TaxTMI 
TaxTMI 
2024 (7) TMI 1711
X X X X Extracts X X X X
X X X X Extracts X X X X
....sole basis for invoking the provisions of Section 13(1)(c) and 13(1)(d) r.w.s 13(3) of the Act which is arbitrary and unjustified. 3. Without prejudice to the above and without any concession conceding, the benefit of exemption could at the most be denied only to the extent of alleged benefit provided which though has not been provided to the Chairman in the facts of the case. 4. That the order of the Ld. Commissioner of Income Tax (Appeals) is erroneous, arbitrary, opposed to law and facts of the case and is, thus, untenable. 3. In fact, grounds of appeal Nos. 1, 2 and 3 are connected and it is against upholding of addition of Rs. 6,58,13,702/- treating the entire surplus over expenditure to be taxable invoking the provisions of Section 13(1)(c) and 13(1)(d) r.w.s. 13(3) of the Income Tax Act, 1961 (in short 'the Act'). 4. Brief facts of the case, as enumerated in the order of the CIT (A) are as under:- "6.1 Brief facts of the ease are that the assessee trust is registered u/s 12AA of the Income Tax Act, 1961 with the Commissioner of Income Tax, Chandigarh-II, vide order dated 31.07.2006. Assessing Officer, on perusal of balance s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dition has been made by invoking the provisions of section 13(l)(c) and section 13(l)(d) of the Income Tax Act. These provisions have been invoked because there was an advance account balance of Rs. 13.46 Lakhs in the name of Chairman of the society. This majority of advance is previous years balance and during the year only a nominal amount of Rs. 2 lakhs has been added. It was mostly on account of out of fee collection in cash of students on his tour to remote states like Orissa, Bihar & Jammu & Kashmir etc. he kept in his account against his interest free loan of more than Rs. 50 lakhs. As such adequate interest free security existed against the imprest account. This does not relate to the current year. It represent last year balance. Respectfully; we wish to submit that Sh. Anshu Kataria has given a loan of Rs. 50 Lacs to the Society. In addition to this loan other bank loans were also raised by the society for building colleges. The banks have made a stipulation in the loan documents that during the tenure of their loans. No repayment of the unsecured loan to the member of the society shall be undertaken. The society was during the year lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he specified person has been benefited directly or indirectly by the trust in respect of a part of income, or whether only that part of income which goes to the benefit of specified person will only lose the exemption. The ITAT felt that of section 13(l)(g)(ii) of the benefit of exemption should be denied only to the extent of the benefit provided." 6. The ld. CIT (A) considered the findings of the Assessing Officer and the submissions filed by the Counsel of the Assessee and he has given his findings, which in brief are as under:- "6.3 I have considered the relevant portion of AO's order and submission of the appellant. During assessment proceedings, the AO noticed that the assessee had shown an amount of Rs. 13,46,927/- to Sh. Anshu Kataria (Chairman of assessee trust), as imprest. The assessee failed to justify the reasonability & purpose of retaining the said amount, which led the AO to infer that the assessee trust was providing undue benefits to the Chairman of the society and held that assessee had acted in violation of provisions of section 13(l)(d) of the Act & treated the entire surplus as income of assessee. In response, the AR of the assessee during....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vered u/s 13(3) of the Act was before Kerala High Court in case of Agappa Child Centre vs. CIT [1997] 092 Taxmann 327 dated 08.08.1996, wherein the court held that property of trust used for benefit of a prohibited person mentioned u/s 13(3), would result in cancellation of exemption of trust. It is also the case that the trust has attempted to by-pass the restriction placed upon by the bank that the unsecured loans from the trustee shall not diminish till the pendency of the secured loan from the bank. These also tantamount to not reflecting truly, the income arising from the property vested in trust for charitable purposes. What has happened in realty is non-disclosure of the exact amount that would be eligible for income arising from charitable activities. To that extent the quantum mandated for expenditure on charitable purposes has also been constricted. It is also possible that to that extent the assessee would not have been able to spend 85% of its income mandated to qualify for exemption u/s 11 & 12. It's also clear that the method adopted was a clear infraction of the conditions laid down by the banks. These tantamount, not only to attempts at bypassing the bank author....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bmitted that strictly as an alternative, the addition is to be made / restricted to the alleged violation committed by Mr. Anshu Kataria / the Trust. 11. We have considered the discussion of the Assessing Officer in the assessment order and the findings given by the ld. CIT (A) in his appeal order. We have also considered the arguments put forward by the ld. Counsel of the Assessee and the written submissions filed by him before us during the appellate proceedings. Simultaneously, we have considered the arguments of the ld. DR who vehemently argued in favour of invoking the provisions of section 13(1)(c) and 13(1)(d) r.w.s. 13(3) of the Act in this case because of the alleged violation made by Shri Anshu Katartia and the trust ( to provide benefit to the Chairman of the Society) and, therefore, the ld. DR argued in favour of denying the exemption u/s 13(1)( c) and 13(1)d) to the trust and argued to treating it as AOP sustaining the additions confirmed by the ld. CIT(A). 12. We find that the ld. CIT (A) has based his findings on the basis of a case laws in the case of 'Agappa Child Centre vs. CIT', [1997] 092 Taxmann 327 (Kerala High Court). In its order, in that case, the Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jected to denial of exemption and taxation thereof. The Assessing Officer is directed to disallow interest at the market rate on the sums advanced to the above persons." (C) CIT V. INDICULA TRUST SOCIETY [2012] 21 TAXMANN. COM 144 (DELHI -TRIB) Restriction is applicable only to those amounts which have been applied directly or indirectly for the benefits of interested person referred to in section 13(3) and it will nowhere lead to any conclusion that the assessee would loose its charity status. In other words, if a small amount is to be disallowed that would not disqualify to enjoy the status of charity. Further, may I take the liberty of drawing your Honour's kind attention to CBDT Circular no. 384 dated 06.07.1984 wherein it is clearly mentioned "in other word, where such a trust contravenes the provisions of section 13(l)(c) or (d) of the Act, the maximum marginal rate of income tax will apply only to that part of the income which was forfeited exemption under the said provisions." 14. All these case laws pertain to 2012 while the ld. CIT (A) has relied on the case laws of 1997. Therefore, keeping in view the latest position and case laws on this issue, ....