TMI Blog2013 (9) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... contributors of relatives of such persons were having interest in the two chit companies. - assessee was eligible for exemption under Section 11 of the Act and its claim was denied unjustly. Relying upon CIT v. Kottayam Co-operative Bank Ltd. [1974 (4) TMI 2 - KERALA High Court] - The annual income of the Trust against which, utilization for charitable purpose which was well above the limit of 85% prescribed u/d 11(1)(a) of the Act - As per the assessee, subscriptions paid to chit funds were not deposits nor investments and it could not have been a reason for denying it the exemption claimed u/s 11 of the Act - Subscription paid by a subscriber of a chit to a chit company acting as the foreman of the chit, in our opinion, cannot be considered as an investment. Subscribing to a chit fund is not with an intention to earn interest or dividend. - ITA No.1445/Mds/2012 - - - Dated:- 10-1-2013 - Abraham P George and V Durga Rao, JJ. For the Appellant : Shri G Baskar, Adv. For the Respondent : Shri T N Betgiri, JCIT ORDER:- Per: Abraham P George: In this appeal filed by the assessee, its grievance is that it was denied exemption under Section 11 of Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, tax could be levied at marginal tax rate only to that part of the income on which exemption was forfeited. 4. However, the CIT(Appeals) was not impressed by any of these arguments. According to him, Section 164(2) applied only on income derived by a charitable trust on business activities pursued by it and falling within Section 11 (4A) of the Act. But, for this amount, which was to be taxed at normal rate, the balance of the assessee had to be taxed at maximum marginal rate when there was a violation of Section 13(1)(c) or Section 13(1)(d) of the Act. Further, according to him, once it was proved that there were investments in violation of Section 13(1)(c) or Section 13(1)(d) of the Act, then tax had to be levied on the income of the assessee at maximum marginal rate. Reliance was placed on the decision of Hon'ble Apex Court in the case of DIT v. Bharat Diamond Bourse (259 ITR 280), Rabindranath Educational Trust v. Union of India (191 Taxman 379) (Orissa High Court), Priyadarshini Educational Academy v. DGIT (333 ITR 347) (AP High Court), Kanahya Lal Punj Charitable Trust v. DIT(Exemptions) (297 ITR 66) (Delhi High Court) and Mundakapadam Mandirams Society v. CIT (258 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of CIT v. Nachimuthu Industrial Association (138 ITR 585). 6. Continuing his arguments, learned A.R. submitted that the amount placed by the assessee with the chit funds could not be considered as deposit also. For canvassing this view, learned A.R. relied on a decision of Amritsar Bench of this Tribunal in the case of Onkar Capital Growth (P) Ltd. v. CIT (92 ITD 453). Subscribers of the chit were contributing money each month and when a bid took place among the members, highest bidder was entitled to take chit. There were no investment or deposit made by a subscriber in the course of these transactions. For this reliance was placed on the decision of Hon ble Delhi High Court in the case of CIT v. Sahib Chits (Delhi) (P) Ltd. (328 ITR 342). In any case, according to him, there was no malafide intention since the chit funds were no way related to the assessee-Trust nor to any person associated with assessee-Trust. Therefore, according to him, assessee was under a bonafide impression that it was not violating any provision by placing the subscriptions with chit funds. Learned A.R. submitted that in a similar situation, Hon ble Delhi High Court had in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year, with M/s Tern Credits Chits Private Limited was Rs. 2,08,456/- and with M/s K.R. Palaniappan (Chit) was Rs. 96,230/-. The annual income of the Trust came to Rs. 7,35,19,954/- against which, utilization for charitable purpose came to Rs. 6,98,07,198/-, which was well above the limit of 85% prescribed under Section 11(1)(a) of the Act. As per the assessee, subscriptions paid to chit funds were not deposits nor investments and it could not have been a reason for denying it the exemption claimed under Section 11 of the Act. Subscription paid by a subscriber of a chit to a chit company acting as the foreman of the chit, in our opinion, cannot be considered as an investment. Subscribing to a chit fund is not with an intention to earn interest or dividend. The only intention is to prize the chits either by competitive bidding or when lots are drawn. If there was no bidding done in a given month, there will be no income whatsoever derived. The income that can be derived was only the amount forgone by the bidders in an auction. Thus a chit fund is primarily intended to operate as a scheme for advancing loans from a common fund created by the subscribers, and their turn for getti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded:] [Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words "ten years" at both the places where they occur, the words "five years" had been substituted.] [Explanation.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.] 11(5) The forms an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause for the period up to the date on which such investment or deposit becomes repayable by such company;] (viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India and [which is eligible for deduction under clause (viii) of sub-section (1) of section 36]; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and [which is eligible for deduction under clause (viii ) of sub-section (1) of section 36]; [(ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India. Explanation.-For the purposes of this clause,- (a) "long-term finance" means any loan1 or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof duri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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