the assessee society had given loan to M/s. Ram Lakhan Shiksha Samiti which was not registered under section 12A in the year of giving such loans. Further, the submissions made by the assessee that the loans were given out of general reserve created year after year upto 25 per cent of its income is incorrect on the basis of figures shown in table above which reflect only funds of Rs. 71,85,439 under the head General Reserve and funds of Rs. 6,08,552were surpl....
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....udeen v. Union of India [2000] 244 ITR 266 (Mad.). In this decision Hon'ble Madras High Court distinguished loan from deposit. "......... The mere presence of some of the attributes of the loan transaction in a deposit would not be sufficient to regard a loan as a deposit. They are two different transactions in the commercial word. ... " (b) Baidya Nath Plastic Industries ( P.) Ltd. v. K.L. Anand, Income-tax Officer [1998] 230 ITR 522 (Delhi). In this decision the Hon'ble Delhi High Court laid down the difference between a deposit and a loan. " ... The distinction between a loan and a deposit is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement and in the case of the latter it is generally the duty of the depositor to go to the Banker or to the depositee, as the case may be, and make a demand for it. While articles 19 and 21 of the Limitation Act fix the period within which a suit for recovery of a loan can be filed, article 22 deals with the period of limitation for suits for money on account of deposit ... " (c) CIT v. Motilal Subhash Kumar J....
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....be in ......the specified form or modes. In case of failure to adhere the either of the conditions, the exemption under section 11 will not be available. In the instant case, the appellant's A.R. has himself admitted that giving loan is not the same thing as "invested" or "deposited". Therefore, by giving loan there has been a clear violation of the provisions in-limine. Further, even assuming that giving "loan" is a form of deposit or investment, even then, the 2nd condition which is "such deposit/investment has to be in specified assets" has not been met in this case. There is no difference in the wording of section 13(1)(d)( i) and section 11(2) of the Act in this regard. 4.3 The cases cited by the ld. A. R. are in different context and, therefore, not applicable to the facts of the impugned case." Now the assessee is in appeal. 7. The ld. Counsel for the assessee submitted that the assessee is a registered charitable society since 1977 and was also registered under section 12A (now section 12AA) of the Income-tax Act, 1961 continuously with effect from 1-4-1996 by the CIT, Kanpur. It was further stated that the society is running three educational institution....
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.... further submitted that the source of loan given by the assessee to Ram Lakhan Shiksha Samiti was from the funds included in accumulated funds proposed to be utilized for the purposes of section 11(5) of the Act. Therefore, the funds which were set aside for the purposes as per section 11(2) could only be utilized in the manner provided in section 11(5) of the Act. Reliance was placed on the judgment of the Hon'ble Calcutta High Court In the case of DIT ( Exemption) v. Trustees of Singhania Charitable Trust [1993] 199 ITR 819. It was further submitted that at the relevant time, no registration under section 12AA of the I.T. Act was available to the recipient society in the financial year in which the loan was given to it, hence the cases relied upon by the assessee have no relevance as regards to the facts of the present case. It was further stated that the fact of repayment in subsequent year was not relevant because firstly, it was an event which happened after the close of the relevant financial year and secondly, the violation of condition laid down in section 11(2) of the I.T. Act was there. 9. The ld. Counsel for the assessee, in his rejoinder, submitted that the asses....
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..../3/2000 filed along with the Return of income of AY 2000-2001 before the Ld. A.O. are again enclosed for your honour's ready reference, marked as Annexure 3. The depreciation amounting to Rs. 8,69,002.50, if added to the total expenditure for the A.Y. 2000-2001, as shown in the table given by the Ld. A.O. in para 4.3 of the Asstt. Order, shall increase the total expenditure to Rs. 6471126.50 (5602124.00+869002.50) which shall exceed 75 per cent of total Income for the year hence there would not have been any need to accumulate or set apart any unspent income for that year in accordance with the provisions of section 11(2) of the Income-tax Act, 1961. 4.6 Without prejudice to the aforesaid submissions and presuming without admitting that depreciation is not admissible as an expenditure, then also no amount was required to be accumulated in accordance with the provision of section 11(2) of the Income-tax Act 1961. From the table given by Ld. A.O., in para 4.3 of the Asstt. Order, it may be evident that in AY 1999-2000 there existed a deficit of Rs. 8,10,120.00 even without reducing the aforesaid depreciation amounting to Rs. 6,66,071.60 for the A.Y. 199....
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....t in the case of A.L.M. Rao Charitable Trust (supra) has held that the purpose of section 11(2) was not to restrict the scope of exemption under section 11(1)(a) of the Act. The observations made by the Hon'ble Supreme Court in this connection have been mentioned earlier. In view of this decision, the claim of the assessee deserves to be allowed. We also find that the Hon'ble Supreme Court in the case of S. RM. M. CT. M. Tiruppani Trust v. CIT [1998] 230 ITR 636 , has considered similar issue. In that case, the Hon'ble Supreme Court held that accumulation beyond 25 per cent of the receipts could be done and the procedure laid down in section 11(2) will apply to such accumulation. But, the accumulation of income of less than 25 per cent could be done without following the procedure laid down in section 11(2) of the Act. In the instant case, the assessing officer has not allowed even the exemption of 25 per cent which was accumulated by the assessee. In this case also, the Hon'ble Supreme Court reiterated that section 11(2) does not in any manner restrict the operation of section 11(1). The accumulated income which is exempt under section 11(1)(a) need not be invested....
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....n of section 13(1)(d) of the Act and the amount as given to Mahila Haat would constitute applications of the income....." Reliance is also placed on the order of Hon'ble ITAT, Delhi in the case of Indian National Theatre Trust v. ITO [1985] 13 ITD 588. The Hon'ble ITAT held :- "....There is another aspect we would like to touch upon here as it is very relevant, i.e. the loan advanced to Shri Ram Centre for Art and Culture. On a careful examination of the objects of the assessee-trust as well as Shri Ram Centre for Art and Culture, we found that the objects are similar if not in identical terms. Both of them stand and are established for the promotion of music, dance and drama and spread of education relating to music, dance and drama. The dissemination of information relating to the promotion of these art cannot but be achieved by providing for libraries and reading rooms. The provision of library or a reading room and stocking the library with books on these subjects and reading rooms with the magazines concerning these subjects cannot be said to be an object different from the main object. This is one of the means, if no more perfected and better means, to achiev....
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....d may have been considered for taxability as per law in FY 2002-2003 4.12 In view of above submissions and on the facts and circumstances of the case the first issue raised by the Ld. DR is in-fructuous and non-existent and therefore liable to be dismissed." 9.1 As regards to the objection of the ld. D.R. that the recipient was not registered under section 12AA of the Act at the relevant time, the ld. Counsel for the assessee in his rejoinder vide written submissions, placed at pages 11 to 15 of the assessee's Compilation has stated as under : "5.1 It is not in dispute that donee society Ramlakhan Shiksha Samiti is a charitable society is engaged in 'education'. Education is per se a charitable purpose as defined in section 2(15) of the Income-tax Act, 1961. 5.2 The Ld. CIT-I, Kanpur after making due enquiries and examining the Balance Sheet as on 31/3/2003 of Ram Lakhan Shiksha Samiti granted registration under section 12A w.e.f. 1/4/2004 on 25/5/2005. This proves that the Ram Lakhan Shiksha Samiti is a charitable society pursuing its objects for which it was established. 5.3 In view of aforesaid facts, the issue raised by the Ld.....
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....e society having similar objects. 8. Without prejudice to all submissions here in above, your humble appellant submits that after finding that the appellant has violated the provisions of section 13(1)(d ) of the Income-tax Act, 1961 the Ld. AO could not have taxed the entire income on Maximum Marginal Rate in any case in the AY 2006-07. Interest free temporary Loan was given by the appellant to Ram Lakhan Shiksha Samiti and no interest was received in the impugned assessment year. Reliance is placed on the judgment of Hon'ble Bombay High Court in the case of Director of Income-tax ( Exemptions) v. Sheth Mafatlal Gaglbhai Foundation Trust [2001] 249 ITR 533. The Hon'ble Court considered the issue - "Whether violation of section 11(5), read with section 13(1)( d) by the assessee-trust attracts Maximum Marginal Rate of tax on entire income of trust?" The Hon'ble Bombay High Court held : "......section 164 does not create a charge on the income of a discretionary trust. The word 'charge' in section 164 means 'levy' section 164(2) refers to the relevant income which is derived from property held under trust wholly for charitable or religious purpose....
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....he relevant income at the maximum marginal rate. The phrase relevant income or part of the relevant income' is required to be read in contradistinction to the phrase 'whole income' under section 161(1A). This is only by way of comparison. Under section 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the Legislature has clearly indicated its mind in the proviso to section 164(2) when it categorically, refers to forfeiture of exemption for breach of section 13(1)(c), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax. This interpretation of ours is also supported by Circular No. 387, dated 6-7-1984. Vide the said circular, it has been laid down in Para 28.6 that where a trust contravenes section 13(1)(d), the max....
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....introduced sub-section (5) which prescribes the forms and modes of investing and depositing moneys accumulated by the trust which are referred to in clause (b) of sub-section (2). Now, the requirement of investment of accumulated funds in specified securities, which has been introduced in the form of sub-section (5), is likely to create difficulties for old trusts which have been granted exemption under section 11 [as it stood before the introduction of sub-section (5)], but which are not in a position to invest in specified securities, its accumulated funds for some reason or the other. In the instant case it is a known fact that during the relevant previous year it was not possible to dispose of the shares in question, as there was hardly any buyer. Now, the income of the trust, which is receivable by the trustees, is called relevant income under section 164(1) of the Act. A portion of such relevant income in the present case would suffer tax mainly because the condition of investment in specified securities as prescribed under section 11(5) has not been fulfilled. But, non-fulfilment of such condition cannot be said to deprive the trust of the exemption of its other income which....
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....t for assessment year 2008-09 vide order dated 24-12-2010 in para 4.1 clearly observed that " the loan given to M/s. Ram Lakhan Shiksha Samiti has been repaid during financial year 2008-2009 and M/s. Ram Lakhan Shiksha Samiti is also engaged in charitable activities of education, copy of byelaws and registration certificate under section 12A has also been filed." In the instant case, the provisions of section 13(1)(d) read with section 11(5) of the I.T. Act have been invoked by the AO while denying the benefit of exemption under sections 11 and 12 of the I.T. Act. On a similar issue, the Hon'ble Delhi High Court in the case of Acme Eductional Society (supra), has held as under : "that the interest-free loan of Rs. 90,50,000 given by the assessee-society to the other society did not violate section 13(1)(d) read with section 11(5) of Act, 1961 as the loan was neither an "investment" nor a "deposit". Moreover, both societies had similar objects and were registered under section 12A of the Act and had approvals under section 80G. The fact that the loan was interest-free and had been subsequently returned was also significant." 10.1 The ratio laid down in the aforesaid ....
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....in para 3 of the assessment order has mentioned that, "Since the surplus of income over expenditure is less than 15 per cent of its gross receipts, then the income of the assessee works out to Nil in case the computation is made under sections 11 and 12 of I.T. Act", which clearly shows that the said loan was not out of the surplus of the year under consideration or accumulated surplus funds which is evident from the observations of the AO at page 2 of the assessment order dated 20-12-2008 for assessment year under consideration i.e., 2006-07, wherein it has been mentioned that total receipts of the assessee were at Rs. 1,55,49,885 and the total expenditure incurred by the assessee was at Rs. 1,34,38,260, as such excess of income over expenditure was at Rs. 21,11,624, which was less than 15 per cent of the gross receipts i.e., Rs. 23,32,483. Therefore, it cannot be said that the loan given by the assessee was out of the surplus. Moreover, the loan was not in the period relevant to the assessment year under consideration, rather it was given way back in between 20th February to 24th February, 2003 i.e., in the period relevant to the assessment year 2003-04. Furthermore, the provisio....