DCIT, C-1 (EXEMPTIONS), CHANDIGARH vs. M/S SHIVA EDUCATIONAL TRUST, MOGA

PER ANNAPURNA GUPTA, AM:

The captioned appeals relate to different assessees and has

been filed by the revenue against separate orders passed by the

Commissioner of Income Tax (Appeals)-4, Ludhiana. Since the

issue involved in the appeals was common, they were all heard

together and are being disposed off by way of this common

consolidated order for the sake of convenience.

exemption under section 11 of the Income Tax Act, 1961,

(hereinafter referred to as ‘ACT’) on account of violation by the

assessee of the provisions of section 13 of the Act, which order of

the AO was set aside by the CIT (A) in all the above cases. It was

common ground between both the parties that the facts involved

in all the above appeals was identical.

the said cases, it was pointed out that the assessees were

societies registered under the Societies Registration Act, 1860,

and had been registered as charitable trusts under the provisions

of section 12A of the Income Tax Act, 1961. The assessees had

claimed exemption of its income under section 11 of the Act,

which was denied by the AO on the ground that the assessees

had given interest-free loan to one M/s Baba Amarnath

Educational Society and or other societies/trusts, which act

attracted the provisions of section 13 of the Act, resulting in

denial of exemption under section 11 of the Act to the assessee

for the following reasons:

a) That the society to whom loan was advanced was a sister

concern of the assessee society and, therefore, the said

transaction tantamounted to extending benefit to a person

specified under section 13( 3) of the Act which was

prohibited by section 13 (1) (c) of the Act for claiming

exemption under section 11 of the act.

b) That the said transaction tantamounted to making

investments of monies in forms and modes other than those

specified under section 11 (5) of the Act, which was

prohibited by section 13 (1) (d) of the Act for claiming

exemption u/s 11 of the Act.

not advancing education but making loans and advances. He

therefore held that the assessee was not entitled to claim

exemption of its income under section 11 of the Act.

allowed the assessee’s appeal holding that the assessee had

neither violated the provisions of section 13 nor could it be stated

that the main object of the assessee was making loans and

advances to others at para 5.2 of his order in the case of M/s

Shiva Educational Trust, the appellant in ITA No.1229/Chd/16,and

which it was common ground was identical in the other appeals

also as under:

“5.2 I have considered the observations of the Assessing Officer as made by him in the assessment order while denying impugned exemption/deduction. I have also considered the written submissions filed by the ape society through its Ld.AR vide letter dated 23.06.2016 on the issue under reference. 1 have further considered various judicial pronouncements relied upon by the appellant society as well as other material placed on record. On careful consideration of the assessment order, it has been noticed that the Assessing Officer has denied exemption to the appellant society claimed by it under section 11 of the Act on excess of income over expenditure declared b| the appellant society in income and expenditure account as in his opinion the appellant society has given loan to a group society without any consideration or adequate security as the group society is a specified person under the provisions of section 13(3) of the Act in which some of the members of the appellant society are also members and as such the provisions of sections 13(l)(c) and 13(l)(d) read with

sections 13(3) and 11(5) of the Act are attracted in the case of the appellant society, While denying impugned exemption, the Assessing Officer has also observed that the fund transferred by the appellant society to its group concern by way of loan is in fact an investment made by the appellant society in another group society as the fund given in the form of loan has been utilized by the other group society in fixed assets. The Assessing Officer also relied upon decision of Honorable Madras High Court in the case of CIT Vs V.G.P. Foundation reported at (2003) 183 CTR (Mad) 330/262 ITR 187 (Mad) to support its contention. On the other hand, the appellant society through its Ld. AR has submitted that the society to whom the loan has been given is not a specified person under the provisions of section 13(3) of the Act rather it is a charitable institution registered under section 12AA of the Act which is also engaged in similar activities as that of the appellant society as the group society to whom loan has been given also runs charitable institution(s) just like the appellant society. It has also been submitted that the loan given by the appellant society to another group society engaged in similar activities is in accordance with its objects and cannot be termed as investment or deposit in violation of the provisions of section 11(5) of the Act but the loan should be treated as an application of funds as the appellant society has advanced the loan for the fulfillment of its objects. It has further been submitted that none of the members of the appellant society has drawn any undue benefit directly or indirectlyfrom the transactions of loan under consideration. It has again been submitted that loan has been advanced in earlier years and no disallowance has been made in that year although the assessment in that particular year was also completed under section 143(3) of the Act. To support its contention, the appellant society has placed on record copies of assessment orders in earlier years including the year in which loan has been given. In nutshell, the appellant society through its Ld. AR has submitted that the provisions of sections 13(l)(c) and 13(l)(d) read with sections 13(3) and 11(5) of the Act are not attracted in its case as the appellant society has not violated the provisions of section 11/12 of the Act. In support of its arguments/submissions, the appellant society through its Ld, AR has also relied on various judicial pronouncements which find mention in the written submissions reproduced above. On careful consideration of the rival contentions and more particularly keeping in view the ratios of various judicial pronouncements relied upon by the appellant society, I am of the opinion that there is a lot of force in the arguments of the appellant society. I am also of the opinion that the group society to whom loan has been given is not covered under the provisions of section 13(3) of the Act and as such provisions of sections 13(l)(c) and 13(l)(d) read with sections 13(3) and 11(5) of the Act are not attracted in the case of the appellant society. It has also been noticed that under identical circumstances no such disallowance was made in earlier years although the assessments in earlier years were also completed under section 143(3) of the Act. Under such circumstances, the action of the Assessing Officer in denying exemption of Rs.l,97,39,9527- in this case claimed by the appellant society under section 11(1) of the Act cannot be said to be justified, The judicial pronouncements relied upon by the appellant society also support its case whereas the facts of the judicial pronouncement relied upon by the Assessing Officer are

distinguishable as the loan in that case was given to a company and not to a charitable institution”.

before us challenging the aforesaid order of the CIT(appeal) and

raising the following common grounds in all the appeals as under:

“ I That the order of Ld. CIT(A) is defective both in law and facts of the case. II That the order of Ld. CIT(A)-4, Ludhiana has erred in law while allowing the benefit under section 11 of the Act without appreciating that there was a clear violation of Section 13 of the Income-Tax Act, 1961. III That the order of Ld. CIT(A)-4, Ludhiana has erred in law while not considering Section 13(l)(c) of the I.T. Act, 1961, according to which, any income of the trust directly or indirectly applied for the benefit of any person referred to in Section 13(3) of the Act shall not be excluded from the total income and provisions of Section 11 shall not apply to the same. IV That the order of Ld. CIT(A)-4, Ludhiana has erred in law as the findings recorded are perverse and contrary to the evidence/material available on record & facts of the case and duly considered by the Assessing Officer.

V The Appellant craves leave to add or amend the grounds of appeal on or before is heard and disposed off.”

identical issue had been dealt with by the ITAT in the case of the

DCIT vs Amritsar International Foundation (Trust) in its order in ITA

No. 310/CHD/2017 dated 08. 12. 2017, deciding the issue in favour

of the assessee. Copy of the said order was placed before us.

Drawing attention to the facts of the case in the appeal before

the ITAT, it was pointed out that the issue involved was identical

being denial of exemption under section 10 (23C) of the Act,

which was granted to institutions established only for the purpose

of education, for the reason that the assessee had advanced

interest-free loan to M/s Baba Amarnath Educational Society thus

attracting the provisions of section 13 of the Income Tax Act,

1961. Our attention was drawn to para 2 of the order stating the

aforesaid facts as under:

“The only issue in the present appeal relates to exemption claimed by the assesses as an institution established wholly for the purpose of education u/s 10(23C)(vi) of the Income Tax Act, 1961 (in short 'the Act'), which was denied by the Assessing Officer since he found that the assessee had' advanced interest free loan of Rs.30 lacs to one M/s Baba Amarnath Educational Society, which as per the Assessing Officer, was a specified person u/s 13(3) of the Act with whom such transactions were prohibited by section 13(1)(c) of the Act, for the purpose of claiming exemption, The AO also denied the exemption since he found that the said advance was in violation of the prescribed modes of investments of funds of trusts claiming exemption u/s 10(230) of the Act, as prescribed u/s 13(l)(d) rws 11(5) of the Act. The Assessing Officer also held that the assessee was ineligible for exemption since he found that the main object of the assessee was not education but giving loan and advance and building capital. The surplus earned by the assessee amounting to Rs.3,64,60,383/- therefore was subjected to tax.”

CIT( appeal) had decided the issue in favour of the assessee and

the ITAT had upheld the order of the CIT( appeal).Ld. counsel for

the assessee drew our attention to the relevant findings of the

ITAT at para 16 to 24 of the order which stated as under:

“16. We have heard both the parties gone through the orders of the authority below and also the documents referred to before us. We find no infirmity in the order of the Ld.CIT(Appeals). Clearly the only reason for finding the assessee ineligible for exemption u/s 10(23C)(vi) is on account of the interest free loan given by it to M/s Baba Amarnath charitable trust. The fact that the impugned loan/advance pertained to A.Y 2011- 12 and not to the year in appeal before us has remained uncontroverted, so in any case, there cannot be said to be any violation in the impugned year by the assessee either of the provisions of section 13(l)(c) read with section 13(3) or even section 13(l)(d) rws 11(5) of the Act at all.

a) author of the trust or founder of the institution b) persons who have made substantial contribution to the trust or institution i.e exceeding Rs.50,000/-

c) where the author, founder or person is a HUP, member of the HUF

d) trustee of the trust or manager of the institution

e) any relative of the aforesaid persons f) any concern in which aforesaid persons have substantial interest. 18. Clearly having a common member or indulging in a number of transactions of loan and advances is not envisaged as establishing a specified person u/s 13(3) of the Act. Having said so, no question arises of the assessee indulging in transactions prohibited by section 13(l)(c)of the Act, which lists transactions with persons specifiedu/s13(3) of the Act. Therefore, we concur with the Ld.CIT(Appeals) that the provisions of section 13(l)(c) read with section 13(3} are not applicable in the present case.

to assist in carrying out its objectives which was identical to that for which the assessee society was also set up.

These facts have not been controverted by the Revenue. The said loan/advance therefore qualified as application of Income by the assessee and was not an investment or deposit covered u/s 11(5) of the Act. The assessee, we hold therefore cannot be said to have violated the provisions of section 13(l)(d) r.w.s 11(5) of the Act. The reliance placed by Ld. counsel for the assessee on the decision of the Hon'ble Delhi High Court in the case of Director of Income Tax (Exemption) vs ACME Educational Society 326 ITR 146 is apt, wherein after discussing the issue at length it was held that interest free loan given by one charitable society to another charitable society having similar objects was neither a deposit or investment in violation of section 13(l)(d) r.w.s. 11(5) of the Act. The relevant findings of the Hon'ble High Court at para 15 of its order are as under:

"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(l)(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." 20. The said proposition has been reiterated by the Hon'ble Delhi High Court in the case of CIT vs Indian National Theatre Trust (2008)305 ITR 149. Ld.Counsel for the assessee has also drawn our attention to a number of other decisions wherein it has been held that giving loans to other charitable institutions registered u/s 12A having to similar objects are not in violation ff the provisions of section 13(l)(d) read with section 11(5) of the Act. Ld. DR has not distinguished the case laws relied upon by the assessee. On the contrary, the reliance placed by the Ld. DR on the decision of the Hon’ble Madras High in the case of C1T vs V.G.P. Foundation, we find is based on different set of facts, since in that case the advance was given to sister concern with no finding that it was also a charitable society registered with the same objects as the donor, while in the present

case the loan has been given by one society to another having similar objects and both societies are registered u/s 12A. Therefore, we agree with the Ld.CIT(Appeals) that the impugned advance did not violate the provisions of section 13(l)(d) r.w.s. 11(5) of the Act also.

In view of the above, we hold that there was no basis at all for denying exemption to the assessee society u/s 10(23C)(vi) of the Act. We therefore uphold the order of the Ld. CIT(A) deleting the addition of Rs. 3,64,60,383/-. All the grounds raised by the revenue are dismissed.

ITAT had held the denial of exemption incorrect for the reason

that the loan had not been advanced in the impugned year but

infact had been advanced in the earlier year and therefore it

was held that the exemption in any case could not be denied in

the impugned year. Ld. counsel for the assessee further stated

that the ITAT had categorically upheld the findings of the

CIT(appeal) that the Revenue having not established as to how

M/s Baba Amarnath Educational Society was a specified person

as per the provisions of section 13 (3) of the Act, the transaction

of advancing loan to it could not be said to be attracting the

provisions of section 13 (1) (c) of the act. Ld. counsel for the

assessee also stated that it was held by the ITAT that the said

loan or advance could not be treated as an investment or

deposit for the purpose of holding that the transaction

tantamounted to making investment or deposit in violation of the

provisions of section 11 (5) of the Act and thus not attracting the

provisions of section 13 (1) (d) of the Act. Ld. counsel further

stated that the ITAT had also categorically held that in the facts

and circumstances of the case the assessee could not be said to

be indulging only in the activity of making loans and advances

and not imparting education.

in all the captioned appeals before us was identical to that in the

case of Amritsar International (supra). Ld. counsel stated that the

loans given free of interest to M/s Baba Amarnath Educational

Society and/other societies other had been advanced in earlier

years and not in the impugned years, which was borne out from

the facts as recorded in the orders. A chart showing details of

loans given by the different assessees was produced before us in

tabular form as under:

CHART SHOWING DETAILS OF APPEALS FIXED FOR HEARING BEFORE ITAT. CHANDIGARH BENCH. CHANDIGARH ON 05/02/2018

Sl. Name of Assessee/ ITA No. Details of interest Details of No. Respondent free loans given to A.Y. in which other Educational the amount Societies was given as Interest free loan

M/s Guru Gobind Singh Foundation. Assessment Year 2013-14. Details of Interest Free Loans given to other Educational Societies:-

Sl. Name 2007-08 2007-08 2010-11 2011-12 2012-13 No.

1 -- -- 1 660 000 0 2 560 000 0 2 835 000 0 ACE Educational & Charitable Society

2 -- -- 1 260 000 0 1 407 500 0 1 457 500 0 Davinder Kumar Educational Society

3 -- -- 2 250 000 2 250 000 2 250 000 Malwa Educational Society

4 -- -- -- -- 2 100 0 Bharti Educational Society

5 -- -- -- -- 2 000 000 Global Educational Society

6 6 159 932 4 932 932 9 973 7 1 600 263 4 850 263 Sachdeva Educational Society

Total 6159932 4932932 31549737 43525263 52046263

case of Amritsar International(supra) in the impugned case also it

has not been pointed out by the assessing officer as to how M/s

Baba Amarnath Educational Trust and or other societies were

persons specified as per the provisions of section 13 (3) of the

Act. Ld. counsel for the assessee stated therefore that the

provisions of section 13 (1) (c) of the Act cannot be said to apply

in the present case. Ld. counsel for the assessee further pointed

out that both the assessee and M/s Baba Amarnath Educational

and or other societies /Trust were registered under section 12A of

the Act and the said loan or advance could not be said to be an

investment or deposit made by the assessee and was therefore

not in violation of the provisions of section 11 (5) of the Act so as

to attract the provisions of section 13 (1) (d) of the Act. Ld.

Counsel for the assessee stated that other than the impugned

interest-free advance given by the assessees no other

transactions were brought to light of similar nature by the

assessee so as to hold that the assessee was indulging in

transactions of giving only loans and advances and not in the

activity of imparting education. Ld counsel for the assessee

therefore stated that the finding of the ITAT in the case of

Amritsar International(supra) that the assessee in such facts and

circumstances could not be said to be indulging in the activities

of giving loans and advances, squarely applies to the facts of the

present case also. Ld. counsel for the assessee thereafter stated

that since the facts in the present cases are identical to that in

the case of Amritsar International (supra) the decision rendered

by the ITAT in the said case would squarely apply to the present

cases also.

appeals was identical to that in the case of Amritsar International

(supra). Ld. DR, however relied upon the order of the AO.

gone through the orders of the authorities below and also the

order of the ITAT in the case of Amritsar International (supra).

Admittedly the facts in the present cases are identical to that in

the case of Amritsar International (supra). No distinguishing facts

were brought to our notice by the Ld. DR. The decision rendered

in the case of We therefore see no reason to interfere in the

order of Amritsar International (supra) would therefore squarely

apply in the present appeals also. Following the same we hold

that the Ld. CIT(A) has rightly held that the provisions of section

13(1)(c) are not attracted since the AO has failed to point out

how persons specified as per section 13(3) of the Act. We also

agree with the Ld. CIT(A) that the loan given to the respective

Educational Society do not qualify as a deposit/investment for

the purposes of section 11(5) of the Act, and therefore the

assessee cannot be said to have violated the provisions of

section 11(5) so as to be denied exemption u/s 11, as per section

13(1)(d) of the Act. Moreover since the impugned

loans/advances were made in earlier years, the provisions of

section 13(1)(c)/(d) could in any case not have been invoked in

the impugned year. We therefore uphold the order of the Ld.

CIT(appeals) and dismiss the appeal filed by the Revenue.

stand dismissed.

Order pronounced in the open court.

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 26th July, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR

Assistant Registrar, ITAT, Chandigarh