TMI Blog2010 (3) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication of income in terms of provisions of sec. 11 of the Income Tax Act, 1961. 3. That the reference to decisions in the case of CIT vs. VGP Foundations 262 ITR 187 has no relevance and of whole basis of disallowance of claim is illegal, arbitrary and misconceived. 3. Briefly stated, the relevant facts giving rise to the aforesaid issues raised in grounds of appeal may be stated as under: The assessee is a society registered under the Society Registration Act. The assessee has been registered u/s. 12A of the Income Tax Act vide order dated 04.08.1998. The object of the assessee are to arrange, establish, run and manage nursery, primary, higher secondary and higher education in technical and non-technical educational institution, engineering college and medical and/or college for all types of higher education, preparation for various competitive examinations and civil services and to provide education to general public, poor and needy children/SC/ST community weaker sections of the society and to provide education. The activities of the societies are charitable within the meaning of section 2(15) of the I.T. Act. As per the computation sheet an amount of ₹ 20 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money advanced or disbursed cannot be treated as application of funds; for benefits u/s. 11 it has to be satisfied that the money was applied for charitable purposes; in other words, not only the money should applied for charitable purposes; in CIT vs. VGP Foundation (supra) the trust disbursed the funds as advance for construction of hospital to a contractor but no construction was made; it was held that the money instead of lying with the assessee was laid with another organization which could not be regarded as application of income for charitable purposes; the assessee has not divested its ownership in the money credited in favour of the seller but retained beneficial interest therein; the advance given is, therefore, not application of income for charitable purposes. 4. On an appeal, the CIT(A) had agreed with the AO and decided the issue against the assessee by observing and holding as under:- 5. I have considered the submissions of the Appellant as well as perused the order of the AO. I find force in the arguments of the AO that the Appellant has not divested his ownership in the money credited in favour of the seller and retained beneficial interest therein. The App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of property, which was meant for the object of the trust. He further submitted that the transaction of purchase of property was at arm s length with an independent party leading to a conclusion that there were no diversions of assessee s fund to any person other than for the purpose of acquiring asset for attainment of the object of the trust. He further pointed out that the payment was made by account payee cheque, and in the document ultimately executed on 12.07.2007, the executor has admitted that the advance was paid to him towards sale consideration of the property sold by him to the assessee trust. He, therefore, contended that in the light of the facts of the present case, the decision of Hon ble Madras High Court in the case of CIT vs. VGP Foundation (2003) 262 ITR 187, on which heavy reliance has been placed by the AO as well as by the CIT(A), would not apply to the present case. In the aforesaid case of CIT vs. VGP Foundation (supra), the money was given to the sister concern, in which the trustees of the assessee trust were Directors, and the amount was lying idle with that company and the ownership of the advance so given to sister concern was treated with that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or revenue or capital purpose towards charitable object of the trust. Therefore, in the present case, the application of income towards purchase of property to be used for object of the trust is eligible for exemption u/s. 11 of the Act. 11. However, the claim of the assessee has been rejected by the revenue authorities below by observing and holding that in respect of the advance amount of ₹ 20 lacs paid to Mr. Manjeet Singh, the assessee has not divested its ownership in that money by retaining beneficial interest therein. The AO had taken a view that the advance given by the assessee was thus, not an application of income for charitable purposes. In this connection, the AO has placed reliance upon the decision of Hon ble Madras High Court in the case of CIT vs. VGP Foundation (supra). The CIT(A) has also taken similar view as that of the AO by applying the ratio of the decision of Hon ble Madras High Court in the case of CIT vs. VGP Foundation (supra). 12. In the light of the reasons given by the AO as well as by the CIT(A), it is considered necessary for us to have a look to the facts of the case of CIT vs. VGP Foundation (supra), and the context in which the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007. In the irrevocable General Power of Attorney, Shri Manjeet Singh has clearly stated that he received un-refundable consideration of ₹ 33 lacs in advance as under:- (i) ₹ 20 lacs vide cheque no. 401640 dated 10.01.2006 drawn on Oriental Bank of Commerce, Branch Paschim Vihar, New Delhi (ii) ₹ 9 lacs vide cheque no. 416009 dated 16.05.2006 drawn on Oriental Bank of Commerce, Branch Paschim Vihar, New Delhi (iii) ₹ 4 lacs vide cheque no. 416037 dated 06.06.2006 drawn on Oriental Bank of Commerce, Branch Paschim Vihar, New Delhi. 14. He further stated that the aforesaid advance was received by him against the landed property measuring 700 sq. yards owned by him. He further stated in the deed of irrevocable General Power of Attorney that he had given all the original documents related to the property to the assessee trust and the assessee trust was duly verified the same and was well satisfied with the physical and legal status of the property. He, therefore, executed irrevocable General Power of Attorney giving all the powers to the assessee trust to exercise all powers or rights in respect of that property. In the Power of Attorney, it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession of the property to the assessee, and has also executed an irrevocable General Power of Attorney in assessee s favour. Therefore, the facts of the present case are totally different to that of in the case of VGP Foundation (supra). We, therefore, hold that the revenue authorities below have misapplied the decision of Hon ble Madras High Court in the case of VGP Foundation (supra) to the facts of the present case, and consequently the authorities below have fallen in error in rejecting the assessee s claim of exemption u/s. 11 of the Act in so far the application of advance amount of ₹ 20 lacs paid by assessee to Shri Manjeet Singh towards right to purchase the property is concerned. It is not the case of the AO that application of money towards acquisition of capital asset is not eligible for exemption u/s. 11 of the Act. It is also not the case of the revenue that the land in respect of which advance was given by the assessee was not used for the purpose of carrying out the object of the Trust. Even otherwise, the proposition that the application of money towards acquisition of capital asset for the object of the trust is eligible for deduction u/s. 11 of the Act ..... 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