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Income Tax Appellate Tribunal, DELHI BENCH “SMC-3”, NEW DELHI
Before: SHRI H.S. SIDHU
per sub-so (2) of S. 11, the assessee is allowed to accumulate income and allowed to set it apart under certain circumstances.
Clause (b) of sub-so (2) of s. 11 lays down that the money so accumulated or set apart is to be invested or deposited in the firms or modes specified in sub-so (5) of s. 11 of the Act. Sub-so (5) of s.
11 in turn prescribes the modes of investment or deposits for the money. The amount given to Mahila Haat is undisputedly not covered under the modes as specified. As per s.13(I)(d), in case the trust or institution does not invest or deposit the money in anyone of the modes as prescribed, the aforesaid amount is not to be excluded from the total income of the assessee. The expressions used in these sections are "investment or deposits". The expression "investment" as per Websters New International Dictionary (second Edition unabridged) means "to fay out (money or capital) in business with the view of obtaining an income or profit." Deposit on the other hand means, that which is placed anywhere, as in any ones hands for safe keeping, something entrusted to the care of another, These two expressions have been used in cognate sense and have to be understood as such. In this context, we find that the expressions "investment and deposit" have been considered by the Tribunal in the case of National Engg. Co-ordination Committee (supra). The Tribunal after considering the dictionary meaning of 'investment' as also the judicial decisions explaining the said word have held that, "the amount laid down for this purpose should be capable of and result in any income, return, profit to the investor and in every case of investment the intention and positive act on the part of the investor should be to earn such income, returns, profit. The word 'deposit' on the other hand having been used in conjunction with the word investment and in understanding its meaning, the principles of "Noscitur A Sociis" applied and the expression had to be understood in a cognate sense of the word investment. "In s. 11(5) the expressions refer to pattern of investment to be complied with by the Trust. In the case of the assessee the amount has been given to Mahila Haat neither for the purpose of investment nor for the depositin the circumstances as explained by the assessee. The amount was given at the behest of Oxfam and that too in case the funds released did not reach them in time and for utilisation for organising a seminar cum workshop. The funds were recovered back in the succeeding assessment year as contended. Thus these neither acquired the form of investment or that of deposit. Coming to the application of income, the expression application has been interpreted by the various Courts. In case of Sarladevi Sarabhai Trust (supra) after considering the dictionary meaning of the term apply as to put to use", it has been held by their Lordship of Gujarat High Court that when the charitable Trust donates its income to another charitable trust the provisions of s.
11(1)(a) can be said to have been met by such donor trust and the donor trust can be said to have applied its income for the purposes.
To similar effect a decision was taken in the case of Indian National Theatre Trust (supra). On the facts, it has been held that in case the objects of both the donor and the donee are the same, the loan advanced to the donee trust could not but be said to be application of income in furtherance of objects of the assessee. No contrary decision has been cited by the learned Departmental Representative on this proposition. It has also not been denied that the objects of both the donor and the donee are not similar. Applying the ratio in the case of Indian National Theatre Trust (supra) it could not be said that the amount given to Mahila Haat did not constitute the application of income. Thus on the facts of the case it is held that there is no violation of s. 13(1)( d) of the Act and the amount as given to Mahila Haat would constitute application of the income.
Thus the assessee's appeal is allowed on both the grounds." b) 326 ITR 146 (Del) DIT v. Acme Educational Society
15. Keeping in view the aforesaid exposition of law, we are of the opinion that interest-free loan of Rs. 90,50,000 given by the assessee-society to Nav Bharti Educational Society does not violate s. 13(I)(d) r/w s. 11(5) of Act, 1961 as the said loan was neither an "investment" nor a "deposit". This is more so as both the societies had similar objects and were registered under s. 12A of Act, 1961 and had approvals under s. 80G of the Act, 1961. The fact that the loan was interest-free and had been subsequently returned is also significant.In view of the. order passed by the CIT(A) in the case of Nav Bharati Educational Society, Ms. Bansal's allegation with regard to "entry scam" also does not survive. Consequently, there is no substantial question of law involved in the present appeal and accordingly, appeal is dismissed but with no order as to costs. c) 133 ITD 182 (Luck) Kanpur Subhash Shiksha Samiti v.
DCIT "14. It was held in Mansa Ram & Sons v. Janki Dass Om Prakash & Ors., AIR 1984 All. 267 that the term loan and deposit are not mutually exclusive. The test is whether on the admitted facts of the case there was an allegation on the debtor to seek out the creditor and repay him or whether he was to keep the money till the creditor asks for the same. The case of deposit is something more than a mere loan of money. It depends on the facts of the each case whether the transaction is clothed with the character of deposit of money.
We are in agreement with the reasoning given by the Delhi High Court in Director of Income Tax (Exemption) v. Acme Educational Society (Supra) holding that a loan is neither investment nor deposit. Where both the societies have similar objects and are registered under Section 12A and have approvals under Section 80G, interest free loan cannot be treated as deposit or investment so as to attract Section 11 (5) of the Act." d) 47 ITD 625 (Vishakapatnam) Sri Koundiya Eduction
Society vs ACIT
The A.O. denied the benefit of exemption for the sole
reason that the assessee society has diverted its funds to other societies and violated the provisions of section 13(1)(d) of the Act. According to the A.O., advancement of loans to other societies whether or not registered under the provisions of section 12A of the Act is a violation of section 13(1)(d) of the Act, consequently the society is not eligible for exemption u/s 11 of the Act. The question before us is whether loans advanced to other societies under the same management having similar objects and also registered under the provisions of section 12A of the Act is a violative of section 13(l)(d) of the Act, which render the assessee ineligible for exemption u/s 11 of the Act. The Hon'ble Delhi High Court, in the case of ACME
Educational Society (supra), held that advancing interest free temporary loan by assessee society to another society having similar objects is not an investment or a deposit, hence there is no violation of the provisions of section 13(1)(d) r.w.S.
11(5) of the Act to render withdrawal of exemption u/s 11 of the Act. In the present case on hand, on perusal of the documents available on record, we find that the assessee has advanced, loans to other societies under the same management having similar objects and also registered under the provisions of section 12A of the Act and charged interest.
The assessee also proved that it has advanced loans out of the funds borrowed from founder members of the society. When the loans are given out of the funds borrowed from the society, the A.O. was not correct in holding that the assessee has diverted the funds in violation of the provisions of section 13(1)( d) of the Act. Therefore, we are of the view that advancing loans to other societies having similar object whether or not registered uls 12A of the Act, is not a violation of the provision of section 13(1)(d) of the Act.”
7.3 Respectfully following the above precedents, I am of the considered view that there is no violation of section 13(1)(d) of the Act and thus, denial of exemption under section 11 of the Act is contrary to the provisions of law and hence not tenable and accordingly the same is allowed. Therefore, addition of Rs. 62,781/- made on account of surplus treating assessee as an AOP is deleted.
Accordingly, the ground no. 1 to 2 are allowed.
7.4 With regard to ground no. 3 relating to addition of Rs. 3,08,761/- on account of corpus donation by holding that assessee is not entitled to exemption u/s. 11 of the I.T. Act, 1961.
As I have already held vide para no. 7.3 hereinabove that there is no violation of section 13(1)(d) of the Act and thus, denial of exemption under section 11 of the Act is contrary to the provisions of law and hence not tenable, therefore, the addition of Rs. 3,08,761 is not sustainable in the eyes of law. Moreover, I find that the addition of Rs. 3,08,761/- representing corpus donation received by the assessee and not taxable as such, because the corpus donation of Rs. 3,08,761/- was received on 9.1.2013 for a specific purpose i.e. purchase of land, which is capital receipt and capital receipt cannot be taken as revenue income and hence, is not chargeable to tax. In view of the above, the addition in dispute is deleted and ground no. 3 is allowed accordingly. My aforesaid view is fortified by the following decision:-
260 ITR 366 (Guj) CIT vs. Sathanakvasi Vardhman Vanik Jain Singh “……The issue involved in the present reference is quite different as in the present reference the assessee is claiming the benefit of section 11 on the ground that the contribution received by the assessee-trust was towards a specific purpose for construction of wadi and hence, it would not be treated as the income of the trust. In the above view of the matter, we are of the view that the Tribunal has not committed any error in holding that the donation received by the assessee-trust of Rs. 1,85,064 which was not utilised for the object of the trust was not income of the trust. We, therefore, answer the question 15 referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue….”
In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 20/01/2017.