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2017 (1) TMI 1085 - AT - Income TaxExemption under section 11 denied - A.O. invoked the provision of section 13(1)(c) - assessee trust has given loans to its managing committee members Shri Dushyant Chaturvedi and Pallavi Chaturvedi in violation of provisions of section 13(1)(c) - Held that - Assessee in this case does not deserve denial of exemptions under section 11. Only the amount which has not been utilised for the objects of the trust but has been advanced to the rated related persons should be subjected to denial of exemption and taxation thereof. Accordingly we are of the opinion that the assessee is eligible for exemption under section 11 of Income Tax Act. Only the advancement of loan to the above related persons need to be brought under the purview of tax. The Assessing Officer is directed to disallow interest at the market rate on the sums advanced to the above persons. Since we have already held that the trust deserves to be allowed exemption under section 11 of the Income Tax Act, adjudication on the other limb of assessee s contention will only be of academic interest. Disallowance under section 40 (a)(ia) - Held that - The assessee submitted that payee has furnished its return of income under section 139 (1) on 30/10/2008. That the payee has taken into account such interest for computing income. The payee has paid the tax due on the income declared. That certificate from the accountant under form 26A has been furnished. In this regard Learned counsel of the assessee has relied upon the decision of Honourable Delhi High Court in the case of CIT vs Ansal Land Marktownship 2015 (9) TMI 79 - DELHI HIGH COURT for the proposition that second proviso to section 40(a)(ia) of the Income Tax Act is declaratory and curative in nature and has retrospective effect from 1/4/2005.We find that the above submission of the Learned counsel of the assessee is cogent. However the issue requires factual verification of the submissions made. Disallowance towards provision for salary and DA - Held that - Upon careful consideration we find that the issue needs verification on the part of the Assessing Officer. Hence in the interest of justice we remit this issue to the file of the Assessing Officer. The Assessing Officer shall examine the issue afresh after giving assessee an opportunity of being heard. In this regard it is another contention of the Learned counsel of the assessee that if the above some is excluded for the purpose of application of computing income under section 11 of the Income Tax Act, the application is more than 85% of the income of charitable institution. Hence rendering decision on this ground may become academic nature. We find that the aspect again needs examination of the computation and hence we leave the suspect of computation for the Assessing Officer.
Issues Involved:
1. Denial of exemption under section 11 of the Income Tax Act. 2. Disallowance of interest payment under section 40(a)(ia). 3. Disallowance of provision for salary and DA as unascertained liability. Issue-wise Detailed Analysis: 1. Denial of Exemption under Section 11 of the Income Tax Act: The primary issue in this case is whether the assessee trust violated provisions of section 13(1)(c) by advancing interest-free loans to specified persons, thereby forfeiting its exemption under section 11. The trust advanced loans to two members, Pallavi Chaturvedi and Dushyant Chaturvedi, amounting to ?76,54,799 and ?9,05,350, respectively. The AO held that these loans were in violation of section 13(1)(c) and thus denied the exemption under section 11, treating the surplus of ?1,70,07,523 as business income. The CIT(A) upheld this decision, stating that the loans were not used for charitable purposes and lacked adequate security or interest. The assessee argued that the loans were covered by interest-free funds from related parties and that the denial of exemption should be limited to the amount of the violation. The Tribunal referred to section 164(2) and relevant case laws, concluding that only the amount advanced to related persons should be taxed, not the entire income. Consequently, the Tribunal directed the AO to disallow interest at the market rate on the sums advanced but allowed the exemption under section 11 for the rest of the trust's income. 2. Disallowance of Interest Payment under Section 40(a)(ia): The AO disallowed ?52,79,636 on account of interest payment for non-deduction of TDS, which was affirmed by the CIT(A). The assessee contended that the payee had filed its return and paid taxes, thus fulfilling conditions under the second proviso to section 40(a)(ia). The Tribunal found the assessee's submission cogent but required factual verification. The issue was remitted to the AO for examination in light of the Delhi High Court's decision in CIT vs. Ansal Landmark Township, which held that the second proviso to section 40(a)(ia) is retrospective. 3. Disallowance of Provision for Salary and DA: The AO disallowed ?2,74,79,379, considering it an unascertained liability. The CIT(A) affirmed, noting the auditor had not verified the claim and requisite documents were not submitted. The Tribunal remitted the issue to the AO for fresh examination, directing verification of the provision's validity and its impact on the trust's income application. The Tribunal also noted that if the provision is excluded, the trust's application of income would still exceed 85%, potentially rendering the decision academic. Conclusion: The Tribunal allowed the appeal partly, granting exemption under section 11 except for the interest-free loans to related persons, remitting the issues of TDS disallowance and provision for salary and DA to the AO for further verification. The decision was pronounced on January 9, 2017.
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