TaxTMI 
TaxTMI 
2021 (2) TMI 640
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....) erred on facts and circumstances in law by holding that the assessee trust is eligible for exemption u/s 11 relying on Hon'ble Jurisdictional High court in the case of CIT Vs Working Women's Forum (2014) 365 ITR 353 where facts are on violation of provisions u/s 13(1)(d) whereas in the instant, case it is violation u/s 13(l)(c) of the IT Act,1961. 2.1 The Ld.CIT (A) erred in directing the Assessing Officer not to deny complete exemptions for trust u/s 11 ignoring sec. 13(1) which clearly reads that nothing contained in sec. ii or sec. 1 2 shall operate so as exclude from the total income of the previous year of the person in receipt thereof. 2.2 The Ld.CIT (A) erred by directing the Assessing Officer not to deny exemption for the trust u/s 11 to the amount of interest free advances amounting to Rs. 2,49,93,576/- which was deemed to have been advanced to specified persons as per the sec.13(3) of the Income Tax Act,196l without charging adequate interest or adequate security in terms of Sec.13(2)(a) of the income Tax Act,1961 and continues to remain invested during the previous year within the meaning of sec.13(2)(h) of the Income Tax Act,1961 thereby benefitting such specified....
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....) failed to appreciate that the sums advanced to Mr BharathKumar was for running the educational activities of M/s Star Educational Trust and there was no contravention of section 13. 8. The CIT (A) failed to appreciate that the sums advanced to M/s Mahaajay Spinners India Private Limited in not in contravention of section 13 (1) (c) and section 13 (1) (d) of the Act. The assessing officer and the CIT (A) erred in not considering the submissions of the appellant. 9. The CIT (A) ought to have appreciated, even if the sums were to be disallowed, the same should be reduced from application and not brought to tax. 10. The appellant craves the leave of the Hon'ble Tribunal to adduce additional grounds in support its contentions before and during the course of hearing of this appeal. ITA No.125/CHNY/2019 & CO No.18/CHNY/2019: 4. The brief facts of the case extracted from assessment year 2011-12 are that, the assessee is a charitable trust registered u/s.12A of the Income Tax Act, 1961 (hereinafter the 'Act') and is imparting education by running various educational institutions, which includes 5 Engineering Colleges and 1 Arts & Science College, a Matriculation School, a Higher S....
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....n subsequent years for which necessary bills and other evidences have been placed before the AO. 5. The AO, however was not convinced with the explanation furnished by the assessee and according to him, the assessee has allowed benefit to interested persons in contravention of provisions of section 13(1)(c) of the Act and thus, not entitled for exemption u/s.11 of the Act. The AO, further noted that the assessee has tried to justify the advance of Rs. 1,88,59,716/- given to M/s. Star Educational Trust by stating that objects of the assessee trust is to help in setting up or maintenance of schools and other institutions. But, fact remains that M/s. Star Educational Trust is not a registered charitable trust u/s.12AA of the Act, and hence, even though the objects of two trusts are similar, but because the trust was unregistered, the amount given to said trust cannot be regarded as application of income for charitable purpose, more specifically within the meaning of section 13(1)(d) of the Act. Therefore, the ld.AO opined that the assessee has violated provisions of section 13(1)(c)(ii)of the Act and hence, the income of the trust is not entitled for exemption u/s.11 of the Act. The ....
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....n to section 13(1)(c) of the Act, without appreciating the fact that amount given to M/s. Star Educational Trust is for the purpose of imparting education, which is evident from the fact that said trust objects are charitable in nature similar to the objects of assessee trust and the loan has been used for running number of educational institutions. It was further submitted that M/s. Star Educational Trust is a public charitable trust with the objective of providing education to public at large. The mere fact, that the said trust is not registered u/s.12AA of the Act, does not convert the activities of the said trust as non-charitable. The non-registration of any trust may have adverse consequences on their tax liability, but the object would remain as charitable in nature. Further, while applying provisions of section 13(1)(c) of the Act, it is essential to see whether any part of income of the trust is directly or indirectly allowed to the interested persons or not. In this case, trust has given advance to another charitable trust for imparting education. Hence, the same cannot be considered as contravention to provisions of section 13(1)(c) of the Act. As regards, advance made t....
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....ransferred the total amount to M/s. Star Educational Trust and said amount was used for the objects of the trust, which is having coming objects of imparting education. Therefore, those 2 advances cannot be considered as violation of section 13(1)(c) of the Act. But, in so far as, advance to M/s. Mahaajay Spinners India Pvt. Ltd., the ld.CIT(A) observed that since the assessee has failed to file any evidences to prove that said advance was given in the normal business activity of the trust, said payment is hit by the provisions of section 13(1)(c) of the Act. Accordingly, he directed the AO to restrict denial of exemption to the extent of advance given to M/s. Mahaajay Spinners India Pvt. Ltd. The relevant findings of the CIT(A) are as under:- 7. I have perused the submissions of the appellant made before me and the assessment order. The A.Q. has held that appellant has applied/diverted the income of the trust to the tune of Rs. 2,49,93,576/- directly/indirectly for the benefit of the persons referred to the sub section (3) of Sec.13, thereby falling within the mischief of the provisions of Sec.13(1)(c)(ii). A perusal of the submissions of the appellant shows that Rs. 1,88,59,716....
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....which were violative of section 13(1)(d) during the previous year relevant to the A.Y. 2011-12. Respectfully following the judicial pronouncements cited supra, I direct the A.O. not to deny the Section 11 benefits except as stated above. Hence, the grounds of appeal of the appellant are partly allowed. 8. Aggrieved by the order of the CIT(A), the Revenue is in appeal before us. The ld.DR submitted that the ld.CIT(A) has erred in holding that the assessee trust is eligible for exemption u/s.11 of the Act, relying on the decision of the Hon'ble Jurisdictional High Court of Madras in the case of CIT v. M/s. Working Women's Forum, supra, where facts are on violation of provisions of section 13(1)(d) of the Act, whereas in the instant case, it is violation of section 13(1)(c) of the Act. The ld.DR, further submitted that the ld.CIT(A) erred in directing the AO not to deny complete exemption for the trust u/s.11 of the Act, ignoring section 13(1) of the Act, which clearly reads that nothing contained in section 11 or 12 of the Act, shall operate so as to exclude from the total income of the previous year of the person in receipt thereof. The ld.DR, further submitted that the ld.CIT(A) h....
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....he funds for its objects without giving any benefit to the specified persons, then simply for the reason that said trust was not registered u/s.12A of the Act, the genuine advance given for charitable purpose cannot be considered as advance or diversion of funds given to the interested persons without adequate interest or guarantee. As regards, advance given to M/s. Mahaajay Spinners India Pvt. Ltd., the ld.AR submitted that, it is a fact on record that the assessee has given advance for purchase of lab coats and uniforms, for which necessary quotations from various vendors and bills issued by the supplier for supply of uniform and coat was furnished. Although, the assessee has initially taken a stand that it was given to the company without any benefit, but subsequently it was noticed that said advance was given for supply of materials in the normal course of business and hence, the same cannot be considered as diversion of funds to the interested persons in violation of provisions of section 13(1)(c) & 13(1)(d) of the Act. 10. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The AO denied the benefit ....
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....orted by the decision of the Hon'ble Bombay High Court in the case of DIT(Exemption) v Sheth Mafatlal Gagalbai Foundation Trust [2001] 249 ITR 533/114 Taxman 19 and also the decision of the Hon'ble Kamataka High Court in the case of CIT v Fr. Mullers Charitable Institutions [2014] 363 ITR 230/44 taxmann.com 275/[2015] 228 Taxman 319. We further observe that the Hon'ble Supreme Court has dismissed the Special Leave Petition filed by the revenue against the order of the Hon'ble Karnataka High Court, in the case of CIT v Fr, Mullers Charitable Institutions [2014] 51 taxmann.com 378/227 Taxman 369 (SC). In view of the clear provisions of the Act and also the decision of the Hon'ble Supreme Court in the case, cited supra, it is clear that in case there is violation referred to section 13(1)(c)(c), then tax can be charged on such income which violates the provisions of section 13(1)(c); but not the whole income of the Trust. This position is further reiterated by the Hon'ble Jurisdictional High Court of Madras in the case of CIT v. Working Women's Forum, supra, where it was held that denial of exemption u/s.11 should be restricted to the extent of income, which is violative of section 13....
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....d for denying exemption, more particularly when such advance is given to another charitable trust for imparting education. Thus, in our view advance given to M/s Star Education Trust is not violative of section 13(1)(c) of the Act. 13. Coming to another observation of the ld.AO, the ld.AO has considered advance given to Shri M.G.Bharathkumar, Managing trustee of the trust. According to the ld.AO, the trust has given direct benefit in contravention of section 13(1)(c) of the Act, by giving advance to Shri M.G. Bharathkumar. We have gone through the reasons given by the AO in light of various evidences filed by the assessee and found that advance made to Shri M.G. Bharathkumar was ultimately transferred to M/s. Star Educational Trust and said amount was used for charitable purpose. Though, the same was routed through the account of the common trustee Shri M.G. Bharathkumar, but evidences placed on record clearly indicate that Shri M.G. Bharathkumar had transferred said fund to trust account and trust has utilized the funds for object of the trust. Further, out of the total advance of Rs. 10,24,860/-, a sum of Rs. 1,74,720/- was considered as donation given to said trust and balance....
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....once it was found that the transaction is a normal business transaction entered in the course of activity of the trust, merely for the reason that the trustee of the trust are interested in that company is not a relevant ground to hold that advance given to said company is hit by provisions of section 13(1)(c) of the Act and income of the trust was directly or indirectly given to the benefit of the persons referred to u/s.13(3) of the Act. Thus, in our view advance given to M/s Mahaajay Spinners India Pvt Ltd is not violative of section 13(1)(c) of the Act. 15. Coming to another observations of the ld.AO in light of provisions of section 13(2)(a) of the Act. The AO has observed that the assessee has given benefit to the interested persons without any interest or security. The said finding of the AO is not in accordance with law, because the AO has proceeded on the line that the assessee has lent the sum, but the transactions between the trust and the company was under normal circumstances as a prudent businessman and hence question of charging interest or taking a security against such advance does not arise. The observations of the AO that provisions of section 13(1)(d) of the Ac....
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....ion. The advance given by the assessee trust to another trust at best can be considered as a financial aid given to a trust for imparting education, but it cannot be considered as an advance given directly or indirectly to the benefit of persons specified u/s.13(3) of the Act. Similarly, as regards advance given to M/s. Mahaajay Spinners Pvt. Ltd., the facts borne out from record and evidence filed by the assessee clearly shows that the said advance was given in the normal course of activity of the trust and hence, the said advance cannot be considered as income or any part of property of the trust is given directly or indirectly to the benefit of the interested persons. This view is fortified by the decision of Hon'ble Delhi High Court in the case of DIT vs. Alarippu, [2000] 244 ITR 358, where it was held that a society registered u/s.12A(a) gave money to an institution for utilization of object similar as available in its case, said amount could not be treated as investment or deposit constituting infringement of provision, of section 13(1)(d) of the Act. The Hon'ble Delhi High Court in the case of DIT v. Acme Educational Society, [2010] 326 ITR 146, had considered an identical i....