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2016 (3) TMI 746 - ITAT JAIPUR

2016 (3) TMI 746 - ITAT JAIPUR - TMI - Entitlement to the exemption under section 11 - Violation of provisions of section 13(1)(c) and 13(2)(a)/(b)/(g) - Held that:- Having held that the Poddar Trust comes within the list of prohibited persons under section 13(3), now we are left to examine the transaction which has taken place between the assessee and the said M/s. Poddar Trust. The AO, after examination has found that the assessee has given a loan of ₹ 42,69,615/- to PMTI College, a unit .....

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money to the assessee trust in the subsequent assessment year and, therefore, the AO has not disallowed the exemption. In view thereof, though M/s. Poddar Trust is a prohibited person within the meaning of section 13(3) of the Act, however, the transaction of ₹ 42,69,615/- does not fall within the provisions of section 13(1)(d) read with section 11(5) of the Act. In view thereof, the assessee is entitled to the exemption under section 11 of the Act. - Decided in favour of assessee - ITA No .....

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wing exemption u/s 11 of the I.T. Act, 1961 notwithstanding the fact that assessee trust violated the provisions of section 13(1)(c) and 13(2)(a)/(b)/(g) of the I.T. Act, 1961. 2. The brief facts of the case are that the respondent assessee is a Society is registered under the Rajasthan Societies Registration Act, 1958, and was duly registered under section 12A of the I.T. Act, 1961. The society is primarily engaged in imparting education and running Poddar International College. The assessee re .....

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ng education viz. B.Ed., MBA and other Diploma courses and also some other courses recognized by National Open School. The said, Poddar Trust running PMTI is also registered under section 12A and is having the same objectives as that of the assessee society. 3. The AO while passing the assessment order for the A.Y. 2009-10 has mentioned that the governing persons of both the Trusts are more or less the same. It was further mentioned that it was a family affair as both the Trusts are controlled b .....

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t assessment year, the assessee has lent the money to Poddar Trust. After recording the details of payment made during the assessment year between April, 2008 to February, 2009 to the extent of ₹ 42,69,615/-, it was concluded by the AO that the income applied is not taken back and the AO by applying provisions of section 11(5) and 13 of the IT Act has mentioned that the sections were introduced with the objective to keep check on the trusts so that they may not misuse funds collected in th .....

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emption under section 11 of the IT Act. 4. Now the Revenue is before us. 4.1. The ld. D/R for the Revenue relied upon the order of the AO and has submitted that Poddar Trust is a specified person in terms of section 13(3) of the Act and has submitted that the judgments relied upon by the ld. CIT (A) in the matter of Thanthi Trust 239 ITR 502 (SC) and Acme Educational Society 326 ITR 146 (Delhi) are not applicable to the facts and circumstances of the case. He has submitted that the order of the .....

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Assessee was granted the approval u/s 10(23C) after making necessary enquiries and, therefore, there is no violation of section 13 of the Act. The ld. A/R further relied upon the judgment passed in the cases of CIT vs. Kamla Town Trust, 279 ITR 89 (All.), Director of Income tax vs. Acme Educational Society, 326 ITR 146 (Delhi), Kanpur Subhash Shiksha Samiti vs. DCIT (Lucknow) 11 ITR (Trib.) 23 (Lucknow), Director of Income Tax (Exemption) vs. Pariwar Sewa Sansthan, 254 ITR 268 (Delhi) and Champa .....

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est free loan to another society, so the loan was neither investment nor deposit. The provisions as contained in Section 13(3) of the Act were not applicable. The aforesaid is a finding of fact recorded by Tribunal in which we do not find any error or substantial question of law. Apart from this, the question was already decided by the Tribunal for the assessment year 2004-05, against which no appeal was preferred. In view of the aforesaid factual position involved in these cases, we find that t .....

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e have heard rival contentions and perused the material available on record. The reason for denial of exemption under section 11 to the assessee was on account of the conclusion that Poddar Trust is a person within the meaning of section 13(3) of the IT Act and further that the loans have been given and received from Poddar Trust. Section 13(3) provides as under :- Section 13(3) : The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :- (a) The au .....

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n,(member, trustee or manager) as aforesaid; (e) Any concern in which any of the persons referred to in clauses (a), (b), (c) [(cc)] and (d) has a substantial interest. Section 13(1) ( c ) provides as under :- Sec. 13(1)(c) : in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof - (i) If such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules gover .....

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irectly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or establi .....

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ust, author of the trust, member of the family, relative of such author or any concern in which any of the person referred in clause (a) to (d) has a substantial interest comes within the definition of the concerned persons referred in clause (c) of sub section (1) of section 13. 5.3 Further, section 2(31) defines a person includes an association of persons or body or individuals whether incorporated or not. The explanation to sec. 2(31) provides as under :- "person"85 includes- (i) an .....

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rson or body or authority or juridical person was formed or esta-blished or incorporated with the object of deriving income, profits or gains;] Thus it is clear that a Trust registered under the trust Act in which the family member of the assessee is /are having interest comes within the realm of section 13(3)(b) of the Act and is a prohibited person . Therefore, in our view, the AO was right in concluding that the transaction has taken place between the prohibited person. 5.4 The contention of .....

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r section 11 was held to be not available to the assessee, for the purpose of convenience, we are hereby reproducing the finding of the Hon ble Delhi High Court in the above said matter :- 25. Counsel for the assessee would, however, contend that the chart set out in the order of the Tribunal would show that the account between the assessee and the APIL is a running account and if the entries are taken as a whole it would be seen that it is APIL which is funding the assessee and not the other wa .....

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nd a case of pure advance. Section 13(2) makes it clear that the instances listed in its clauses (a) to (h) are only illustrative and without prejudice to the generality of the provisions of Section 13(1)(c). The prohibition is on the use or application of any part of the income or property of the trust, during the relevant previous year, for the direct or indirect benefit of any prohibited person. When funds of assessee trust are lying with APIL - even though they were not advanced in the relev .....

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the relevant accounting year. At this juncture it is relevant to point out a crucial aspect. The provision makes reference to income or property of the trust being "lent" or continued to be "lent" to any prohibited person. If the funds of the assessee had been given to APIL without any agreement to sell being entered into there would have been no defence to the assessee as that would have been a clear case of monies lent or continue to be lent without interest or security. I .....

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tion in its second letter, realising its faux par, citing some clauses in the agreements. Taking possession of the lands has not been established as a fact by adducing evidence. 26. The argument of the counsel for the assessee that the CIT (Appeals) and the Tribunal have entered concurrent findings of fact which should not normally be disturbed unless they are perverse is technically correct; however, we are in agreement with the submission of the counsel for the revenue that the findings of the .....

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documentation presented by the assessee. Each and every objection taken by the assessing officer has been attempted to be explained away by the assessee and the Tribunal overlooked that the facts have to be looked at cumulatively and as a whole; it failed to realise that and the real transaction between the assessee and APIL is not just an aggregate of the several component parts thereof; the authenticity of the transaction has to be examined by keeping in view the conspectus of the facts witho .....

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years. The reliance placed by ld. CIT (A) on the judgment of Acme Educational Society is ill founded. Our reading shows that the issue of applicability of section 13(3) was not an issue in the judgment in the case of Director of Income-tax vs. Acme Educational Society , so far as prohibited person is concerned. The discussion in the said judgment, on the question involved in the IT Appeal, was mentioned in para 12 to 15, as under :- 12. This court in the case of Director of Income-tax (Exemption .....

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placed anywhere, as in any one's hands for safe-keeping, something entrusted to the care of another. These two expressions have been used in a cognate sense and have to be understood as such. In order to constitute an investment the amount laid down should be capable of any result of any income, return or profit to the investor and in every case of investment, the intention and positive act on the part of the investor should be to earn such income, returns, profit in order to constitute an .....

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he assessment year 1983-84. It prescribes the forms and modes of investing and depositing money referred to in section 11(2)(b). Subsequently, new forms and modes have been added. Section 13(1)(d) as amended by the Finance Act, 1983, provides that the income of any charitable or religious trust or institution will not be entitled to exemption under sections 11 and 12, if certain conditions stipulated therein are not complied with. The word 'deposit' does not cover transaction of loan whi .....

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inary course of business of current account and deposits of a sum at interest at a fixed deposit in a bank." 13. In Baidya Nath Plastic Industries (P) Ltd. v. K.L Anand, ITO [1998] 230 ITR 522 (Delhi) a learned single judge of this court pointed out that the distinction between "loan" and "deposit" is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement, while in the case of the .....

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er society having similar objects. 15. Keeping in view the aforesaid exposition of law, we are of the opinion that interest free loan of ₹ 90,50,000 given by the assessee-society to Nav Bharti Educational Society does not violate section 13(1)(d) read with section 11(5) of the Act, 1961 as the said loan was neither an "investment" nor a "deposit". This is more so as both the societies had similar objects and were registered under section 12A of the Act, 1961 and had app .....

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