TaxTMI 
TaxTMI 
2016 (7) TMI 455
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.... proceedings dated 10.12.2010 has withdrawn the approval granted u/s 10(23C)(vi) of the Act. Thereafter, the case has been selected for scrutiny. During the course of assessment proceedings, the assessee has put up alternate claim of exemption u/s 11 of the Act, as assessee is not eligible for exemption u/s 10(23C) of the Act. During the course of assessment proceedings, the A.O. after considering the plea of the assessee held that the assessee is not eligible for exemption u/s 11 of the Act, as it cannot claim exemption u/s 11 of the Act as an alternate remedy when exemption provided u/s 10(23C)(vi) of the Act is rejected. The A.O. further held that exemption granted u/s 10(23C)(vi) of the Act is withdrawn for the reason that the assessee society is solely existed for profit motive and also the society has diverted its funds to other societies or group concerns having controlling interest by the Managing committee of the society. The A.O. further held that assessee derived income in the form of rent by providing its hostel to petroleum university students and also deriving rental income by providing its terrace to telecom operators for installation of telecom towers. It was furthe....
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....sment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee contended that the A.O. was erred in not considering the claim of exemption u/s 11 of the Act, though assessee has valid registration u/s 12A of the Act. The assessee further contended that as long as any provision of the Act is in existence, it is continues to be in force. A person is entitled to claim exemption or deduction alternatively under general provisions according to the circumstances of the case. To support his arguments relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs. Bar Council of Maharashtra (1981) 130 ITR 28 and also the decision of Hon'ble High Court of Karnataka in the case of CIT Vs. Saraswat Poor Students Funds (1984) 150 ITR 143 and submitted that when assessee is registered under the Provisions of section 10(23C)(vi) and section 12A of the Act, the assessee can claim benefit of exemption under any of the provisions of the Act. Similarly, as regards the disallowance of expenditure u/s 40(a)(ia) of the Act is concerned, the assessee submitted that the society is solely existed for education purpose and hence, the income of the society is eligi....
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....elecom companies and is maintaining hostels on commercial lines for the purpose of accommodating other college students which shows that the society properties are being used on commercial lines. These activities clearly shows that the assessee society is running totally on commercial lines and its claim that its activities are of charitable nature is without any merits. With these observations upheld the action of A.O. in rejecting the exemption u/s 11 of the Act. As regards the disallowance of advertisement expenditure and interest paid on loans under the provisions of section 40(a)(ia) of the Act, the CIT(A) held that the income of the society has to be computed under the head 'income from business or profession'. The CIT(A) further held that once the assessee is ineligible for claiming exemption u/s 11 of the Act, then automatically its activities are coming under the normal business provisions. Therefore, the A.O. was right in disallowing the expenditure u/s 40(a)(ia) of the Act for non-compliance of TDS provisions. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 6. The Ld. A.R. for the assessee submitted that the Ld. CIT(A) was erred in holding that the....
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....ion for the current year under consideration. The A.R. further argued that the A.O. was not correct in holding that the assessee has violated the provisions of section 13(1)(d) of the Act, diverting the funds to its sister concerns, as the assessee has utilized 85% of gross receipts from the property held under trust and the loan is given out of 15% surplus which can be utilized in accordance with the objects. Even assuming for a moment that the assessee has given loans to sister concerns, the loans have been given out of the 15% surplus available with the assessee, therefore, the A.O. was totally incorrect in holding that the assessee has violated the provisions of section 13(1)(d) of the Act. As regards the CIT observations with regard to the advance given to Shri P.V. Krishnam Raju and P. Janardhan Raju, the society has given advances to these individuals for the purpose of land, that too in the earlier period. Therefore, the A.O. was incorrect in holding that the assessee has diverted the funds to the persons specified u/s 13(1)(d) of the Act. The A.R. further argued that the CIT(A) observed that the assessee society is maintaining two vehicles for which log books were not main....
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....that the assessee is existed for profit motive and also the activities of the assessee are not genuine. The A.O. further was of the opinion that the activities carried out by the assessee are not in accordance with main objects of the society. The society is existed for imparting education, however involved in the activities of letting out its properties and also running hostels on commercial lines. Therefore, was of the opinion that the society is not eligible for exemption u/s 11 of the Act. It is the contention of the assessee that it has advanced loans to other societies having similar objects and charged interest on such loans. The assessee further contended that advancing loans to other societies having similar objects and also registered under the provisions of section 12A of the Act is not a violation as referred under the provisions of section 13(1)(d) of the Act. 10. The A.O. denied the benefit of exemption for the sole reason that the assessee society has diverted its funds to other societies and violated the provisions of section 13(1)(d) of the Act. According to the A.O., advancement of loans to other societies whether or not registered under the provisions of secti....
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....ile withdrawing the exemption granted u/s 10(23C)(vi) of the Act. We further observed that the A.O. has not made out any specific observations with regard to the genuineness of the activities of the society for the period under consideration. The assessment of any trust/society claiming exemption under sec. 11 is to be examined in each year, so as to come to the conclusion that the entity has committed any violations referred to in any of the provisions of sec. 13 of the Act to deny the exemption. Therefore, we are of the opinion that without pointing out any specific violations referred to in section 13 of the Act, the A.O. was not correct in holding that the assessee objects are not charitable in nature and the activity carried out by the assessee are not in accordance with main objects of the society. In our considered opinion, the A.O. cannot borrow the findings of the Chief Commissioner of Income Tax in the order cancelling the registration u/s 10(23C) of the Act to deny the benefit of exemption u/s 11 of the Act, unless he had specifically points out the activities carried out by the assessee are not in accordance with the objects of the trust. As far as the observation of A.....
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....stitute an investment the amount laid down should be capable of and result in any income, return or profit to the investor and in every case of investment the intention and positive act on the part of the investor should be to earn such income, returns, profit. In order to constitute an investment the monies shall be laid out in such a manner as to acquire some species of property which would bring in an income to the investor. Loan, on the other hand, is granting temporary use of money, or temporary accommodation. The words "investment" "deposit" and "loan" are certainly different. The word 'deposit' does not cover transaction of loan which can be more appropriately described as direct bailment. The essence of deposit is that there must be a liability to return it to the party by whom or on whose behalf has been made on fulfilment of certain conditions. In the commercial sense the term is used to indicate the aforesaid transaction as deposit of money for employment in business, deposits for value to initiate security for, deposit of title deeds, similar documents as security for loan, deposit of money bills in a bank in the ordinary course of business of current account an....
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....der the head income from other sources. The disallowance of expenditure u/s 40(a)(ia) for non-deduction of TDS is not applicable, when income is computed under the head income from other sources. 17. The A.O. computed income under normal provisions of profits & gains of business or profession. The A.O. gave his own reasons for not applying the provisions of section 11 of the Act. On perusal of the reasons given by the A.O. for denying the exemption, we noticed that A.O. has denied the benefit of exemption for the reason that the activities of the assessee are not in accordance with the objects of the society. The A.O. further observed that the society has diverted its funds to other societies in violation of the provisions of section 13(1)(d) of the Act. But, in the preceding paragraph, we hold that the assessee is solely existed for charitable purpose and income of the assessee is eligible for exemption u/s 11 of the Act. Having said that let us examine whether the provisions of section 40(a)(ia) of the Act are applicable when income is computed u/s 11, 12 & 13 of the Act. Chapter III deals with income, which do not form part of total income. Section 11, 12 & 13 deals with inco....
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.... of the Act are not applicable when income is computed under the provisions of section 11 of the Act. The relevant portion of the order is reproduced hereunder: "Section 40 is applicable only when deductions under Sections 30 to 38 are being made in computing the income chargeable under the head "profits and gains of business or profession" under section 28. The exception in Section 40 is carved out, only for the purpose of Section 28 and not for computing the exemption of income of a charitable trust under Section 11. The disallowance made under Section 40(a) will only go to enhance the business profit of an assessee whose income is assessable under section 28 and not otherwise. Hence, provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11." 19. The assessee relied upon the decision of ITAT, Visakhapatnam bench in the case of ITO Vs. Mother Teresa Educational Society (2016) 158 ITD 473. The coordinate bench of this Tribunal, under similar circumstances held that when the income is computed under the provisions of section 11 of the Act, disallowance u/s 40(a)(ia) of the Act is n....