AI Drafter 
TaxTMI 
TaxTMI 
2019 (4) TMI 99
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....x Act, 1961. ii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in not considering the provisions of section 13(1)(c) of the I.T. Act, 1961, according to which, any income of the trust directly or indirectly applied for the benefit of any person referred to in Section 13(3) of the Act shall not be excluded from the total income and provisions of Section 11 shall not apply to the same. iii. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing exemption under section 11 of the I.T. Act without considering the modus operandi of the assessee for diversion of funds beyond the scope of the objects of the assessee. iv. That the appellant craves to leave, add or amend the grounds of appeal on or before the appeal heard and disposed off. (4) Facts of the case in brief are that the assessee is registered under Societies Registration Act, 1860 and also registered u/s 12A of the Income Tax Act, 1961 (In short 'the Act') with the CIT(A)- 4, Ludhiana. The assessee filed the return of income on 26.09.2015 declaring 'Nil' income. Later on the case was selected for scrutiny. (5) ....
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.... (i) Nothing contained in section 11 [or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (d) In the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year (i) Any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) Any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983 It is a fact that assessee is providing unsecured loan to its sister concern without any interest or security, which is not reasonable & undue benefit for assessee's sister concern. So assessee claim of exemption is denied u/s 13(1)(c) and u/s 13(1)(d) of I.T. Act, 1961. There is case law regarding this where Hon'ble Madras High....
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....tion of income : 1. Where a trust incurs a debt for the purposes of the trust, whether the repayment of the debt would amount to an application of the income for the purposes of the trust; and 2. Whether loans advanced by an educational trust to students for higher studies would be treated as application of income for charitable purposes. 2. The Board has decided that repayment of the loan originally taken to fulfil one of the objects of the trust will amount to an application of the income for charitable and religious purposes. As regards the loans advanced for higher studies, if the only object of the trust is to give interest-bearing loans for higher studies, it will amount to carrying on of money-lending business. If, however, the object of the trust is advancement of education and granting of scholarship loans as only one of the activities carried on for the fulfilment of the objectives of the trust, granting of loans, even if interest-bearing, will amount to the application of income for charitable purposes. As and when the loan is returned to the trust, it will be treated as income of that year." Plain reading of this circular says that re....
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....llant - Ace Educational & Charitable Society is an Educational society registered u/s 12AA of the Income Tax Act, 1961. (refer Page No. 1 of paper book). They are running an Engineering Collegeand various other institutes since 2009-10.There main objects are to "To establish and promote establishments of or to render aid to school, college, educational institution, technical educational institution, training institution in one or all fields of engineering, research, medical, commerce, arts or any other system of education. " (refer MOA at Page No. 2 of paper book). The society is claiming exemption u/s 11 and assessed as such in the preceding assessment years. The activities of the society are educational and never being questioned in any assessment year. 2. That during the year AY 2015-16the society filed ITR-7 claiming exemption u/s 11 of the Income Tax Act, 1961. During the AY 2015-16 the society applied 90.45% of the income for the objects of the society u/s ll(l)(a) of the Act. A copy of ITR-7 alongwith computation of income is enclosed in paper book ( Page No. 5-6 ). 3. That during the assessment proceedings Ld. AO found a sum of Rs. 900000.00 was shown in t....
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....nd Singh Foundation, Sachdeva Educational Society, Vikas Educational Society and Davinder Kaur Memorial Educational Society in which there are some common member. All of these societies are having similar objectives and are registered u/s 12A of the Income Tax Act. Out of these five societies Shri Guru Gobind Singh Foundation, Vikas Educational Society and Sachdeva Educational Society was established in 2002-03 and have good financial position. During the period from AY 2010-11 to AY 2012-13Shri Guru Gobind Singh Foundation, Sachdeva Educational Society and Vikas Educational Societygave financial aid, in the shape of Corpus donations and Interest free loans to Ace Educational & Charitable Society and Davinder Kaur Educational Society to help them establish, and there by pursued their objective of education. Since all these societies are having similar objects and registered u/s 12A the financial aid given by one society to another including assessee society treated as application of income u/s 11(1) of the income tax Act.( Refer MO A of societies at Page No. 2 & 9 of paper book ). Almost all the members of Davinder Kaur Memorial Educational Society including commo....
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....iven by members of the societies and other societies having common members (termed as group societies). There is nothing in these transactions to show any violation u/s 13(1)( c) or 13(1)(d) rws 13(3). These transaction are financial aids from members to societies and societies to other societies to pursue the common objective of all the societies and member ie education. The investment in fixed assets as mentioned in the order pertain to the capital expenditure need to be done by these society to establish required infrastructural facilities viz college building, Furniture, Various lab Equipments & Machinery , Transportation and other facilities as per the norms of technical and affiliating bodies. Since these societies are charitable concerns and all their activities are for education (charitable nature u/s 2(15) of Income tax Act). Any kind of financial aid to these societies in the shape of corpus donation or Interest free loan cannot be termed as investment for profit as the activities of these societies are charitable in nature and not for profit. These charts are evident of the fact that Ace Educational Society and Davinder Kaur Educational Society, which w....
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.... that there are common members having interest in all sister concerns and substantial contribution of unsecured loan and members fees. The assessee has provided unsecured loans to its sister concerns without any interest or security, which was not reasonable and resulted in undue benefit to assessee's sister concerns. Therefore the AO denied claim of exemption u/s 11 read with section 13(1)(c) and 13(1)(d) of the Income Tax Act, 1961. Further the AO held that the main object of the assessee is not education, but the main object was to create capital by taking and giving unsecured loan or advances in violation section 11. Thus, the income of the assessee was assessed at Rs. Nil/- as AOP. It is observed that on the same issue the AO had made disallowance of exemption u/s 11 of the Income Tax Act, 1961 r.w.s 13(1)(c)& 13(1)(d)of the Income Tax Act and also by invoking section 11(5) of the Income Tax Act, 1961 for assessment year 2013-14. Hon'ble ITAT Chandigarh, in ITA No. 1230/Chd/20T6, for Assessment year 2013-14 in the DCIT,Circle-l, (Exemption) Chandigarh Vs. Sh. Guru Gobind Singh Foundations, Moga has decided as under- 13. We have heard the cont....