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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of ld. CIT(A), Muzaffarnagar dated 16.02.2015.
The assessee has raised substituted/amended grounds of appeal which are as under:
“1. That, the learned commissioner of income tax (Appeals) grossly erred on the facts and in law in sustaining the addition of Rs. 79,95,000/- ignoring the undisputed fact on record that assessee has no income, much less any income claimed exempt u/s 11/12 of the Act in the current year, so as to leaving any possibility to tax any income by disallowing exemption claimed.
That, learned commissioner of income tax (Appeals) manifestly erred in rejecting the contention that alleged advances made to three
ITA No. 3558/Del/2015 2 Prabhu Saran Garg Charitable Trust unrelated parties are not ‘investment or deposit’ so as to hit by provisions of S. 13(1)(d) of Act as per the settled law.
That, learned commissioner of income tax (Appeals) is further wrong in not accepting the contention that advances of Rs. 75,35,000/- is related to earlier year despite sufficient evidences on record and holding that exemption on entire income will denied in case of any contravention of said provision not irrespective of quantum of amount hit by said provision.”
The assessee is a public charitable trust registered under the Society Registration Act, 1860 w.e.f. 18.01.2000 to open educational institutions/hospitals etc. The Society was granted registration u/s 12AA Income Tax Act, 1961 on 03.02.2000 by the Ld. Commissioner of Income Tax, Ghaziabad. The Society is also approved u/s 80G of the Income Tax Act, 1961. The trust could not establish any institution for want of requisite funds/land/resources except supporting other institutions, and is filing its return regularly.
For the current year ITR was filed on 30.08.2010 declaring NIL income. The case was assessed u/s 143(3) of the Income Tax Act, 1961 and addition of Rs. 79,95,000/- is made by invoking provisions of Section 13(1)(d) read with Section 11(5) of the Act on the closing balances of advances of Rs. 79,95,000/- given to M/s Aryabhatt Charitable Trust, M/s A. K. Goel & Sons & Archana Mittal added to the income of the assessee and assessment of society as AOP.
The assessee advanced loan of Rs.25,00,000/- to M/s Aryabhatt Charitable Trust on 18.10.2008 and Rs.25,00,000/- to Archana Mittal on 06.10.2008 pertaining to A.Y. 2009-10.
ITA No. 3558/Del/2015 3 Prabhu Saran Garg Charitable Trust 6. Further, the assessee extended to loan to M/s A.K. Goel & Sons of Rs.25,35,000/- during the A.Y. 2009-10 and an amount of Rs.20,00,000/- on 02.04.2009 pertaining to A.Y. 2010-11. Thus, the total amount outstanding as on 02.04.2009 was Rs.45,35,000/- out of which the assessee has received back an amount of Rs.15,40,000/-.
The AO held that the assessee society being a charitable organization should not make any investment other than as provided in Section 11(5) of IT Act 1961. The specific show cause was given to the assessee on 28.01.2013 & 05.02.2013 for reply of assessee. The relevant part of show cause is reproduced as under:
"You have given the fund of trust as advance to certain parties. Please explain as to why it may not be treated as diversion of fund."
In compliance to this specific show cause, the assessee submitted that,
"That assessee is not engaged in any business but had given sundry advances against purchase of land. The assessee has not claimed any deduction against advances which can be added to the income of the assessee."
The AO held that the provisions of Income tax are very clear about the specified investment. The assessee could not give any details about investment in land or cancellation of the deed or the purpose thereof.
ITA No. 3558/Del/2015 4 Prabhu Saran Garg Charitable Trust 10. The AO held that although the assessee is registered u/s 12AA vide order C.No.40(53)/Registration/GZB/99-2000/27784 dated 24.03.2000 by the Ld. Commissioner of Income Tax, Meerut, the trust is not doing any charitable activity. It was held, as per the provisions of Section 13(1)(d) of the Act, the amount given us loan would be treated as taxable. The provisions of Section 13(1)(d) referred by the AO are as under:
“Circumstances for forfeiture and exception there of Section 13(1)(d) states the circumstances where the exemption to the trust would be forfeited if the funds are invested or deposited after 28.02.1983 otherwise than in any mode as specified under section 11(5) of the Act.
The Specified circumstances
The following are the circumstances where the exemptions will not be available under section 13(1)(d):
(1) If the funds are invested or deposited after 28.02.1983 otherwise than in any mode as specified under section 11(5) of the Act. (2) If any of the funds invested or deposited before 01.03.1983 in non-specified modes, continue to remain so invested or deposited after 30.11.1983, and (3) If any shares in a company (not being Government Company or a corporation established by or under Central, State or Provincial Act) are held after 30.11.1983.
The Exception:- The proviso the section 13(1)(d) grants exceptions to the aforesaid provisions in relation to the following:
(1) Any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1 s t day of June, 1973; (2) Any accretion to the shares, forming part of the corpus mentioned above, by way of bonus shares allotted to the trust or institution;
ITA No. 3558/Del/2015 5 Prabhu Saran Garg Charitable Trust (3) Any debentures issued by, or on behalf of, any company or corporation acquired by the trust or institution before the 1st day of March, 1983; (4) Any asset, not being an investment or deposit in any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub-section (5) of section It, after the expiry of one year hum the end of the previous year in which such asset is acquired or the 31st day of March, 1993, whichever is later; (5) Any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year.
The AO held that the society has diverted its fund and invested in violation of 11(5) of IT Act 1961 and the loan given to M/s Aryabhatt Charitable Trust, M/s A. K. Goel & Sons & Archana Mittal to the tune of Rs.25,00,000/-, Rs.29,95,000/- & Rs.25,00,000/- totaling to Rs.79,95,000/- are added to the income of the assessee and held that exemption cannot be provided to the society and whole surplus is taxed at the maximum marginal rate and society is assessed as status of AOP.
The ld. CIT(A) confirmed the order of the Assessing Officer holding that there is violation of Section 13(1)(d) r.w.s. 11(5)(1) of the Act.
Heard the arguments of both the parties and perused the material available on record.
ITA No. 3558/Del/2015 6 Prabhu Saran Garg Charitable Trust 14. The provisions of Section 13 is an exception to the Section 11 as it reads “nothing contained in Section 11 shall operate so as to exclude from total income of previous year of the person in receipt thereof” and as per sub-section (1)(d)(i) “any funds of the trust invested or deposited otherwise than the modes specified under sub-section (5) of Section 11” means that all the investments or deposits should be as per sub-section (5) to Section 11. Section 11(5) specifies the forms and modes of investing or depositing the money which is saving certificate, post office SB, deposit in bank, UTI etc. Clause (b) of sub- Section (2) to Section 11 mandates that money accumulated as a result of non-application of income (<85%) to charitable purpose should be invested as per sub-section (5) i.e. post office SB, deposit in bank, UTI etc.
In the instant case, the assessee has neither deposited nor made investments by extending loan to the parties mentioned above. Hence, the provisions of Section 13(1)(d) and 11(5) are not applicable.
To decide the issue, we have gone through the provisions of Section 11(1)(d) existing as on the Assessment Year applicable to the assessee which were brought by the amendment w.e.f. 01.04.1989 and also the further amendments brought out w.e.f. 01.04.2021
ITA No. 3558/Del/2015 7 Prabhu Saran Garg Charitable Trust 17. Section 11(1)(d) reads as under: (w.e.f. 01.04.1989)- incomes not includable-
“income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution”.
Section 11(1)(d) reads as under: (w.e.f. 01.04.2021)
“11(1)…………
(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution 64[,subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in sub-section (5) maintained specifically for such corpus].
…………………..
[Explanation 3A.—For the purposes of this sub-section, where the property held under a trust or institution includes any temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G, any sum received by such trust or institution as voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may, at its option, be treated by such trust or institution as forming part of the corpus of the trust or the institution, subject to the condition that the trust or the institution,—
(a) applies such corpus only for the purpose for which the voluntary contribution was made; (b) does not apply such corpus for making contribution or donation to any person; (c) maintains such corpus as separately identifiable; and
ITA No. 3558/Del/2015 8 Prabhu Saran Garg Charitable Trust (d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11. Explanation 3B.—For the purposes of Explanation 3A, where any trust or institution has treated any sum received by it as forming part of the corpus, and subsequently any of the conditions specified in clause (a) or clause (b) or clause (c) or clause (d) of the said Explanation is violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place.]
[Explanation 4.—For the purposes of determining the amount of application under clause (a) or clause (b),—
(i) application for charitable or religious purposes from the corpus as referred to in clause (d) of this sub-section, shall not be treated as application of income for charitable or religious purposes:
Provided that the amount not so treated as application, or part thereof, shall be treated as application for charitable or religious purposes in the previous year in which the amount, or part thereof, is invested or deposited back, into one or more of the forms or modes specified in sub- section (5) maintained specifically for such corpus, from the income of that year and to the extent of such investment or deposit; and
(ii) application for charitable or religious purposes, from any loan or borrowing, shall not be treated as application of income for charitable or religious purposes:
Provided that the amount not so treated as application, or part thereof, shall be treated as application for charitable or religious purposes in the previous year in which the loan or borrowing, or part thereof, is repaid from the income of that year and to the extent of such repayment.”
Thus, from the concurrent reading of the provisions as on 01.04.1989 and as on 01.04.2021, we find that there was no mandate that the corpus donations have to be necessarily invested or deposited one or more of the forms or modes specified in sub-section (5) maintained specifically for such
ITA No. 3558/Del/2015 9 Prabhu Saran Garg Charitable Trust corpus. Hence, the appeal of the assessee for the instant year is allowable.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 11/08/2022.
Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 11/08/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR