2016 (1) TMI 709 - AT - Income Tax

Denial of exemption under section 11 - investment in chits on the ground that it is in violation of section 11(5) r.w.s. 13(1)(d) - CIT(A) allowed the claim - Held that - CIT(A) has observed that the assessee is liable for Rs..1,30,724/- to the Social Forum Kuris and there is no investment on the asset side of the balance sheet as on 31.03.2010. Further in the receipts and payments account as on 31.03.2010 also the payments were made to social form chit account which is nothing but repayments. Therefore, the ld. CIT(A) has held that the assessee has not made any investment in violation of section 11(5) r.w.s. section 13(1)(d) of the Act. The ld. DR could not controvert the above findings of the ld. CIT(A). Accordingly, we find no infirmity in the order passed by the ld. CIT(A) and dismiss the ground raised by the Revenue. - Decided in favour of assessee Loan given to Pavanatma Provincial House, Kerala in violation of section 13(1)(d) - CIT(A) rejected revenue conclusion of violation u/s 13(1)(d) - Held that - The interest free loan given by the assessee society to other society having similar objects and registered under section 12A of the Act does not violate section 13(1)(d) read with section 11(5) of the Act as the said loan was neither an investment nor a deposit. Accordingly, the ratio lay down by the Hon ble Delhi High Court in the case of DIT(E) v. ACME Educational Society (2010 (7) TMI 159 - DELHI HIGH COURT ) squarely applies to the facts of the present case since giver and receiver are having similar objects and both are registered trust. Under these facts and circumstances, we confirm the order passed by the ld. CIT(A) on this issue - Decided in favour of assessee

Summary

Issues Involved:
1. Denial of exemption under section 11 of the Income Tax Act for investments in chits and loans given to another organization.
2. Assessment of income and applicability of sections 11(5), 13(1)(d), 13(1)(c), and 13(3) of the Act.
3. Appeal against the order of the ld. Commissioner of Income Tax (Appeals) VII, Chennai, relevant to the assessment year 2010-11.

Issue 1: Denial of Exemption under Section 11 for Investments in Chits:
The appeal filed by the Revenue challenged the denial of exemption under section 11 of the Income Tax Act for investments in chits and loans given to another organization. The Assessing Officer observed that the investments in chits violated section 11(5) read with section 13(1)(d) of the Act. However, the ld. CIT(A) reviewed the case and found that there were no violations. The ld. CIT(A) noted that the repayments were made to the Social Forum Kuris, indicating no actual investment in violation of the relevant sections. The balance sheet and payment records supported this conclusion. The Tribunal upheld the ld. CIT(A)'s decision, emphasizing the absence of any investment contrary to the Act's provisions.

Issue 2: Assessment of Income and Applicability of Sections 11(5), 13(1)(d), 13(1)(c), and 13(3) of the Act:
Regarding the loan of Rs. 40,00,000 given to another organization, the Assessing Officer claimed it violated section 13(1)(d) of the Act. However, the ld. CIT(A) disagreed, stating that the loan was not an investment or deposit and did not breach the Act's provisions. The recipient organization, a charitable entity, returned the loan as the intended purpose was not fulfilled. Citing precedents and decisions, the ld. CIT(A) concluded that the loan did not contravene the Act's relevant sections. The Tribunal supported this decision, highlighting the similarity in objectives between the parties involved and the absence of any benefit to interested persons, thus confirming the ld. CIT(A)'s order.

Issue 3: Appeal Against the Order of the ld. Commissioner of Income Tax (Appeals) VII, Chennai:
The Revenue's appeal against the order of the ld. Commissioner of Income Tax (Appeals) VII, Chennai, for the assessment year 2010-11 was dismissed by the Tribunal. The ld. CIT(A) had allowed the appeal of the assessee after thorough consideration of the case and relevant submissions. The Tribunal, after reviewing the arguments presented by both parties and examining the records, upheld the ld. CIT(A)'s decision, dismissing the Revenue's appeal.

This detailed analysis covers the issues involved in the legal judgment, addressing the denial of exemption, assessment of income, and the outcome of the appeal against the order of the ld. Commissioner of Income Tax (Appeals) VII, Chennai, for the assessment year 2010-11.