TMI Blog2015 (8) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... )(d) of the Act. Even the CBDT Circular No.335 dt.13.4.1982 explains the same position. The example given therein clearly explains that in a case where the trust derives income of ₹ 40,000 in a year, as per S.11(1)(a) it has to spend at least ₹ 30,000 on charitable purpose and the balance of ₹ 10,000 will have to be invested in the forms or modes prescribed u/s 13(5)(now S.11(5)). Therefore, in a case where the entire income of ₹ 40,000 is spent for charitable purposes exemption u/s 11(1)(a) has to be granted and there is no need to further examine whether any investments were made in violation of S.11(5) of the Act in as much as the trust is left with no more funds out of the income of ₹ 40,000 received. In the case of both the assessees, as per the charts submitted by the assessees it is evident that they have incurred deficit in every year and thus entire income of each assessment year was fully spent towards the charitable objects. In this case, contribution to the chit fund was made to enable the assessee society to raise funds for expansion. This is clear from funds flow statement and the projected investment required by the assessee. When the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79 to 481/v/2012 are directed against the order of CIT(A), Visakhapatnam dated 27.9.2012. Since, all the issues arising in these appeals are common, for the sake of convenience they are heard together and disposed of by this common order. Facts in brief:(ITA No.175/v/2012): 2. The assessee Sri Sivani Educational Society, Srikakulam, is a society registered under the Societies Act. It has been granted registration u/s 12A of the Income Tax Act, 1961 by the CIT-II, Visakhapatnam vide proceeding no.CIT-2/trusts/62/2005-06 dated 29.9.2006. The assessee is an educational institution, running Engineering and Pharmacy colleges. During the assessment year, the assessee filed its return of income on 30.9.2009 declaring nil income, after claiming excess of income over expenditure, amounting to ₹ 84,32,548/-. It claimed exemption u/s 11 r.w.s. 12A of the Act. The return of income was scrutinized under section 143(3) of the act. Assessing Officer's findings: 3. During the course of scrutiny assessment proceedings, the AO noticed that the assessee has been contributing to M/s. Margadarshi Chit Funds. The chit value is ₹ 15 lakhs and each installment is S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer. He held that (a) the assessee started contribution to Margadarshi Chit Fund in June, 2007 and got dividend on such contribution during the years 2007, 2008 2009. The assessee has excess of income over expenditure as on March, 2009, as in earlier years. As on 31.3.2009, the assessee is holding deposits of more than ₹ 1.1 crores in Vijaya Bank FDR. Hence, the assessee is not in dire and immediate need of funds (b) it is not disputed that the assessee would need more money for his expansion plan (c) however, for assessment year 2007-08, 2008-09 2009- 10, the assessee is having excess funds even after investing the funds in the fixed assets. (d) it is clear from the balance sheet that the assessee has taken secured loans from the banks and hence it cannot be said that the assessee is not having recourse to approved methods of funding and thus had to go in for chit borrowals (e) assessee at the time of investing in the chits is not expecting that it would require funds in May, 2009 and hence would use this as a method of borrowal. (f) when the assessee started contributing to chits, it is with an intention to park its extra funds and earn dividend on the same. (g) it is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The assessee is a society registered u/s 12A of the Income-tax Act. It filed its return of income for all the above assessment years. There was a survey conducted u/s 133A on 18.3.2010. During the course of survey, it was found that the assessee society has contributed to chit funds by name M/s. Nitchala Chit Funds Pvt. Ltd. having a branch office at Parvathipuram, Vizianagaram Dist. The contribution was in respect of two chits of ₹ 5 lakhs each and the monthly subscription amount was ₹ 10,000/- each. Further, on verification of the balance sheet of the assessee under the head schedule-E details of investments and deposits ₹ 60,000/- has been shown towards investment in chits as at 31st March, 2003. Subsequently, contributions were made to another chit by name M/s.Srinivasa Chit Funds Private Limited and the total amount mentioned in the balance sheet at the end of 31st March of 2004, 2005 and 2006 respectively was ₹ 4,00,000; ₹ 7,80,000 and ₹ 6,91,540. The assessee had declared chit dividend income and also debited chit loss. The assessing officer reopened assessments for the all the four years and in the reassessment he held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal, Visakhapatnam bench, in the case of Priyadarshini Educational Academy v. Assistant Commissioner of Income Tax 125 ITD 141 (Visakha), is not applicable to the facts in appellant's case. Ground no.2 2.a Without prejudice to Ground no.1, appellant submits that CIT(A) is not justified in upholding the action of assessing officer that the entire income of the appellant, being a society registered u/s 12A of the Income-tax Act 1961 engaged only in imparting Education, is liable to levy of income tax at the maximum marginal rate under the provisions of section 164(2) of the Income Tax Act, 1961, only on account of subscription to a Chit Fund made by the appellant for the purpose of raising financial resources, whereas appellant most respectfully prays that at the most, it is only the amount of income derived from such contribution to Chit Fund which ought to have been held as income liable to levy of income tax at the maximum marginal rate under the provisions of section 164 of the Income Tax Act but not the entire income of appellant. 2.b Appellant most respectfully submits that the reliance placed by the CIT(A) on the decision of the hon'ble Hyderabad bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of S.13(1)(d) of the Income Tax Act, 1961. Assessee's submissions: 12. The Ld. Counsel for the assessee Mr. G.V.N. Hari submitted that: (a) Both the assessees had net deficit during the relevant previous years, as demonstrated in the chart filed during the course of hearing. He submitted that in the case of Lokabandu Educational Society the chart is prepared by following the law laid down by various high courts that the deficit which is carried forward from the previous year, is also to be considered for the current year while arriving at the net deficit. For this proposition he relied on the following case laws: CIT Vs. Raghuvanshi Charitable Trust Ors. (2010) 44 DTR (Del) 223 Govindu Naicker Estate Vs. ADIT (2001) 248 ITR 368 (Mad) CIT Vs. Shri Plot Swetamber Murti Pujak Kain Mandal (1995) 211 ITR 293 CIT Vs. Shri Gujrati Samaj (regd) (2011) 64 DTR (MP) 76 (b) The assessee has complied with the conditions prescribed u/s 11(1) of the Act which confers exemption from the income derived from property held under the trust in two ways (i) amount actually applied for such purposes during the year (ii) amount not exceeding 15% of the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable, to only accumulations u/s 11(2) of the Act. At the same time, the Government did not want to completely restrict the freedom of the institution, with regard to the amounts accumulated u/s 11(1) of the Act. Hence, initially the legislature has put only a negative condition that these funds accumulated u/s 11(1) of the Act shall not be used for the benefit of the specified persons and it was later that voluntary contributions were brought into the purview of the restrictive conditions. A little later, a positive condition was imposed even with regard to, utilization of funds accumulated u/s 11(1) of the Act. However, the choice of investment available to a charitable institution in respect of accumulation u/s 11(1) was a little wider than the choice available with regard to the accumulation u/s 11(2) of the Act and that ultimately the additional leverage available to funds accumulated u/s 11(1) of the Act was withdrawn and that both the accumulations u/s 11(1) and 11(2) of the Act have been brought at par. (f) That the Hon'ble High Court of Andhra Pradesh in the case of M/s. Priyadarshini Educational Academy Vs. DGIT (Inv.) (2011) 333 ITR 347 (AP), has held that what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an investment. He argued that investment connotes parting with money with a view to earn some income/return on or before the money parted with is returned to the person parting with the money. However, the case of contribution to a chit fund, there is no relationship of debtor and creditor between the person managing the chit funds and the person who contribute to the chit fund that there is no legal right, to claim refund of the amount, contributed by the person joining the scheme. For this proposition, he relied on the following case laws: (1) Shriram Chits Investment (P.) Ltd. v. Union of India AIR 1993 SC 2063 (2) Dhoosa Narasimloo v. Yelala Rajanna [1958] ILR AP 409 (j) It was submitted that certain decisions were not brought to the notice of Hon'ble AP High Court in the case of Priyadarshini Educational Academy (supra) and that the issue whether contribution to a chit fund, constitutes investment or not, was not a question before the Hon'ble High Court and hence it cannot be said that it is a binding precedent. He relied on the decision of Hon'ble Andhra Pradesh High court in the case of CIT v. Suman Chit Funds in ITTA No.120 of 2013 dated 27.6.2013, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that (in the case of Lokabandu Educational Society) only in the year 2005-06, when 143(3) order was passed, the assessee came to know of this possible interpretation and thereafter, he did not contribute to any chit funds. He further submits that the contribution made by the assessee to the chit funds is very marginal and negligible, when compared to the scale of operation of the assessee. Thus he contends that taking away the entire exemption u/s 11 of the Act would be highly disproportionate consequence to the marginal error on the part of the assessee while acting in a bonafide manner. He relied on the decision of Hon'ble Delhi High court in the case of DIT v. Agrim Charan Foundation [2002] 253 ITR 593. (n) Alternatively he submitted that the entire surplus cannot be brought to tax even if it is treated as a violation of section 13(1)(d) r.w.s. 11(5) of the Act and for this proposition he relied on the following case laws: 1. Gurudayal Charitable trust Vs. ITP (1990) 34 ITD (Bom) 489 2. DIT (Exemption) Vs. Sheth Mafatlal Galalbhai Foundation Trust (2001) 249 ITR 533 (Mum). (o) He submitted that income cannot be taxed at maximum marginal rate as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... states that nothing contained in section 11 or section 12 shall operate in case of any income thereof if any funds are invested or deposited otherwise then the forms/mode prescribed in section 11(5) of the Act. He referred to the section and submitted that a plain reading would lead to conclusion that the intention of the legislature was to remove the benefit of section 11, if any funds out of any income of the assessee, is invested other than the mode specified in section 11(5) of the Act. He submitted that any other interpretation would defeat the purpose of legislation itself and hence it should be avoided. He relied on the circular no.229 dated 9.8.1977 brought in by the Finance Act (no.2 of 1977) as well as the CBDT circular no.335 dated 13.4.1982 and submitted that it has clearly stated that both the requirements of applying 85% of the income to charitable purposes and investing the remaining income in the mode specified u/s 11(5) of the act is mandatory for claiming exemption u/s 11 of the Act. e) On the argument of the assessee that the entire income has been spent, he submitted that there is a basic flaw in the argument as the assessee is taking only revenue receipts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be attracted, he relied on the decision of the jurisdictional High Court in the case of Priyadarshini Educational Academy (supra) and submitted that the argument is devoid of merit. He submits that the case laws relied upon by the Ld. A.R. are entirely in a different context and are distinguishable. i) On the argument that the assessee had no intention of making an investment and that it acted in a bona fide manner, he relied again on the decision of the High Court in the case of Priyadarshini Educational Academy (supra). j) On the assessee s argument that the entire surplus cannot be brought to tax, he submitted that there are catena of decisions in favour of the revenue and that these are brought out by the AO as well as the CIT in their order. He pointed out that the decisions in the case of Gurudayal Charitable trust (supra) and Sheth Mafatlal Gagalbhai Foundation Trust (supra) have been rightly distinguished by the AO. Ld. CIT(DR) in view of the above factual and legal position argued that, the orders of the lower authorities have to be sustained and the assessee s appeal be dismissed. Our Findings: 14. Rival contentions were heard. On a careful consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the previous year, the income applied to charitable or religious purposes in India falls short of eight-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd such public sector company ceases to be a public sector company,-- (A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company; (B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period upto 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that nothing in this clause shall apply in relation to- (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; (ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the the trust or institution; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before the 1st day of March, 1983; (iia) any asset, not being an investment or deposit in any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1993 whichever is later; (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. Explanation:- Where the trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e he has offered a discount of `15,000/-. This leave a balance of ₹ 15,000/- (Rs.15,000 ₹ 50,000) in the kitty. The amount of ₹ 15,000/- which represents the discount which the successful bidder has foregone becomes the dividend which is to be distributed to all the subscribers after deducting a fixed amount representing the commission payable to the foreman . A foreman is normally a person who organises the auction and conducts the proceedings. If in the example given above, the commission payable to the foreman is fixed at 5%, then after deducting ₹ 2,500/- (5% of ₹ 50,000/-, the chit amount) the balance of ₹ 12,500/- would be distributed among all the 50 subscribers so that each would get ₹ 250/-. This amount of ₹ 250/- can be set off by the subscribers against the second month's installment of ₹ 1,000/- payable by him and he can give only ₹ 750/-. The auction would be repeated in the subsequent months and the same procedure is followed. Any subscriber who delays the bidding or does not bid at all stands to gain the maximum discount. The chit is thus somewhat like a recurring deposit with the bank. There is no ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her subscribers, as premium. The manager is paid a certain percentage of the collections each month on account of expenses and charges for conducting the auction. In the auction, a maximum amount, which the highest bidder agrees to forgo, is the amount, which is distributed to the other members, subject to deduction of the manager s commission. 17. The Hon ble Delhi High court in the case of CIT Vs. Saheb Chits (Delhi) Pvt. Ltd. ITA No.44 of 2008 judgement dated 24.7.2009 has observed as follows: Further, it was observed by the Hon ble Supreme court in Sriram Chits and Investments (P) Ltd. (supra) that it would not be correct to state that each subscriber lent money to the person who gets chits earlier. It cannot also be construed that the person who gets chit later should be treated as a money lender. The agreement between the parties those entered as per section 6 of the Act only provides for distribution of the chit amount. The Supreme court however relied on the judgement of the Kerala High court in Janardhana Mallan and Others vs. Gangadharan and others AIR 1983 Kerala 178, wherein it was observed that on entering into a chit agreement, a debt is not incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of P.K Achutan v. State Bank of Travancore, Calicut. While rendering the decision in Janardhana Mallan and Ors. (supra) the Full Bench of the Kerala High Court considered a catena of decisions starting from 1937 in the matter of Ramanatha lyyar v. Narayanaswami. The Andhra Pradesh High Court also, while dealing with the transaction of a chit fund organisation, in the matter of Dhoosa Narsimloo v. Yelala Rajanna and Anr. I.L.R. (1958) Andhra Pradesh 409, where the petitioner had filed a suit in the Court of the District Judge against the respondents on a promissory note executed by them for the amount they drew in a pool from a chit fund organisation and where the District Judge had dismissed the suit for want of a license under Section 9(2) of the Hyderabad Money Lenders Act (Act V of 1349 F.) and on revision, the question that came for consideration was whether the chit fund organisation could be regarded as a money lender within the meaning of the said Act and whether its transaction partake the nature of a loan. Srinivasachari, J. speaking for the Court held that the amount drawn by a member of a chit fund who bid at the periodical auction giving the largest discount c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges commission for his service. The money contributed by the subscribers to the chit does not belong to the foreman. It belongs to all the stake holders. Under these circumstances, it has to be concluded that the contribution to chit fund is a mutual activity and the fund belongs to all the participants. There is no money lent or kept by one party with another party as an investment or deposit. 20. Hon ble Haryana High Court in the case of Soda Silicate Chemical Works Vs. CIT 179 ITR 588 (P H) held as follows: in order to answer the question posed, regard must be had to the nature and working of the chit fund, in the context of the assessee, with particular reference to the fact that running a chit fund or being a member of such fund, was not the business of the assessee. The transactions concerned here are contributions made to the fund by the assessee and the lump sum received by it, though at a discount and the subsequent distribution and receipt of amounts amongst the participants as premia or dividend. There is clearly mutuality amongst the contributors and the participants of the chit fund with their identity being known and established. When such is the case, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received from the chit subscribers only as a trustee. Section 11(5) of the Act only refers money that is to be invested or deposited with a person or entity or organization or Government which is other than the assessee itself. Investment held by self i. e. where no second party is involved is obviously not covered to these sections. Thus, we can conclude that chit fund business is governed by the principles of mutuality and contributing to a chit fund is contribution to oneself on the principle of mutuality and hence, it is not an investment as contemplated by Sec 13(1) (d) r.w.s. 11(5) of the act. 24. Now, we proceed to examine to what extent a charitable institution is required to invest the funds for purposes of S.13(1)(d). For this purpose, we analyse the following terms used in section 13(1)(d): i) Any funds ii) Investment or deposit 25. The term any funds when read with the phrase any income thereof , in our opinion signifies income defined u/s 2(24) of the Act. Thus any receipt, which falls within the definition of income u/s 2(24) of the Act is to be considered. As rightly contended by the learned counsel for the assessee, the restriction on utilization o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edition : 'Fund'. . . An asset or group of assets set aside for a specific purpose . . , A generic term and all-embracing as compared with term 'money', etc., which is specific. A sum of money or other liquid assets set apart for a specific purpose or available for the payment of debts or claims. In the plural, this word has a variety of slightly different meanings, as follows : 'moneys' and much more, such as notes, bills, cheques, drafts, stocks and bonds, and in broader meaning may include property of every kind . . . Money in hand, assets, cash, money available for the payment of a debt, legacy, etc. Corporate stocks or government securities ; in this sense usually spoken of as the 'funds'. Assets, securities, bonds or revenue of a State or Government appropriated for the discharge of its debts. Generally, working capital ; sometimes used to refer to cash or to cash and marketable securities. (b) Dictionary for Accountants, fourth edition, by Eric L. Kohler : 1. An asset or group of assets within any organisation, separated physically or in the accounts or both from other assets and limited to specific uses. Examples : a petty cash or wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm is generally understood, but other circulating medium or instrument or tokens in general use in the commercial world as the representatives of value, such as bank notes, bills, cheques, drafts, notes, stocks and bonds, deposits or certificates of deposit, evidences of money lent to the Government, constituting a national debt, for which interest is paid at prescribed intervals. ... . In R. K. Dalmia v. Delhi Administration [1962] 32 Comp Cas 699 ; AIR 1962 SC 1821, it was observed that the word fund may mean actual cash resources of a particular kind (e.g., money in a drawer or in a bank or it maybe a mere accountancy expression used to describe a particular category which a person uses in making up his accounts). A similar view was expressed in AHchm v. Coullkard [1942] 2 KB 228. The expression fund or funds has a variety of meanings but the sense in which it is employed must be gathered from the context. It would not be correct to adopt a strictly literal or technical meaning of this expression while construing section 13(2)(h). In other words we must not construe that provision mechanically. We must construe it having regard to the object which the Legislature had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such manner, as to acquire some species of property which brings in an income to the investor. An investment popularly means every application of money which is intended to fetch return by way of interest income or profit. Thus only employed as capital in a business is money invested in business. (Vide Edwards ]., in Tax Commissioner v. Australian Mutual Provident Fund Society [1902] 22 NZLR 445). In ArnaJld v. Grinstead (21 WR Eng 155), it was observed that in its most comprehensive sense it is generally understood to signify the laying out of money in such a manner that it produces a revenue. An illuminating observation was made in IRC v. Desoutter Bros, Ltd. [1946] 1 All ER 58 (CA) about what investment means. It was observed that the word investment is not a word of art, but has to be interpreted in a popular sense. It is not capable of legal definition, but a word of current vernacular. The words invest and investment are to be taken in the business sense of laying out of money for interest or profit. A plea similar to the one taken by learned counsel for the Revenue was raised before the Kerala High Court in CIT V. Chandrika Educational Trust [1994] 207 ITR 108 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial sense, the term is used to indicate the aforesaid transaction as deposit of money for employment, in business, deposits for value to initiate security for deposit of title deeds, similar documents as security for loan, deposit of money bills in a bank in the ordinary course of business of current account and deposits of a sum at interest at a fixed deposit in a bank. The amount given to Mahila Haat was neither for the purpose of investment nor for deposit, more particularly in the factual background as highlighted above. The transaction with which the present dispute is linked cannot be treated as an investment or deposit as has been factually found by the Tribunal. The conclusion being essentially factual, no question of law arises out of the order of the Tribunal. Accordingly, the petition is dismissed. 28. The Hon ble Bombay High court in the case of Income Tax Officer vs. Dr. Vikhe Patel Foundation (supra) held as follows: It is well settled that the depiction in books of accounts is not a determinative test but the factual nature of the transaction which has to be considered for the purpose of taxation. In this case, the investment in the shares of Cooperativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 96,230/-. The annual income of the Trust came to ₹ 7,35,19,954/- against which, utilization for charitable purpose came to ₹ 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 10 I.T.A. No. 1445/Mds/12 created by the subscribers, and their turn for getting such loan is decided either by auction or by drawing lots. The nature of chit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s N. Verma Charitable Trust Vs. CIT 203 ITR 322 have taken a view that the term funds means money or cash and the term invest connotes a positive act on the part of the trust whereby the funds of the trust are laid out or committed in any particular property or business or transaction with a view of earning a profit or financial addition or return. The courts therefore held that section 13(2)(h) did not apply to assets received as a donation since no funds were invested . In our view this proposition, though given in a context of section 13(2)(h) would equally apply to section 13(1)(d) of the Act as the language and purpose of the sections are the same. 32. We now consider the facts of this case. A perusal of the order of the first appellate authority reveals that there is no dispute on the legal principle that, if the chit fund contribution in question is not made as an investment, then the provisions of section 13(1)(d) are not attracted. In other words, it is an accepted position that Sec 13(1)(d) is attracted only if, on the facts and circumstances of the case, the contribution to chit is held to be an investment. The learned CIT(DR) placed reliance in the case of Priya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10(23Q(vi) of the Act, failure of the society (educational agency) to invest in the modes and forms specified in section 11(5) of the Act would disentitle them from claiming the benefit of exclusion of the income, received on behalf of an educational institution, from their total income for the previous year. In cases where initial approval, or extension of the approval granted earlier, is sought, the prescribed authority would be entitled to examine the annual accounts of the applicant-society for the previous three years to ascertain whether investment/deposits made in any of the previous three years are in the forms and modes other than those specified in section 1.1(5) of the Act. It is only if the prescribed authority is satisfied that the applicant has applied its income exclusively for the purpose of education, and has adhered to the modes specified in section 11(5) of the Act, that he would grant approval, or renew the approval granted earlier, under section 10(23C)(vi) of the Act. 9. Accepting the submission of the learned counsel for the petitioner that, since the petitioner's investment in a chit fund, (which is not one of the modes and forms specified in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any returns, profit or income. The money has not been laid out in such a manner as to acquire some species of property which would yield income for the assessee. 36. In this case, contribution to the chit fund was made to enable the assessee society to raise funds for expansion. This is clear from funds flow statement and the projected investment required by the assessee. When the assessee is paying huge amount of interest to various banks, it is wrong to conclude that assessee has with an intention to earn profit or income made a contribution to the chit fund. 37. The allegation of revenue that the assessee has not withdrawn the chit amount has been answered by the assessee, by pointing out that, every month the winner of the chit is determined by draw of lots and assessee society was not lucky to win the draw on each of the occasion. The allegation that the assessee has surplus fund, kept as deposits, is also wrong, for the reason that these fixed deposits were jointly held in the name of the assessee and the Governmental authority, as is was compulsory as per rules, for grant of permission to run educational institution. Thus, for all these reasons, we uphold the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment, and much less an investment with someone else, and further that the provisions of S.11(1)(a) have been complied by investing the entire income of the year towards charitable purposes, we conclude that there is no violation of section 13(1)(d) r.w.s. 11(5) of the Act. 41. As we have upheld the contention of the assessee, in this aspect, we do not express any opinion on the other arguments raised by both parties, as it would be an academic exercise. 42. In the result, all the appeals of the assessees are allowed. Revenue Appeal: (ITA No.447/v/2012): 43. This appeal of the revenue is directed against the order of the CIT(A) dt.29th September, 2012 in the case of Lokabandu Educational Society. Grounds raised in the appeal are as under: 1. The Ld. CIT(A) has erred in holding that the re-assessment proceedings for the assessment year 2005-06 as invalid. 2. The Ld. CIT(A) has erred in holding that the assessment is reopened merely on change of opinion. 3. The CIT(A) ought to have considered the fact that the assessment is reopened within four years from the end of the relevant assessment year and the requirement of full and true disclosure of material facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y u/s 143(3). The issue of violation of provisions of S.11(5) was duly considered in the original assessment and it was held by AO that the income which would attract denial of exemption is only the cumulative contribution of ₹ 7,80,000 made in chit funds. AO having examined this issue and formed an opinion though erroneous is not entitled to revise his opinion and reopen the assessment on the same issue and take a different stand in the reassessment. Thus, as far as A.Y.2005-06 is concerned, assessee s reliance on the decisions of Kelvinator India Limited 320 ITR 561 and Eicher Limited 294 ITR 310 is well founded. Therefore, I hold that the assessment for assessment year 2005-06 is reopened merely on change of opinion and hence I have no hesitation in holding that reassessment proceedings as far as assessment year 2005-06 are concerned are not valid and therefore the assessment made for A.Y.2005-06 is quashed. As already stated reopening of assessments for assessment years 2003-04, 2004-05 and 2006-07 is held to be valid. 46. Learned DR Smt.Komali Krishna submits that the CIT(A) is not justified in quashing the assessment for the A.Y.2005-06. She argued that the view tak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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