2017 (12) TMI 1682 - AT - Income Tax

Eligibility to exemption u/s 11 - exemption u/s 10(23C) - charitable activity or not? - assessee had advanced interest free loan to one Educational Society, which as per AO was a specified person u/s 13(3) - AO held that the assessee was ineligible for exemption since he found that the main object of the assessee was not education but giving loan and advance and building capital - HELD THAT - In the present case the loan has been given by one society to another having similar objects and both societies are registered u/s 12A. Therefore, we agree with the CIT(Appeals) that the impugned advance did not violate the provisions of section 13(1)(d) r.w.s. 11(5) of the Act also. We concur with the CIT (Appeals) that the assessee by giving advance to M/s Baba Amarnath Educational Society had not violated the provisions of section 13(1)(c) read with section 13(3) or section 13(1)(d) r.w.s. 11(5) of the Act and, therefore, there was no reason to deny exemption claimed by the assessee u/s 10(23C)(vi). We are also in agreement with the assessee that nothing has been brought on record by the Revenue to prove that the main object of the assessee actually was giving loans and not providing education. Even the identical allegation of the Ld.DR vis-a-vis the entire group we find remains unproved since the table relied upon by the Ld.DR in support of its contention reflects only the loan given by the assessee and two other trusts of the group to M/s Baba Amarnath Trust. The same has already been explained by the Ld.Counsel for the assessee as having been given to lend financial support to the said Trust in the initial years of its setting up, which fact has not been controverted by the Revenue. Even otherwise it fails to bring to light how the entire group was involved in creating capital only. Even the reference to the transaction between Shiva Educational Trust and Sachdeva Building Contractors Pvt. Ltd. has no relevance to the issue, since as rightly pointed out by the Ld.Counsel for the assessee no disallowance/addition has been made on account of the same We hold that there was no basis at all for denying exemption to the assessee society u/s 10(23C) (vi) - Decided against revenue

Summary

Issues Involved:
1. Exemption under section 10(23C)(vi) of the Income Tax Act, 1961.
2. Violation of provisions under sections 13(1)(c) and 13(1)(d) read with section 13(3) and section 11(5) of the Income Tax Act, 1961.
3. Main object of the assessee being questioned as not being educational but rather giving loans and building capital.

Issue-wise Detailed Analysis:

1. Exemption under section 10(23C)(vi) of the Income Tax Act, 1961:
The main issue in the appeal was whether the assessee was eligible for exemption under section 10(23C)(vi) of the Income Tax Act, 1961. The Assessing Officer (AO) denied the exemption on the grounds that the assessee had advanced an interest-free loan of ?30 lacs to M/s Baba Amarnath Educational Society, which was deemed a violation of section 13(1)(c) read with section 13(3) and section 13(1)(d) read with section 11(5) of the Act. The AO also argued that the main object of the assessee was not education but giving loans and building capital. The CIT(A) allowed the appeal of the assessee, deleting the addition made by the AO. The Tribunal upheld the CIT(A)'s decision, stating that the loan was given in assessment year 2011-12 and not in the impugned year, and thus, there was no violation in the relevant year.

2. Violation of provisions under sections 13(1)(c) and 13(1)(d) read with section 13(3) and section 11(5) of the Income Tax Act, 1961:
The AO contended that the loan to M/s Baba Amarnath Educational Society violated sections 13(1)(c) and 13(1)(d) read with section 13(3) and section 11(5) of the Act. However, the assessee argued that these provisions did not apply to exemptions claimed under section 10(23C)(vi). The Tribunal found that M/s Baba Amarnath Educational Society was not a specified person under section 13(3) and that the loan was given to fulfill the educational objectives of the assessee. The Tribunal also noted that the loan was not an investment or deposit covered under section 11(5) but an application of income. The Tribunal cited the Delhi High Court's decision in Director of Income Tax (Exemption) vs ACME Educational Society, which held that interest-free loans between charitable societies with similar objectives do not violate section 13(1)(d) read with section 11(5).

3. Main object of the assessee being questioned as not being educational but rather giving loans and building capital:
The AO argued that the assessee's main object was giving loans and building capital rather than providing education. The Tribunal found no evidence to support this claim, noting that the only loan given by the assessee was to M/s Baba Amarnath Educational Society, which was for educational purposes. The Tribunal dismissed the AO's contention, stating that the loan was an application of income for advancing the assessee's educational objectives. The Tribunal also found no relevance in the reference to transactions between Shiva Educational Trust and Sachdeva Building Contractors Pvt. Ltd., as no disallowance or addition was made on this account.

Conclusion:
The Tribunal upheld the CIT(A)'s order, allowing the assessee's exemption under section 10(23C)(vi) and dismissing the Revenue's appeal. The Tribunal found no violation of sections 13(1)(c) and 13(1)(d) read with section 13(3) and section 11(5) and confirmed that the assessee's main object was educational. The appeal of the Revenue was dismissed.