2013 (7) TMI 225 - HC - Income Tax

Violation of Section 13(3) - interest free loans to three societies - CIT rejected exemption u/s 11 and 12 - ITAT allowed the exemption - Held that - merely the respondent society had given interest 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 - No substantial questions of law involved - Following decision of Director of Income-Tax (Exemption) vs. Acme Educational Society 2010 (7) TMI 159 - DELHI HIGH COURT - Decided against Revenue.

Summary

Issues:
Appeal against Income Tax Appellate Tribunal's order regarding interest-free loans exempted under Section 12AA of the Income Tax Act, 1961 and violation of Section 13 of the Act.

Analysis:

Issue 1: Exemption of Interest-Free Loans
The appeal challenged the Tribunal's decision regarding interest-free loans lent by the respondent to three societies, claiming exemption under Section 12AA of the Income Tax Act. The assessing officer initially disallowed the exemption under sections 11 and 12, citing violation of Section 13 of the Act. The Commissioner of Income Tax (Appeals) upheld this finding, stating the respondent had indeed violated Section 13(2) of the Act. However, the Tribunal overturned this decision, noting that the loans were given to charitable societies engaged in education, some of which were registered under Section 12AA. The Tribunal found no violation of Section 13(3) in one case due to the absence of required profit share. The High Court concurred with the Tribunal's factual findings, emphasizing that the loans were not investments or deposits, hence Section 13(3) did not apply.

Issue 2: Substantial Questions of Law
The appellant contended that the appeal raised substantial questions of law, as framed in the memo of appeal, warranting admission based on these questions. However, the High Court examined the factual background of the case, emphasizing that the Tribunal had previously decided a similar issue for the assessment year 2004-2005 in favor of the assessee, which was not appealed. The Court, therefore, found no error in the Tribunal's findings and concluded that the present appeals did not involve substantial questions of law for consideration.

Precedent and Dismissal of Appeals
The High Court cited a Delhi High Court case where a similar issue was decided in favor of the assessee, supporting its decision to dismiss the present appeals. In light of the factual findings, the Court concluded that no substantial questions of law were raised for consideration and dismissed the appeals at the admission stage, without imposing any costs.