TMI Blog2015 (8) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that there is no violation of section 11(5) and the assesse is eligible to claim exemption u/s 11. - Decided in favour of assessee. - ITA.No.1560/Hyd/2013 - - - Dated:- 31-7-2015 - SHRI B. RAMAKOTAIAH, J. For The Assessee : Mr. S. Rama Rao For The Revenue : Mr. Rajat Mitra ORDER This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals)-III, dated 6-9-2013 for the assessment year 2007-08. 2. The assessee has raised the following grounds. i) The order of the learned CIT(A) is erroneous to the extent it is prejudicial to the appellant herein. ii) The learned CIT(A) erred in holding that the transactions with Kapil Chit Funds are in violation of the provisions u/s 11(5) of the I.T.Act. The CIT(A) ought to have seen that the provisions u/s 11(5) do not apply to the transactions entered into with Kapil Chits Funds. iii) Any other grounds that may be urged at the time of hearing. 3. The main issue evolves from the grounds of appeal is whether the AO is right in holding that the chit contributions violates the provisions of section 11(5), consequently makes the assessee ineligible t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no need of investing the funds in the investments or deposits as specified u/s 11(5), as there was no amount accumulated or set apart, in fact, there was deficit. In other words, he submitted that, the assessee has not set apart or accumulated any income, instead, there was excess application of income for the year under consideration. To this effect he has filed a statement of income indicating the excess application of income which is at page No. 1 of his paper book. During the course of argument,the AR, relied on the Co-ordinate Bench of Vishakhapatnam in the case of Sri Sivani Educational Society vs. Income Tax Officer, reported in (2015) 153 ITD 121(Visakhapatnam) (Tribu.) for the proposition that the contributions in a chit fund does not attract provisions of section 11(5). 8. The Departmental Representative, on the other hand submitted that, the assessee violated provisions of section 11(5), by contributing to Chit Fund. He further, submitted that the facts of case law relied upon by the authorized representative in 153 ITD 121 (2015), Vishakhapatnam Tribunal is different from that of present case. In the case before Vishakhapatnam Bench, there were no surplus fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income from property held under trust then, it needs to invest the amount in the forms and modes specified under section 11(5). I have gone through the financial statements and statement of total income filed by the assessee, where, the application of income is in excess of income earned from property held under trust. In other words, there was no surplus funds which needs to be invested u/s.11(5). The requirement of investing or depositing under section 11(5) is confined to the amount which is set apart or accumulated u/s.11(2). When the entire income of the year is applied for the objects of the Society, there cannot be said to be any funds remaining out of the funds received by way of income. In the case of the assessee, as per the statement of total income and financial statement submitted by the assessee it is evident that it has spent excess amount for the objects of the Society. The allegation of the Revenue is that the assessee has surplus funds which it has invested in Chit Fund is not correct. The annual accounts submitted by the assessee clearly show that it has spent excess amount for the year under consideration. If one see s the statement of income, the gross recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h section 11(5). The issue whether the contribution made by the assessee to a chit fund as an individual subscriber, either on the facts of the case, or under the scheme of the Chit Fund Act, can be considered as an investment or not, or whether such contribution was a deposit or not, was not the issue before the High Court. The issue as to whether the contribution to the chit fund is an investment/deposit was not contested by the parties. Hence, this judgment of the jurisdictional High Court cannot be applied to the case on hand where the issue is whether a contribution to a chit by an individual subscriber can be considered an investment or a deposit as contemplated under section 13(1)(d) read with section 11(5). The various judgments of the Supreme Court and the High Courts as well as the Tribunal clearly lay down that contribution to a chit fund by an individual subscriber is governed by the principal of mutuality and hence it is neither an investment nor a deposit. [Para 34] Even otherwise, in the case of the assessee, the undisputed fact is that assessee requires money for its expansion. This fact is not disputed by the Commissioner (Appeals). It is also clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessees, as per the charts submitted by the assessee it is evident that it has incurred deficit in every year and thus entire income of each assessment year was fully spent towards the charitable objects. [Para 39] Contribution to chit fund in this case, is not an investment, and much less an investment with someone else, and further that the provisions of section 11(1)(a) have been complied by investing the entire income ofthe year towards charitable purposes, it is concluded that there is no violation of section 13(1)(d) read with section 11(5). 13. The assessee has spent the entire income earned in the year for the objects of the trust. As has incurred excess amount, there is no surplus amount which needs to be invested u/s 11(5). Section 11(5) comes in to operation only when Trust has accumulated or set part the amount u/s 11(2). In the case of the assessee, there is a no surplus fund and hence, the question of investment or deposit as specified u/s 11(5) does not arise. Contribution to chit fund in this case is not an investments or deposit as specified u/s 11(5), it is, as submitted, only an arrangement for better management of funds of the assessee. The assessee ..... 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