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2020 (1) TMI 602 - AT - Income TaxExemption u/s.11 - 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 and also transferred the fund to a private trust - HELD THAT:- Admittedly, assessee trust is duly registered u/s.12AA - It is mandatory in order to avail exemption u/s.11, the funds of the trust should be invested in one of the modes prescribed u/s. 11(5). 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). 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 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 Assessing Officer to restrict the taxable income to the extent of violation of Section 11(5) of the Act. Appeal filed by the Revenue is partly allowed.
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