TaxTMI 
TaxTMI 
2016 (4) TMI 512
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....13.07.2009 admitting income of `18,25,220/- before claiming exemption u/s.11 of the Act. The AO while completing the assessment u/s.143(3) of the Act on 31.12.2010, observed that the assessee invested Rs. 30,00,000/- in the shares of M/s.Jagannath Financial Services Ltd., in violation of provisions of the section 13(1)(d) r.w.s. 11(5) of the Act. The AO also noted that the assessee has failed to receive the referral charges chargeable from M/s.Jagannath Financial services Ltd., a violation u/s.13(1)(c) of the Act. Hence, the AO rejected the assessee's claim of exemption u/s.11 of the Act and brought the excess of income over expenses to tax as per the regular provisions of the Act. While doing so, the AO also disallowed the assessee's claim of provision for doubtful debts, 80% of the administrative expenses and also added interest on unaccounted loans disbursed. On appeal, the CIT(A) observed that the requirement of investments in the specified modes u/s.11(5) of the Act is only with respect to the unspent portion of 85% in the Trust's income. As far as the other portion of 15% of the trust's income is concerned, as an absolute and unfettered exemption of accumulated income guarant....
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....on u/s.13(1)(d) r.w.s. 11(5) of the Act for the purpose of denying exemption of income u/s. 11 of the Act. Therefore the Assessing Officer is not justified in denying exemption of income u/s. 11 of the Act to the assessee on this account. 4. Regarding violation of Sec.13(1)(c) of the Act, CIT(A) observed that on the basis of blank signed pronotes and the application forms, the assessee claimed that no loans were advanced to the said groups due to paucity of funds. Hence the same cannot be considered as loans actually disbursed. On the other hand, since the amounts reflected in the MIS in the said names are the previous loans availed by the said groups and were properly accounted in the books of the assessee, the said amounts of MIS data base cannot be treated as the loans advanced on account of the blank pronotes/ application forms. These are two separate and independent transactions. In any case, since the advances mentioned in the MIS data base are already reflected in the regular books of the assessee, if the Assessing Officer feels that the loans (based on the blank promotes/ application forms) are actually disbursed as contained in the MIS data base, the said disbursement s....
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....d the difference of `18,059/- (i.e. `2,55,666-`2,37,607) as short collection of referral fee from JFSL amounting to violation u/s. 13(1)(c) of the Act. The CIT(A) observed that the above observation of the Assessing Officer is not correct. The referral fee is being collected by the assessee from JFSL, as the latter is using the assessee's facilities in terms of premises and manpower. The referral fee is to be collected on the average loans outstanding and not on the amounts outstanding in the last month. The average loans outstanding means the sum of loans outstanding at the end of each month divided by twelve. The assessee calculated the referral fee @ 0.25% on the average loans outstanding at the end of each month. Hence there is no short collection of referral fee by the assessee from JFSL in order to attract the violations u/s. 13(1)(c) of the Act. Hence, the Assessing Officer is not justified incoming to the conclusion that the assessee committed violations u/ s. 11(5) and also u/s. 13(1)(c) of the Act. Therefore, the assessee is eligible for exemption of income u/s. 11 and the CIT(A) directed the Assessing Officer to allow the benefit of exemption to the assessee u/s. 11 of t....
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.... 11 of the Act. Being so, the CIT(A) is not justified in granting sec.11 of the Act. Further, he also recorded that there is a violation of provisions of the section 13(1)(c) of the Act due to unaccounted disbursement of loan by assessee and also on account of payment of referral charge. On this also, assessee is not entitled for exemption u/s.11 of the Act. Following judgments support Revenue case. 1. ITO V. KAS Foundation reported in (2012) 23 taxmann.com 292(Chennai). 2. The Mundakapadam Mandiams Society Vs. CIT (2002) 178 CTR (Ker) 79. 3. George Educational Medical & Charitable Society Vs. CIT reported in [2012] 20 taxamann. Com 638(Ker.) 4. Sharada Trust Vs. CIT (1980) 16 CTR (P&H) 36. 5. In the case of M/s.KAS Foundation in ITA No.1892 & 1893/Mds./2010 vide order dated 19th May, 2012. Ld.A.R relied on the judgement of jurisdictional High Court in the case of CIT v. Working Women's Forum reported in [2014] 365 ITR 353 (Mad) wherein held that only that portion of income which is violation of section 13(1)(d) ordered for exemption u/s.11 of the Act and not the total denial of sec.11 of the Act. 9. However, we come across the jud....
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.... estab-lished before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of June, 1970" ; 5. As per sec. 13, the benefit of exemption from income tax is not available if any part of their income or property enures or is, during the previous year, applied, ....