2012 (3) TMI 533 - AT - Income Tax

Summary

Issues involved: Assessment of exemption under S.10(23C)(vi) and S.11, investment in chit funds, applicability of S.11(5) and eligibility for exemption under S.11.

Assessment of exemption under S.10(23C)(vi) and S.11:
The appellant, a society running educational institutions, appealed against the CIT(A)'s order denying exemption under S.10(23C)(vi) and S.11 for the assessment year 2005-06. The assessing officer contended that without approval under S.10(23C)(vi), the society was not entitled to exemption under any provision. The appellant argued that being registered under S.12A, S.11 should apply irrespective of S.10(23C) approval. The CIT(A) held that the society could claim exemption under S.11 even without S.10(23C) approval, based on a previous tribunal decision.

Investment in chit funds and applicability of S.11(5):
The assessing officer found that the appellant had invested in chit funds, Srini Chit Funds Private Ltd. and Joseph's Chit Funds Pvt. Ltd., which he deemed a violation of S.11(5). The appellant argued that the investments did not breach S.11(5) as they were for day-to-day operational needs, not fixed deposits. The CIT(A) disagreed, considering the chit fund contributions as investments and ruled that the appellant failed to comply with S.11(5) modes, thus ineligible for S.11 exemption.

Eligibility for exemption under S.11:
The tribunal noted that S.11 to 13 would apply as the appellant lacked S.10(23C) approval. Emphasizing S.13(1)(d), it clarified that any investment not in line with S.11(5) would lead to exemption loss under S.11. The tribunal rejected the argument that S.11(2)(v) applied only when 85% of income was not spent, stating that any non-compliant investment would jeopardize S.11 exemption. Regarding chit fund contributions, the tribunal referred to a precedent emphasizing the need to determine if the activity was savings/investment or loan repayment, directing a reassessment based on the nature of chit fund activities.

In conclusion, the tribunal allowed the appellant's appeal for statistical purposes, highlighting the need for a detailed reassessment of chit fund contributions to ascertain eligibility for exemption under S.11.