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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY]
आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER These are appeals filed by the Revenue directed against different orders of ld. Commissioner of Income Tax (Appeals)-XII and 17, Chennai (‘CIT(A)’ for short) dated 25.02.2013 and 25.02.2015 for the Assessment Years 2009-10 and 2010-2011.
ITA Nos.1134/13 & 1476 /2015 :- 2 -:
Since, the identical facts and issues are involved in these 2. appeals, we proceed to dispose the same vide this common order.
For the sake of convenience and clarity the facts relevant to the 3. appeal in for assessment year 2009-10 are stated herein.
The Assessee raised the following grounds of appeal: 4.
‘’ Ground No.1 The order of the learned CIT(A) is contrary to the law and facts of the case; Ground No.2: Contribution to Chit Funds is not violation u/s.13(1)(d) of the act 2.1 The Ld CIT(A) erred in holding that contribution to chit funds not be treated as an investment and there is no violation u/s.13(1)(d) for making investment in modes other than those prescribed under Sec.11(5) of the Act. 2.2 The Ld CIT(A) ought to have appreciated the fact that the funds of the trust were employed in a mode other than what were specified u/s.11(5)of the Act and there was a clear violation u/s.13(1)(d) of the act; 2.3 The Ld CIT(A) ought to have appreciated the fact that subscription made to a chit fund is only to finance the prized amounts of chits every month. Hence it is indirectly an investment to the assessee trust; 2.4 The Ld CIT(A) ought to have appreciated the fact that investments need not be made in a lump sum, even if it is made in the form of subscription every month, as one of the subscriber of a chit to the chit company, the subscriber gets the benefit either at the time of bidding or at the time of chit maturity if no bidding took place. Hence it is an investment, if the assessee opts to withdraw the entire subscription at the time of maturity. 2.5 The Ld CIT(A) failed to appreciate the fact that interest free loan obtained from the Company Shri Gokulam Chit Funds to the extent of Rs.11.46 crores cannot be tagged on with the investment made by ITA Nos.1134/13 & 1476 /2015 :- 3 -: the assessee trust towards chit fund to the tune of Rs.83.46 lakhs, since the outstanding loan of Rs.11.46 crores and repayment of loan after bidding! contribution to chit fund without bidding are independent transactions; 2.6 The Ld CIT(A) ought to have appreciated the fact that in the case of Priyadarshini Educatonal Academy reported in 123 TTJ 195 (Vishakapatnam), the Tribunal held that if the assessee continues to contribute to the chit fund, till the date of maturity of the chit period, then it constitutes investment; In the instant case, the assessee did not bid the prize money and it stands as investment in the balance sheet; 2.7 The Ld CIT(A) ought to have appreciated the fact that if the contribution towards chit fund is to be adjusted against loan, then the assessee need not seek recourse through chit fund, it could be directly adjusted against the said loan, whereas the assessee had chosen to invest in chits to earn the dividend and to receive the chit amount at a future date i.e., at the fag end of the chit period; since the provisions of Sec.11(5) does not permit investment in chit as an approved mode, the assessee has violated the provisions of Sec.13(1)(d) of the Act; 2.8 It is submitted that the decision of the Andhra Pradesh High Court in the case of Priyadarshini Educational Academy (333 ITR 347) Kanahya Lal Punj Charitable Trust (297 ITR 66)(Del) are squarely applicable to the facts of the case wherein the appellate forums held that investment in a mode other than Sec.11(5) tantamount to violation u/s.13(1)(d) of the act. 2.9 It is submitted that in the case of Mundakapadam Mandirams Society (258 ITR 395)(Kerala)it has been that the surplus remaining after application of income of charitable purposes also to be applied only in the modes prescribed u/s.11(5) of the Act.
Ground No.3 3.1 For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(Appeals) may be set aside and that of the Assessing Officer may be restored;
The brief facts of the case are as under: 5.
The Respondent – assessee namely ‘’ M/s. Sree Gokulam Educational and Medical Trust’’’ is a trust registered under the provisions of Section 12AA of the Income Tax Act, 1961 (in short ‘’the
ITA Nos.1134/13 & 1476 /2015 :- 4 -:
Act’’). Assessee trust is engaged in running educational institutions.
Assessee trust was duly registered u/s.12AA of the Act vide order dated 19.02.2002. The return of income for the assessment year 2009-2010 was filed on 29.10.2009 claiming excess application of income. Against the said return of income, the assessment was completed by the Assistant Director of Income Tax, Exemptions-III, Chennai (hereinafter called ‘’Assessing Officer’’) vide order dated 30.12.2011 passed u/s.143(3) of the Act at total income of �1,60,36,357/-. While doing so, the AO denied exemption u/s. 11 of the Act on the ground that assessee had violated the provisions of Section 11(5) of the Act as it invested surplus funds other than in the mode prescribed under the Act as assessee had subscribed to chits with M/s. Gokulam Chit and Finance Co. (P) Ltd, and paid �83,47,500/- and also transferred the fund to a private trust namely M/s. Poorna Educational and Charitable Trust. Accordingly, the Assessing Officer held that assessee had violated the provisions of Section 11(5) of the Act and denied exemption u/s.11 of the Act and brought to tax the excess of income over expenditure and taxed at maximum marginal rate.
Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order allowed the appeal by holding that the subscription to Sree Gokulam Chit and Finance Co. Ltd cannot be ITA Nos.1134/13 & 1476 /2015 :- 5 -:
treated as investment of money but as an obligation to repay the loan availed earlier from Sree Gokulam Chit and Finance Co. Ltd. As regards to the application of fund to M/s. Poorna Educational and Charitable Trust, the ld. CIT(A) held that since the trust is an educational institution registered under Indian Trust Registration Act which is eligible for exemption u/s.10(23C) of the Act does not amount to diversion of funds for non charitable purpose and accordingly allowed the appeal.
Being aggrieved, the Revenue is in appeal before us in the 7. present appeal. Ld. Departmental Representative submitted that ld. CIT(A) ought not have held that there is no violation of Section 11(5) of the Act, in as much as, transactions of subscription of chit and the borrowal of loans are independent transactions. He further contended that contribution of a chit is an investment and It is clear case of violation of Section11(5) of the Act placing reliance on the decisions of Hon’ble Andhra Pradesh High Court in the case of Priyadarshini Educational Academy vs. DGIT (Investigation) and Others, (2011) 333 ITR 347 (AP), Hon’ble Delhi High Court in the case of Kanahya Lal Punj Charitable Trust vs. DIT (Exemption) (2008)
297 ITR 66 (Del) and Hon’ble Orissa High Court it the case of Rabindranath Educational Trust vs. Union of India, (2010) 191 Taxman 379 (Ori).
ITA Nos.1134/13 & 1476 /2015 :- 6 -:
On the other hand, the ld. Authorised Representative 8. submitted that transaction of subscription of chits is in connection with earlier borrowed and subscription of chit was made with an intention to mobile resources for repayment of loans which was availed from the same party. The ld. Authorised Representative submitted that there is no violation of provisions of Section 11(5) of the Act and without prejudice, he submitted that only that part of income which is in violation of Section 11(5) of the Act alone be brought to tax at maximum marginal rate of tax but not entire amount cannot be denied exemption placing reliance on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Working Women’s Forum (2014) 365 ITR 353 (Mad). The ld. Authorised Representative further submitted that the decision of Hon’ble Jurisdictional High Court was confirmed by the Hon’ble Supreme Court by dismissal of SLP in (2015) 235 Taxman 516 (SC). He also placed reliance on the decision of Co-ordinate Bench in the case of M/s.Sethu Valliammal Educational Trust vs. ITO, Exemptions-III, Chennai in dated 10.01.2013 for assessment year 2008-2009.
We heard the rival submissions and perused the material on record. The only issue in the present appeal relates to whether or not there is violation of provisions of Section 11(5) of the Act. Admittedly, assessee trust is duly registered u/s.12AA of the Act. It is mandatory
ITA Nos.1134/13 & 1476 /2015 :- 7 -: in order to avail exemption u/s.11 of the Act, the funds of the trust should be invested in one of the modes prescribed u/s. 11(5) of the Act. During the previous year relevant to assessment year under consideration, the assessee trust had subscribed to chit with Sree Gokulam Chit and Finance Co. Ltd. Undisputedly, investment in chit is not one of the prescribed mode of investments. Therefore we need to examine the transaction from point of view of the activities of the assessee trust. The explanation of the assessee that subscription to the chits was made in order to mobilize the resource to meet repayment of loans availed from same party, has no bearing on the issue. The transaction of subscription to the chits is independent of the earlier transaction of loans borrowed and there is nothing on record to show that the both transactions are interconnected. Subscription to the chits is nothing but the investment which is not one of the prescribed mode of investment u/s.11(5) of the Act. Therefore it is a clear case of violation of provisions of Section 11(5) of the Act, hence assessee trust is not entitled for exemption u/s.11 of the Act.
As regards to the contention that only that part of income 10. which is in violation of Section 11(5) of the Act alone should be taxed but not entire tax cannot be accepted deserves consideration in view of Section 11(3) of the Act which provides so. Therefore we direct the ITA Nos.1134/13 & 1476 /2015 :- 8 -:
Assessing Officer to restrict the taxable income to the extent of violation of Section 11(5) of the Act.
In the result, the appeal filed by the Revenue is partly 11. allowed.
2010-11 Since, the facts in the present appeal are identical to the facts 12. in for the reasons mentioned therein, we partly allow the appeal filed by the Revenue as in the same lines indicated in appeal ITA No.1134/Chny/2013 supra. Hence, the above captioned appeal filed by the Revenue is partly allowed.
In the result, the appeals filed by the Revenue in ITA Nos. 13.
1134/CHNY/2013 & 1476/CHNY/20105 for assessment years 2009-10 and 2010-2011 are partly allowed.
Order pronounced on 21st day of November, 2019, at Chennai.