AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (5) TMI 348
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....issues in both the appeals with regard to allegation that assessee has violated the provisions of section 13(2) and 13(1)(c) read with Section 13(3) of the Act are common. In remaining two appeals for Assessment Year 2018-19 and 2020-21, similar issues are involved. This fact is also confirmed by ld. CIT DR, therefore, all the four appeals are disposed of by a single order as per the discussion made herein below. We now take ITA No. 4683/Del/2024 as the lead case for which both the parties were agreed during the course of hearing. 3. Brief facts of the case are that assessee society is registered in 1995 under the Society Registration Act, 1860. The Assessee is running educational institutions affiliated with MD University and is sponsoring body of ITM University (now known as North Cap University) till 2015 and thereafter thein terms of the state notification dt. 22.7.2015 issued by the Govt. of Haryana, The North Cap University become the private self-financed University. The return of income for the year under appeal was filed on 30.10.2017 declaring nil income and the case was selected under CASS. The assessee is registered u/s 12A of the Act in terms of the registration grant....
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....controllable and the risk formalities capable of being drastically curtailed is unwarranted and unsustainable on the facts and in law. 4. That the Id. CIT(A) / AO had failed to discharge the burden cast upon them to prove that the interest rates paid by the assessee society to related parties and accepted in earlier years was in excess of market rates consequently the denial of benefit under Section 11/12 of IT Act sustained by ld. CIT(A) on the ground of alleged violation of Sections 13 (2) and 13(1)(c) read with Section 13(3) of the Act not applicable to assessee is unjust, unwarranted, based on irrelevant considerations and against rules of consistency. 5. That the ld. CIT(A) / AO had failed to notice that as the loan advanced by related parties was not secured by either a primary security or a collateral security of the assets of the appellant Society, the interest rates on such unsecured loan would be higher than a term loan advanced to the appellant Society by Kotak Mahindra Bank which was fully secured against all assets of the Society consequently assessment so framed was bad in law. 6. That the Id. CIT(A) had erred in sustaining the disallowance of exemption claimed ....
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.... decided to construct additional buildings to meet out the deficiency in total area required as per the UGC guidelines. Accordingly, in year 2012-13, construction of new block was commenced to accommodate the additional strength of the students from new academic session from 2013-14 and onwards. This construction includes the construction of additional block of four floors, two level car parking, an open Amphitheatre with a seating capacity of 2,000 students as per UGC expert committee recommendation. According to ld.AR said construction required the funds of around Rs. 45 Crores and sine the appellant society was having deficit on year to year basis and further looking to the fact that the securities available in the shape of land and building of the appellant society were not sufficient for granting loans by the banks, therefore, assessee has to borrowed funds on long term basis from the private parties. As assessee financial were not promising looking to the fact that it regularly suffered losses, no private party would agreed to advance funds to the assessee society, therefore, the assessee society had to depending upon the members of the society for arranging such funds. Accor....
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....om the bank, the loan taken from the private parties are having higher risk where repayment of principal is dependent upon the availability of the funds with the assessee where the only source of receipt of the assessee was from the tuition fee which was not sufficient even to meet out the day to day running expenses of the institutions and also to serve the bank. Under these circumstances, the Ld. AR submitted that the interest was paid to specified persons at a higher rate interest rate of the society and, therefore, it should not be treated as violation of Section 13(2), 13(1)(c) read with section 13(2) and consequently the assessee society be granted exemption available to assessee society u/s 11 & 12 of resumed. 8. On the other hand, the Ld. CIT-DR supports the order of the lower authorities and submitted that admittedly in the instant case interest was paid to the specified persons more than the prevailing market rates which is in violation of section 13(2) and 13(1)(c) read with Section 13(2) of the Act. The Ld. CIT-DR has further placed reliance on the judgments of the Hon'ble Supreme Court in the case of Director of Income Tax vs. Bharat Dimond Bourse reported in [2003] 1....
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....s salary was not paid as per pay scales prescribed by the State Government and medical facilities needs to be extended to family members of staff,. Accordingly, the assessee has to construct an additional block of four floors, two level car parking, an open Amphitheatre with a seating capacity of 2,000 students and a Central Auditorium with a seating capacity of 400 students and a canteen with mess, gymnasium and solar power plant having a capacity of 150 KVA in the University campus. All these constructions required total funds of Rs. 45 crores approx. which was to be arranged immediately to get these facilities ready for use by the students in coming academic year which was going to start from FY 2013-14. 11. Since the assessee society had losses of Rs. 9.22 crores and was having investment of Rs. 3.07 crores only in FDR which was under lien with Haryana Government and Rs. 15 lakhs were kept with AICTE for the MBA course. The total cost of Rs. 45.00 could not be meet out though bridge loans and can be done through financial institution/ banks etc. Since sufficient securities in the shape of assets were not available with the assessee to offer as security borrowings from banks / ....
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....ntering the AO's and CIT(A)'s observations that the interest on secured loans were lower than the unsecured loans, the learned A R submitted that it was generally accepted trade practice that unsecured loans carry higher rate of interest than that of the secured loans because in secured loans the lender had more security and the chances of recovery of the principal amount and interest are higher and thus, the lenders were obliged to lend at a lesser rate of interest for secured loans. This argument of the learned AR, in our view, carries more weight. 15. In the instant case, the Assessing Officer has denial the exemption u/s 11 & 12 of the Act for the sole reason that assessee has paid interest to specified person more than bank rates. It is settled proposition of law that the income which has been applied in violation to section 13(1) of the Act could only be brought to tax and not the entire income. The Hon'ble Delhi High Court in the case of DIT (Exemption) vs. Agrim Charan Foundation reported in [2002] 253 ITR 593 (Delhi) has held that the legislature has clearly contemplated that in a case, where the whole or part of the relevant income is not exempted under Section 1....
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....the revenue as bereft of merit. The alleged breach of section 13(1)(c) of the Act based on these factors is baseless, wholly untenable. Thus, we answer the substantial question of law No. 1 in favour of the assessee and against the revenue. 17. The Hon'ble Karnataka high court in the case CIT Vs. Fr. Mullers Charitable Institutions reported in (2014) 44 Taxmann.com 275 held as under: 11. With regard to second and third substantial questions of law are concerned, reading of Section 13(1)(d) of the Act makes it clear that it is only the income from such investment or deposit which has been made in violation of Section 11(5) of the Act that is liable to be taxed and that violation under Section 13(1)(d) does not tantamount to denial of exemption under Section 11 on the total income of the assessee. An identical question came before the Bombay High Court in the case reported in (2001) 249 ITR 533 (Bom) (supra). The question before the Bombay High Court is "Whether violation of Section 11(5) r/w Section 13(1)(d) by the assessee-Trust attracts maximum marginal rate of tax on the entire income of the Trust? The Bombay High Court held that in case of contravention of Section 13(1)(d), m....
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....re of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. In the circumstances, there is merit in the contention of the assessee that in the present case the maximum marginal rate of tax will apply only to the divided income from shares held in contravention of s.13(1)(a) and not to the entire income. Therefore, income other than dividend income shall be taxed at normal rate of taxation under the Act. A similar view has been taken by the Delhi High Court in a judgment reported in (2002) 253 ITR 593 (Supra). Reading of the proviso to Section 142 is very clear that the legislature has clearly contemplated that in a case, where the whole or part of the relevant income is not exempted under Section 11 by virtue of violation of Section 13(1)(d) of the Act, tax shall be levied on the relevant income or a part of the relevant income at the maximum marginal rate. The said analogy is applicable to the facts of the present case. 12. We are in respectful agreement with the views expressed by the Bombay High Court as well as Delhi High Court for violating Section 11(5) of the Act and the entire income of the respondent....
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....lso seen that the loan from M/s Triad Service which is covered u/s 13(3), the said loan was taken after the re-finance facility obtained from the Kotak Mahindra Bank. It is also seen that in case of Progressive Developers, the rate of interest was higher than the interest rate paid to Triad Services and by taking such loan, the assessee had been able to save the amount of interest paid. 20. With regard to the judgement of Hon'ble Supreme court in the case of DIT Vs. Bharat Bourse (supra) relied by revenue, we find in that case, the assessee was failed to furnish the reason for not charging the interest on the loan given to trustee. However, in the instant case, the assessee has been able to demonstrate that there were circumstances beyond its control and if the funds were not borrowed at a higher rate, it would lead to heavy losses to the society and thus in the benefit of society funds were taken at the higher rate of interest. Except alleging that the assessee has paid interest to specified persons at a higher rate as compared to bank, the AO was failed to bring on record any material to controvert the submission of the assessee that the interest at higher rate was paid under co....