TaxTMI 
TaxTMI 
2019 (1) TMI 266
X X X X Extracts X X X X
X X X X Extracts X X X X
....61 (hereinafter called as 'Act'). The assessee is carrying on educational activity and running technical and degree colleges affiliated to JNTU and Andhra University. For the A.Y. 2004-05, the assessee filed the return of income on 01.11.2004 admitting total income of Rs. 95,81,560/- and claimed the exemption of the entire income u/s 10(23C) of the Act. The said assessment was taken up for scrutiny and after examining the books of accounts and the details furnished by the assessee, the assessment was completed u/s 143(3) accepting the income returned. However, the Assessing Officer (AO) denied the exemption claimed u/s 10(23C) of the Act, since the approval u/s 10(23C) was not received by the assessee from the CCIT before completion of assessment. Subsequently, on receipt of approval from the prescribed authority, the AO passed the modification order u/s 154, granting exemption u/s 10(23C) of the Act. The assessments were completed u/s 143(3) for the A.Ys. 2006-07 and 2007-08 and the AO granted exemption u/s 10(23C) of the Act. For the remaining assessment years, the assessments were completed accepting the income returned u/s 143(1) after processing the returns. Subsequently, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly rejected the contention of the assessee for grating exemption u/s 10(23C)(vi) of the Act. 2.3. The Ld.CCIT further observed from the Balance Sheet of the assessee that it had advanced a sum of Rs. 6 lakhs to Sri P.V.Krishnam Raju who happens to be the Joint Secretary of the Society. On an enquiry, the assessee submitted that the Society has not given any advance and the transaction was entered in the normal course of society activities. Since the Balance Sheet shows that the amounts were advanced to Sri P.V.Krishnam Raju, the Ld.CCIT did not believe the assessee's contention and taken adverse inference for violation of section 12(23C) of the Act. The Ld.CCIT also observed from the Balance Sheet that the assessee advanced the amounts to various institutions / individuals and are outstanding as follows: Name of the Society / Individual Amount Outstanding as on 31.03.2009 (Rs.) GSL Educational Society 10,00,000 Koundinya Educational Society 87,62,299 Manikanta Educational Society 6,81,391 Mother Theressa Educational Society 1,52,12,564 P.Jaganadha Raju 3,50,000 Sri Chaitanya Educational Society 1,93,78,979 2.4. The Ld.CCIT observed that the promoters and the man....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s for the personal benefit of authors, promoters of the society and accordingly rejected the exemption claimed by the assessee u/s 11 of the Act. The AO discussed the violations of section13(1)(c), 13(2)(a), 13(2)(g), 13(2)(d) and 13(2)(h) in detail in para No.3.3 to 3.4 of the assessment order which is reproduced as under : "3.3. During the year, it is observed that the assessee, while continuing the loans standing in the names of M/s Priyadarshini Enterprises, Sri M.Padmanabham, Sri A.S.R.Balasubruhmanyam, M/s Chaitanya Engineering College, Godavari Degree College and M/s Systronics, it obtained fresh loans from M/s Kaundinya Educational Society at Rs. 25,70,000 which was routed through bank account, The assessee did not pay any interest to the said educational society wherefrom the loans were obtained. In Koundnya Educational Society, M/s Chaitanya Engnneering College and in M/s Godavari Degree College, the author of the society is having substantial interest. Similarly, the assessee has advanced amounts to M/s Mother Therasa Educational Society, M/s Chaitanya Educational Society, GSL Educational Society, Chaitanya ITC, Chaitanya Junior College, Sri Ganni Krishna, Sri Bommana ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....founders' of the assessee society for the purpose of 13(3)(c) of the Act. The decision of ITAT-Calcutta bench in the case of ITO Vs. Chagunlal LaIji Valia Charitable Trust 32 TTJ is relied upon here to hold that where a loan has been given without adequate security by the assessee trust to a prohibited person enumerated in section 13(3) of the Act, the fact that loan was replaced after three months was of no consequence. According to section 13(2)(a) also, no part of income should be treated either without adequate security or without adequate interest or both. Section 13(1)(h) of the Act, however, provides that no society should continue to remain invested for any period during the previous year in connection with such interested persons have substantial interest, This analogy clearly applies in the assessee's case particularly with reference to its keeping the funds with the sister concerns and other ex-members without any interest and security. (c) The authorized representative explained that it is the consistency of the assessee that interest is not being paid on amounts advanced nor interest charged on amounts taken. The common purpose of all these societies is imparting ed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the disallowances made in the assessment. After considering the submissions of the assessee, remand report and the rejoinder submitted by the assessee to the remand report, the Ld.CIT(A) upheld the validity of issue of notice u/s 147. 5.1. The CIT(A) with regard to alternate plea for exemption u/s 11 held that both the sections are not pari materia and operate independently. If the assessee is granted registration u/s 12A of the Act, the assessee would be entitled for exemption u/s 11 subject to satisfaction of the conditions under section 12A and 11. The Ld.CIT(A) further held that there is no restriction at least upto A.Y.2014-15 on any of these two provisions. The Ld.CIT(A) further held that the assessee would be entitled for exemption u/s 11 even when conditions u/s 10(23C) are not fulfilled. The Ld.CIT(A) further held that exemption u/s 11 is not automatic and it is subject to fulfillment of certain conditions mentioned in the provisions. Accordingly, the Ld.CIT(A) held that if there are no violations u/s 11 of the Act, even if the assessee denied exemption u/s 10(23C), still it would be eligible for exemption u/s 11 of the Act. 5.2. The Ld.CIT(A) also examined the merits o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....violations u/s 13(1)(c) whereas the specific violations / findings by the Department are as per the provisions of section 13(2)(a), 13(2)(g) and 13(2)(h) of the I.T.Act. 4. The Ld.CIT(Appeals) erred in accepting the assessee's submissions and concluding that the expenditure for maintaining luxury cars like BMW and Volks Wagen is for the purpose of charity. 5. The Ld.CIT(Appeals) erred in accepting the assessee's plea that the expenditure made on liquor and tobacco products and on other types of general entertainment can be construed as expenditure incurred in furtherance of the objectives of the Society as the same was recovered and credited back into the Society's account. 6. Any other ground(s) that may be urged at the time of hearing. 7. Ground Nos. 1 to 3 are common for all the appeals. Ground No 4 is related to the use of maintenance of luxury cars viz. BMW and Volkswagen and ground No.5 is related to the expenditure incurred on liquor and tobacco products. Though the revenue has raised the above ground No.4 and 5 for all the A.Ys., the above issues are not involved for the A.Ys 2004- 05 to 2007-08. The revenue did not place any material before us to sho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d person. The AO relied on the decision of Director of Income Tax Vs. Bharat Diamond Bourse [259 ITR 280 (SC)] and held that where the same person is a trustee for two different trusts, such trustee becomes an interested person, merely because of the definition of interested person. The AO further observed that Shri Ganni Krishna, Shri Vaddi Beerabhadra Rao, Shri Bommana Rajkumar were founder members of the society and the assessee society have provided the funds to it's sister concerns and the above individuals without any specific purpose, adequate security and without charging any interest therefrom. Therefore, held that the persons who subscribed to the MoA of the assessee society could be described as 'founders' of such society for the purpose of section 13(3) of the Act. Accordingly AO held that the assessee had violated the provisions of section 13(2)(a), 13(1)(d) r.w.s.11(5) of the Act and there is no application of section 11 of the Act for the income derived by the society. On appeal the Ld. CIT(A) observed that there are no violations of section 13(1)(c),13(2)(a), 13(2)(g), 13(2)(d) and 13(2)(h) of the Act in advances given to the institutions, individuals since the adva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 11 is not to be applied. 11.1. In the instant case, as observed from the assessment order and the details furnished, the assessee has advanced sums to other institutions which are having registration u/s 12A and carrying on the similar objects as under : Sl. No. Name of the society Purpose A.Y. (a) Mother Theresa Educational Society For construction of building and equipment for running hospital 2004-05 to 2010- 11 (b) Badarilakshmi Educational Society For initiation of its operation 2009-10 & 2010- 11 (c) GSL Educational Society Loan given without interest 2004-05 to 2009- 10 The above societies are registered u/s 12A of the Act and carrying on the similar objects of the society. 11.2. Similarly, the assessee made the payments for the specified purpose to the following enterprises : Name of the society Purpose A.Y. (a) M/s Priyadarshini Enterprises For purchase of computers 2004-05 to 2005-06 (b) M/s Systronics For purchase of laboratory Equipment 2004-05 to 2010-11 11.3. Apart from the above, assessee society made the advances to the following individuals for a specific purpose of the society: Sl. No. Name of the Indiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of Hon'ble Tribunal Mumbai in the case of Mahatma Gandhi Seva Mandir Vs. DDIT (Exem) 52 SOT 26. The decision of Karnataka High Court in the case of Shamnur Savitramma Kallappa Public Trust reported in 53 DTR 117 wherein it was held that when the objects permit to extend services to other charitable institutions and financial assistance is provided to such institutions carrying on the charitable activities exemption uls.11 cannot be denied. The Madras High Court in the case of M.C.T. Muthaiah Chettlar Family Trust reported in 245 ITR 400 wherein their lordships held that amount handed over to another trust having similar object would amount to application of its income. Respectfully following the above decisions and on the facts of the case, I am of the opinion that the amounts paid to the said society by the appellant is within the objects of the society and in fulfillment of it objects and the payee is not a person defined in Section 13(3) of the Act. Therefore, the provisions of Section 13(1)(c) of the Act has no application. 10.8) GSL Educational Society :- Regarding the payments made to GSL Educational Society, Chaitanaya ITC and Chaitanya Junior College are concerned, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....04 against the purchase of computers. The amount payable was paid in the financial year 2004-05. There is no violation of provisions of Section 13 in this transaction as the appellant purchased computers from the said concern and did not provide any benefit to any other members or persons mentioned in the Section 13(3) of the Act. I have perused the Balance Sheet as on 31.03.2004 and found that the said amount of Rs. 21,00,000/- is outstanding as on 31.03.2004 against the purchase of computers. It is also seen that the repayment was made during the financial year 2004-05. Therefore, no benefit appears to have conferred to any of the persons mentioned u/s.13(3) of the Act. Further, I have noticed that the appellant had no relation with M/s. Priyadarshini Enterprises and the finding of the Assessing Officer that the payment was made without specific purpose is not correct. Accordingly, no violation is found in this case. 11.2) Sri M. Padmanabham :- The Assessing Officer, in the assessment order, has held that the appellant is continuing the loans standing in the name of Sri M. Padmnabham without interest and author of the society is having substantial interest in other institut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith objects of providing education. There is no violation of any of the provisions of Section 13 of the Act in the said transaction. I have perused the account copy and the records as well, I found that the said institution is also a society with similar objects of providing education. The Hon'ble jurisdictional ITAT, Visakhapatnam in appellant's own case for the Asst. Year 2008-09 held that there is no violation in advancing loans to the institutions having similar objects. My decision in the cases of M/s. Priyadarshini Enterprises and Mother Theressa Educational Society holds good. Respectfully following the decisions mentioned in those Instances, I find no violation in this case also. 11.5) Godavari Degree College :- The Assessing Officer, in the assessment order, has held that the appellant is continuing the Loans standing in the name of Godavari Degree College without interest and author of the society is having substantial interest in otter institutions. Thus, the Assessing Officer held that the Loans are in violation of Section 13(3) of the Act. The AR of the appellant held that the appellant has received an amount of Rs. 85,848/-. This institution is run by the appel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case of Sri Ganni Krishna, the amount of Rs. 9,05,000/- remained as a closing balance as on 31.03.2004. In fact, this amount was paid to him on 12.06.2001 for the purpose of construction of college building, In the case of Sri Bommana Rajakumar, the amount was paid as an advance for purchase of property meant for educational institution. Since the deal was not materialized due to the acquisition of property by the Government, the amount is remained in the books of the appellant as advance, in all the three cases, I find that the amounts were paid with specific purpose, it is explained by the AR of the appellant that at the time of making payments to other persons, the founder member, Sri KV.V. Satyanarayana Raju has given an undertaking to the society that he would make the repayment in case of necessity out of his credit balance of Rs. 21 Lakhs lying in his account as on 31.03.2002. Such a guarantee to indemnify any loss to the appellant is to be considered as adequate security. Therefore, the finding of the Assessing Officer that there is no adequate security is contrary to the facts of the case. In view of the matter, I am not in agreement with the Assessing Officer that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A.Y. Transaction made with the society 1. Mother Theresa Educational Society 2004-05 to 2010-11 For construction of building and procurement of equipment for running hospital attached to the medical college 2. Badarilakshmi Educational Society 2009-10 to 2010-11 For funding the establishment. 3. GSL Educational Society 2004-05 to 2009-10 Given loan to the society registered u/s 12A (b) Details of amounts lent to Enterprises S. No. Name of the Enterprise A.Y. Transaction made with the Enterprise 1. M/s Priyadarshini Enterprises 2004-05 to 200708 Assessee society has purchased computers from M/s Priyadarshini Enterprises. There is an outstanding balance of Rs. 21 lakhs as on 31.03.2004 which was repaid in the A.Y.2007-08. 2. M/s Systronics 2004-05 to 200708 Assessee society has purchased laboratory equipment from M/s Systronics. The amount remained payable. Repaid in A.Y.2008-09. (c) Details of amounts lent to Individuals S. No. Name of the Individual A.Y. Transaction made with the Individual 1. Ganni Krishna (Member Trustee) 2004-05 to 2007-08 and 2009-10 to 2010-11 Assessee society paid an amount of Rs. 9,05,000/- to Ganni Kri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tment could not make out a case that the advances were given to interested persons for their personal benefit. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A). 14. The assessee has borrowed the funds from the following persons: S. No. Name of the Individual A.Y. Transaction made with the Individual 1. Ganni Krishna (Member Trustee) 2004-05 to 2007-08 and 2009-10 to 2010-11 Assessee society paid an amount of Rs. 9,05,000/- to Ganni Krishna Rao towards construction of college building on dt.12.06.2011 2. VaddiVeerabadrarao 2004-05 to 2007-08 and 2009-10 to 2010-11 Assessee society made payment of Rs. 1,23,163/- which is an advance given towards expenditure to be incurred for repairs. 3. Bommana Raj Kumar (Member trustee) 2004-05 to 2007-08 and 201011 Assessee society paid an advance for purchase of property for educational purpose. Even though the transaction is not materialised, the amount remained as advance. The assessee repaid the above amounts completely to Shri Padmanabham in the A.Y. 2013-14. In the case of ASR Balasubrahmanyam, the amount was repaid in the A.Y. 2013-14 and Godavari Degree College, the amount was rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irectors, authors, trustees of various societies. The AO relied on the decision of Bharat diamond Bourse of Hon'ble Apex court and facts of the case are completely different and not applicable in the assessee's case. similarly the definition given in section 2(32) cannot be made applicable in assessee's case since the same is related to the company but not to the trusts. In the instant case, the assessee is not carrying on any commercial or business activity, but carrying on the activity of imparting education without any profit motive and except subscribing to the Trust deed and managing the institution, there is no personal interest or the personal gains of the individual members was established. In the instant case, original assessments were completed u/s 143(3) for the A.Y. 2004-05, 2006-07, 2007-08 and 2008-09. Not single instance of violation or diversions was brought on record by the AO. However, in the reassessment proceedings, the AO held that there are violations u/s 13(1)(c), 13(2), 13(g) and 13(h) of the Act on basis of the observations made by the CCIT without bringing any evidence. Therefore, we are unable to accept the contentions of the AO that there are violations ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he other observations of the Assessing Officer. The A.O. observed that the society's activities are not in accordance with the objects of the society. The society is existed for the purpose of imparting education, however, involved in the activity of let out of properties on commercial lines to telecom companies and also running hostels on commercial lines. The A.O. further observed that the assessee society is maintaining luxury cars like BMW and Volks Wagon, however failed to prove the purpose of maintaining luxury cars for the objects of the society. We do not see any merits in the findings of the A.O. for the reason that the A.O. has borrowed the findings of the Chief Commissioner of Income Tax, Visakhapatnam while 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Director of Income Tax (Exemption) Vs. Alarippu (2000) 244 ITR 358. The Hon'ble Delhi High Court, under similar circumstances held that advancing temporary loan to another similar society was neither an investment nor deposit. The relevant portion of the order is reproduced hereunder: The expressions used in both the provisions i.e. ss. 11(5) and 13(1)(d) are 'investment' and 'deposit'. Former expression means to lay out money in business with a view to obtain income on profit. Deposit, on the other hand, means that which is placed anywhere, as in any one hands for safe-keeping, something entrusted to the care of another. These two expressions have been used in cognate sense and have to be understood as such. In order to constitute 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he A.O. to allow the exemption u/s 11 of the Act. 16. On the similar issue, ITAT Delhi Bench in the case of Puranchand Dharmath Trust Vs. ITO, Wd-1, Gurgaon held that where the assessee Trust advanced money as a loan to another Trust for which the assessee had not received any interest and the said sum was returned by the Trust, the amount advanced not being investment could not be held to be in violation of section 13(1)(d), 11(5) of the Act. 17. Therefore, respectfully following the view taken by this Tribunal in the assessee's own case, and as per our findings, we hold that there are no violations and the revenue did not make out any case to substantiate the violations in respect of 13(1)(c), 13(2)(a), 13(2)(g) and 13(2)(h) of the Act. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeals of the revenue for the A.Y. 2004-05 to 2010-11 on this ground are dismissed. 18. Ground No.4 is related to the use of BMW and Volkswagen cars in the A.Y. 2009-10 and 2010-11. The AO held that owning of Luxury cars and non maintenance of log sheets would disentitle the assessee for exemption u/s 11 of the act. The Ld. CIT(A) dur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....incurred for liquor and cigarettes was recovered and credited to the account. Ultimately, no expenditure was claimed relating to liquor and cigarettes etc. Therefore, allowed the appeal of the assessee and held that there are no violations for granting of exemption u/s 11 of the Act. During the appeal hearing, the revenue could not controvert the finding of the Ld. CIT(A) with tangible material. Therefore, we uphold the order of the CIT(A) and dismiss the appeal of the revenue on this ground. In the result, appeals of the revenue 2004-05 to 2007-08 and A.Ys 2009-10 to 2010-11 are dismissed. 21. The assessee filed cross objections for the A.Y. 2004-05 and 2005-06 stating that no notice u/s 148 could be issued from the end of four years from the relevant assessment year as per the proviso to section 147 of the Act. As per the proviso to section 147 of the Act, no notice u/s 148 could be issued unless, there is failure on the part of the assessee that income chargeable to tax had escaped assessment. In this case, the assessee filed the return of income claiming exemption u/s 10(23C) of the Act and there was no claim made by the assessee u/s 11. Only on cancellation of the approval g....