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Sankshema Versus Dy. Director of Income Tax (Exemptions) -I, Hyderabad.

2015 (8) TMI 1152 - ITAT HYDERABAD

Eligibility to claim exemption u/s 11 - whether the transactions with Kapil Chit Funds are in violation of the provisions u/s 11(5) of the I.T.Act? - Held that:- 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 .....

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Sri Sivani Educational Society case (2015 (8) TMI 405 - ITAT VISAKHAPATNAM) it is 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- .....

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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 to claim exemption u/s 11 of the I.T. Act. 4. The assessee also raised additional ground by filing a petition for admission of additional ground of appeal on 01.09.2014 which reads as follows. The Assessing Officer and the learned CIT(A) ought to have held that t .....

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tal. The assessee has filed its return of income for the assessment year 2007-08 on 14.05.2007 admitting NIL income after availing exemption u/s.11 of the I.T. Act. The Assessing Officer, during the course of assessment u/s 143(3) is of the view that the total receipts from the property held under trust is more than 1 crore and, therefore, it ought have obtained the approval u/s 10(23) of the I.T.Act. The Assessing Officer also found that the assessee made investment in Chit Fund Company, thereb .....

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(5), such exemption cannot be allowed for the year under consideration. Aggrieved, the assessee is in appeal. 7. The authorized representative submitted that, the assessee is registered u/s 12AA of the I.T. Act and also obtained approval u/s.10(23C) belatedly from the assessment year 2007-08 onwards. He further, submits that, the assessee is running a cancer hospital with the aid of Donations from State Government. He also submitted that, the Chit Fund contributions are made for the better manag .....

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tement 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 assess .....

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materials on record and also considered the case laws cited by the parties. The factual matrix of the case is that, the assessee is Society registered u/s 12AA of the I.T. Act, have made contributions to Kapil Chit Fund Company. The Assessing Officer denied the benefit of exemption u/s 11, by holding that there was violation of section 11(5), as the Chit Fund subscription is not investment or deposit as specified u/s 11(5) of the Act. The CIT(A), however, held that the assessee is eligible for .....

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ke of convenience, the relevant portion is reproduced, which reads as follows. (2)[Where[eighty-five per cent] of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart s .....

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s it clear that sub section (5) will come into operation only, when there is accumulation or set part of amount u/s 11(2). When the assessee sets apart 15% of income or accumulates over and above 15% 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 pro .....

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bmitted 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 receipts from the trust for the year was at ₹ 1,40,56,424.22 and the amount applied for the objects .....

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that too with an intention to earn profit. The foreman holds the money received from the chit subscribers only as a trustee. Section 11(5) refers to only money that needs to be invested as stipulated in section 11(2) in investments or deposits. Thus, it could be concluded that Chit Fund contribution is governed by the principles of mutuality and contributing to a Chit Fund is contribution to oneself on the principles of mutuality and hence, it is not an investment as contemplated by section 11(5 .....

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ividual subscriber being entitled to receive profit or income under a scheme of chit funds. No money is laid out with a second party that too with an intention to earn profit. The foreman holds the money received from the chit subscribers only as a trustee. Section 11(5) 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 no .....

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ed 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 wi .....

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eties have taken huge loans from various banks, for undertaking expansion and to create infrastructure. These loans were taken by the societies as they did not have surplus funds to undertake expansion and create infrastructure. On the basis of these facts, we come to the conclusion that the contribution made by the assessees to a chit, is not a positive act to layout money for business, with a view to obtain an income or profit. It is not an investment, as the amount laid out is not a positive .....

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rong to conclude that assessee has with an intention to earn profit or income made a contribution to the chit fund. [Para 36] 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 .....

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as already been spent towards the objects of the society, there cannot be said to be any funds remaining out of the funds received by way of income. A person can invest only the money which is in his hands. If the entire money in hand is already spent for a particular purpose then the question of spending the same amount for another purpose as well does not arise. In the case of assessees, as per the charts submitted by the assessee it is evident that it has incurred deficit in every year and th .....

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