TMI Blog2016 (7) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. A.O. cannot borrow the findings of the Chief Commissioner of Income Tax in the order cancelling the registration u/s 10(23C) of the Act to deny the benefit of exemption u/s 11 of the Act, unless he had specifically points out the activities carried out by the assessee are not in accordance with the objects of the trust. As far as the observation of A.O. with regard to letting out of properties on commercial lines is concerned, we noticed that the assessee has let out its place to telecom companies for erection of telecom tower and used the proceeds for the objects of the society. Similarly, the assessee society has maintaining a hostel for the benefit of the students. Maintaining hostels for the benefit of the students and letting out properties cannot be considered has ingenuine activity to deny the benefit of exemption u/s 11 of the Act. In the present case on hand, on perusal of the facts, we noticed that the A.O. without pointing out any specific violations referred to in section 13(1)(c) or 13(1)(d) of the Act, simply rejected benefit of exemption. A.O. was erred in denying exemption u/s 11 of the Act. The CIT(A) without appreciating the facts has confirmed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act is withdrawn for the reason that the assessee society is solely existed for profit motive and also the society has diverted its funds to other societies or group concerns having controlling interest by the Managing committee of the society. The A.O. further held that assessee derived income in the form of rent by providing its hostel to petroleum university students and also deriving rental income by providing its terrace to telecom operators for installation of telecom towers. It was further observed that there is a clear deviation from the objects of the society, therefore, the income derived by the society by letting out its premises on rental basis cannot be considered as income derived by carrying out the activity of imparting education. The A.O. further observed that establishing educational institution can be regarded as an activity of charity, but such activity cannot be held as income derived from property held under trust for claiming exemption u/s 11 of the Act. The A.O. further observed that a business activity carried on which is not done with a view to furthering the objects of the society like the activity of entering into rent agreements with petroleum uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt of Karnataka in the case of CIT Vs. Saraswat Poor Students Funds (1984) 150 ITR 143 and submitted that when assessee is registered under the Provisions of section 10(23C)(vi) and section 12A of the Act, the assessee can claim benefit of exemption under any of the provisions of the Act. Similarly, as regards the disallowance of expenditure u/s 40(a)(ia) of the Act is concerned, the assessee submitted that the society is solely existed for education purpose and hence, the income of the society is eligible for exemption u/s 11 of the Act. The assessee further submitted that its income is assessable as per chapter III of the Act and accordingly, the income of the society should be assessed under the head income from other sources , but not under the head income from business or profession . When income of the society is assessed under the head income from other sources , the disallowance provided under chapter IVD of the Act, for non-deduction of the TDS provisions are not applicable, therefore, the A.O. was not correct in disallowing the expenditure for non-compliance of TDS provisions of the Act. 4. The CIT(A) after considering the explanations furnished by the assessee, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from business or profession . The CIT(A) further held that once the assessee is ineligible for claiming exemption u/s 11 of the Act, then automatically its activities are coming under the normal business provisions. Therefore, the A.O. was right in disallowing the expenditure u/s 40(a)(ia) of the Act for non-compliance of TDS provisions. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 6. The Ld. A.R. for the assessee submitted that the Ld. CIT(A) was erred in holding that the assessee is not eligible for claiming exemption u/s 11 of the Act. The A.R. further submitted that the amount advanced to sister concerns are not in violation of the provisions of section 13(1)(d) of the Act, as the assessee society has charged interest on above loans given to trust or societies except GSL society, therefore, the loans given as above are normal business advances and not in violation of section 13(1)(d) of the Act. The A.R. further submitted that the assessee has given temporary advances to other group societies having similar objects and also having registration u/s 12A of the Act. Therefore, as long as the objects of the other societies are charitable in nature, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. As regards the CIT observations with regard to the advance given to Shri P.V. Krishnam Raju and P. Janardhan Raju, the society has given advances to these individuals for the purpose of land, that too in the earlier period. Therefore, the A.O. was incorrect in holding that the assessee has diverted the funds to the persons specified u/s 13(1)(d) of the Act. The A.R. further argued that the CIT(A) observed that the assessee society is maintaining two vehicles for which log books were not maintained, therefore, the assessee is not eligible for claiming exemption u/s 11 of the Act. The society is maintaining vehicles for the purpose of activities of the society to provide these vehicles when officials/dignitaries visit the colleges and for such other activities of the society. When the vehicles are exclusively used for society s activities, the A.O. was not correct in holding that members of the society has benefitted from the funds of the society without referring to any of the fact that the person specified u/s 13(1)(c) of the Act are using the vehicles for their personal purposes. 8. On the other hand, the Ld. D.R. strongly supported the order of the CIT(A). The D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to other societies having similar objects and also registered under the provisions of section 12A of the Act is not a violation as referred under the provisions of section 13(1)(d) of the Act. 10. The A.O. denied the benefit of exemption for the sole reason that the assessee society has diverted its funds to other societies and violated the provisions of section 13(1)(d) of the Act. According to the A.O., advancement of loans to other societies whether or not registered under the provisions of section 12A of the Act is a violation of section 13(1)(d) of the Act, consequently the society is not eligible for exemption u/s 11 of the Act. The question before us is whether loans advanced to other societies under the same management having similar objects and also registered under the provisions of section 12A of the Act is a violative of section 13(1)(d) of the Act, which render the assessee ineligible for exemption u/s 11 of the Act. The Hon ble Delhi High Court, in the case of Director of Income Tax (Exemption) Vs. ACME Educational Society (supra), held that advancing interest free temporary loan by assessee society to another society having similar objects is not an investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not charitable in nature and the activity carried out by the assessee are not in accordance with main objects of the society. In our considered opinion, the A.O. cannot borrow the findings of the Chief Commissioner of Income Tax in the order cancelling the registration u/s 10(23C) of the Act to deny the benefit of exemption u/s 11 of the Act, unless he had specifically points out the activities carried out by the assessee are not in accordance with the objects of the trust. As far as the observation of A.O. with regard to letting out of properties on commercial lines is concerned, we noticed that the assessee has let out its place to telecom companies for erection of telecom tower and used the proceeds for the objects of the society. Similarly, the assessee society has maintaining a hostel for the benefit of the students. Maintaining hostels for the benefit of the students and letting out properties cannot be considered has ingenuine activity to deny the benefit of exemption u/s 11 of the Act. In the present case on hand, on perusal of the facts, we noticed that the A.O. without pointing out any specific violations referred to in section 13(1)(c) or 13(1)(d) of the Act, simply reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed as direct bailment. The essence of deposit is that there must be a liability to return it to the party by whom or on whose behalf has been made on fulfilment of certain conditions. In the commercial 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 a sum at interest at a fixed deposit in a bank. Amount given to M was neither for the purpose of investment nor for deposit more particularly in the factual background. The transaction with which the present dispute is linked cannot be treated as 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. 14. The assessee relied upon the decision of Hon ble High Court of Allahabad, in the case of CIT Vs. M/s. Kanpur Subhash Shiksha Samiti in (2013) Tax Pub (DT) 2655 (All HC). The Hon ble High Court, while deciding the issue held that when loan given from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds to other societies in violation of the provisions of section 13(1)(d) of the Act. But, in the preceding paragraph, we hold that the assessee is solely existed for charitable purpose and income of the assessee is eligible for exemption u/s 11 of the Act. Having said that let us examine whether the provisions of section 40(a)(ia) of the Act are applicable when income is computed u/s 11, 12 13 of the Act. Chapter III deals with income, which do not form part of total income. Section 11, 12 13 deals with income from property held for charitable or religious purposes and the mode of computation of income subject to certain conditions. Accordingly, income of any charitable trust or society is exempt from tax if such conditions are fulfilled. Section 40(a)(ia) of the Act falls under chapter IVD which deals with computation of profits gains from business or profession. The profits gains from business or profession is computed u/s 28 of the Act. Section 29 of the Act provides for manner of computation of income under the head profits gains of business or profession, which states that the income referred to in section 28 of the Act shall be computed in accordance with provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise. Hence, provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11. 19. The assessee relied upon the decision of ITAT, Visakhapatnam bench in the case of ITO Vs. Mother Teresa Educational Society (2016) 158 ITD 473. The coordinate bench of this Tribunal, under similar circumstances held that when the income is computed under the provisions of section 11 of the Act, disallowance u/s 40(a)(ia) of the Act is not applicable. 8. Having said that let us examine, whether the provisions of sec. 40(a)(ia) and 43B are applicable, when income is computed under sec. 11, 12 13 of the Act. Chapter III deals with incomes which do not form part of total income. Sce. 11, 12 13 deals with income from property held for charitable or religious purposes and the mode of computation of income subject to certain conditions. Accordingly, income of any charitable trust or society is exempt from tax, if such conditions are fulfilled. Sc. 40(a)(ia) and sec. 43B are falls under chapter IV D, which deals with computation of profits and gains from business or profession. The profits and gains ..... X X X X Extracts X X X X X X X X Extracts X X X X
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