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Income Tax Appellate Tribunal, BANGALORE BENCH-SMC “ A ”
Before: SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.25.11.2016 of
Commissioner of Income Tax (Appeals), Gulbarga for the Assessment Year
2010-11.
The assessee has raised the following grounds :
2 ITA No.126/Bang/2017 NEKRTC PAR Fund Trust
3 ITA No.126/Bang/2017 NEKRTC PAR Fund Trust
The assessee is a Registered Charitable Trust created by the order of
Govt. of Karnataka. The assessee is also Registered under Section 12A of the
Income Tax Act, 1961 (in short 'the Act') w.e.f. 15.1.2004 vide order
dt.8.3.2004. The Assessing Officer has observed that the assessee trust has
credited Rs.6 Crores to the receipts and payment account on maturity of Fixed
Deposit from banks and further an amount of Rs.2.5 Crores has been debited to
the expenditure account towards deposits in NEKRTC Central Office, Gulbarga.
Thus the Assessing Officer was of the view that the assessee trust has invested
its funds in violation of Clause (f) of sub-section 2 of Section 13 of the Income
Tax Act, 1961 (in short 'the Act') as the funds invested are being used or
applied for the benefit of a person referred to in Section 13(3) of the Act. The
Assessing Officer observed that NEKRTC, Gulbarga is the sole fund provider to
the assessee trust and therefore the assessee is not eligible to the extent
claimed of Rs.18,81,498 under Section 11 of the Act. The assessee challenged
the action of the A.O. before the CIT(Appeals) and submitted that the
provisions of Section 13(1)(f) are not applicable in the case of the assessee as
4 ITA No.126/Bang/2017 NEKRTC PAR Fund Trust both the assessee trust and NEKRTC are registered under Section 12A of the Act
therefore no substantial interest is involved between them. Further it was
contended that this amount of Rs.2.5 Crores and net amount of Rs.1.97 Crores
to NEKRTC is only 1.22% of the capital of that concern. Therefore it does not
exceed 5% of the capital of the NEKRTC. The CIT (Appeals) did not accept the
contention of the assessee and confirmed the addition made by the Assessing
Officer by holding that NEKRTC has substantial interest in the assessee trust
within the meaning of Section 13(3)(b) of the Act and therefore the deposits
made of Rs.2.5 Crores with the NEKRTC, Gulbarga attracts the provisions of
Section 13(1)(c)(ii) of the Act and consequently the exemption claimed under
Section 11 of the Act of Rs.18,81,498 for the year under consideration is rightly
disallowed.
Before the Tribunal, the learned Authorised Representative of the
assessee has submitted that both the assessee as well as NEKRTC, Gulbarga are
registered under Section 12A of the Act. Therefore lending to such charitable
institution amounts to application and therefore the provisions of Section 13 of
the Act have been wrongly invoked. He has relied upon the decision of Chennai
Bench of the Tribunal in the case of JCIT Vs. Baktavatsalam Memorial Trust 30
ITR (Trib) 264. He has relied upon the decision of Mumbai Tribunal in the case
5 ITA No.126/Bang/2017 NEKRTC PAR Fund Trust of St. Joseph’s Technical School Vs. ADIT (Exemptions) 42 ITR (Trib) 67. The
learned Authorised Representative has then relied upon the decision of Hon'ble
Delhi High Court in the case of DIT (Exemptions) Vs. Acme Educational Society
326 ITR 146. Thus he has contended that when both the institutions are
registered under Section 12A of the Act then lending to the other charitable
institution amounts to application of income and the provisions of Section 13
are not attracted. Alternatively, he has submitted that as per Section 13(4) of
the Act, if the investment made does not exceed 5% of the capital of the
investee concern then the exemption under Section 11 and 12 are not to be
denied in relation to any other income. He has referred to the capital of
NEKRTC, Belgaum is about Rs.204 Crores and therefore this amount of Rs.2.5
Crores is only 1.22% of the capital of the NEKRTC. He has further contended
that the said loan amount has been repaid by NEKRTC in the following year i.e.
F.Y. 2010-11. The question of bringing the same to tax does not arise on the
facts and circumstances of the case. He has also placed reliance on CBDT
Circular No.100 dt.24.1.1973 and submitted that CBDT has explained that
advance of loan to trust having similar objects amounts to application of
income.
6 ITA No.126/Bang/2017 NEKRTC PAR Fund Trust 5. On the other hand, the learned Departmental Representative has
submitted that NEKRTC is not a trust and the object are not same. He has
referred to the finding of the CIT (Appeals) and submitted that the conditions as
provided under Section 13(4) are satisfied as NEKRTC has substantial interest in
the assessee and therefore the advance given to the said concern falls in the
category of the fund provided to a person or concern having substantial
interest in the assessee trust. He has relied upon the decision of Hon'ble Delhi
High Court judgment in the case of DIT (Exemptions) Vs. Charanjivi Charitable
Trust 223 Taxman 71 and submitted that the advance given to the person
having substantial interest amounts to violation of provisions of Section
13(1)(c)(ii) r.w.s 13(2) and Section 13(3) of the Act. Accordingly the assessee is
not eligible for exemption under Section 11 of the Act. He has relied upon the
orders of authorities below.
I have considered the rival submissions as well as the relevant material on
record. As far as the relation between the assessee trust and NEKRTC is
concerned there is no dispute that NEKRTC is having a substantial interest in
the assessee trust. However the assessee has claimed that when NEKRTC is
registered under Section 12A of the Act then the provisions of Section 13 are
not attracted in respect of the advance given by the assessee to NEKRTC. The
7 ITA No.126/Bang/2017 NEKRTC PAR Fund Trust assessee has also raised an additional ground on the point that this advance of
Rs.2.5 Crores is only 1.22% of the capital of NEKRTC and further when NEKRTC
is also registered under Section 12A of the Act then this advance wil be
considered as application and therefore the exemption under Section 11
cannot be denied. The learned Authorised Representative has also filed an
order dt.8.3.2004 passed under Section 12A of the Act in the case of NEKRTC
and submitted that both assessee as well as NEKRTC are registered under
Section 12A of the Act. Both these aspects regarding NEKRTC registered under
Section 12A as well as amount of Rs.2.5 Crores advance by the assessee is only
1.22% of capital of NEKRTC, Gulbarga have not been examined either by the
Assessing Officer or by the CIT (Appeals). Therefore, a proper verification and
examination of these facts is required in this case. As far as the decisions relied
upon by the assessee, the same can be applied only when these two facts are
properly verified and accepted by the revenue that both the institutions are
registered under Section 12A and further the amount in question is less than
5% of the total capital of NEKRTC, Gulbarga. Hence in view of the fact that
these two aspects have not been considered by the authorities below, this
matter is remanded to the record of the CIT (Appeals) for considering these
facts and decide the issue in accordance with the provisions of law. Needless to
8 ITA No.126/Bang/2017 NEKRTC PAR Fund Trust say an opportunity of hearing be afforded to the assessee before passing the
order.
In the result, the appeal is allowed for statistical purpose.
Order pronounced in the open court on 28th April, 2017.
Sd/- (VIJAY PAL RAO) JUDICIAL MEMBER Bangalore, Dt. 28.04.2017.
*Reddy gp
Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.
Assistant Registrar Income Tax Appellate Tribunal Bangalore.