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2010 (7) TMI 159 - HC - Income TaxDeduction u/s 11 violation of section 13(1)(d) - assessing officer noticed that the assessee-society had in the assessment year 2005-2006 given a loan of Rs. 90,50,000/- to another educational society, namely, Nav Bharti Educational Society. It is pertinent to mention that the President of Nav Bharti Educational Society was the brother of the President of assessee-society. Held that - that interest free loan of Rs. 90,50,000/- given by the assessee-society to Nav Bharti Educational Society does not violate Section 13(1)(d) read with Section 11(5) of Act, 1961 as the said loan was neither an investment nor a deposit . This is more so as both the societies had similar objects and were registered under Section 12A of Act, 1961 and had approvals under Section 80G of the Act, 1961. The fact that the loan was interest free and had been subsequently returned is also significant.
Issues Involved:
1. Whether the interest-free loan given by the assessee-society to another society with similar objects constitutes an "investment" or "deposit" under Section 13(1)(d) read with Section 11(5) of the Income-tax Act, 1961. 2. Whether the assessee-society violated the provisions of Section 13(1)(d) read with Section 11(5) of the Income-tax Act, 1961. 3. Allegations of the Nav Bharti Educational Society being involved in an entry scam. Issue-wise Detailed Analysis: 1. Whether the interest-free loan given by the assessee-society to another society with similar objects constitutes an "investment" or "deposit" under Section 13(1)(d) read with Section 11(5) of the Income-tax Act, 1961: The court examined the definitions and distinctions between "investment," "deposit," and "loan" as outlined in the case of Director of Income-tax (Exemption) v. Alarippu [2000] 244 ITR 358. It was clarified that "investment" implies laying out money in business to obtain income or profit, while "deposit" means placing money for safekeeping, and "loan" refers to granting temporary use of money. The court concluded that the interest-free loan of Rs. 90,50,000 given by the assessee-society to Nav Bharti Educational Society does not constitute an "investment" or "deposit" as per Section 13(1)(d) read with Section 11(5) of the Act, 1961. This conclusion was supported by the fact that both societies had similar objects and were registered under Section 12A of the Act, 1961. 2. Whether the assessee-society violated the provisions of Section 13(1)(d) read with Section 11(5) of the Income-tax Act, 1961: The court noted that the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal had both held that there was no violation of Section 13(1)(d) read with Section 11(5) of the Act, 1961. The court reinforced this position by citing the case of Director of Income-tax (Exemption) v. Pariwar Sewa Sansthan [2002] 254 ITR 268 (Delhi), where it was held that no question of law arises when a loan is given by one society to another with similar objects. The court concluded that the interest-free loan did not violate the provisions of Section 13(1)(d) read with Section 11(5) of the Act, 1961. 3. Allegations of the Nav Bharti Educational Society being involved in an entry scam: Ms. Prem Lata Bansal, representing the Revenue, argued that the Nav Bharti Educational Society was involved in an entry scam, and huge monetary demands were raised against it upon reopening of its assessment proceedings. However, Mr. Piyush Kaushik, representing the respondent/assessee-society, vehemently denied these allegations, stating they were baseless. He emphasized that the Commissioner of Income-tax (Appeals) had deleted the alleged additions on account of accommodation entries, concluding that the transactions were genuine. The court found that the allegations of the entry scam did not survive in light of the detailed order passed by the Commissioner of Income-tax (Appeals) in the case of Nav Bharti Educational Society. Conclusion: The court held that the interest-free loan given by the assessee-society to Nav Bharti Educational Society did not constitute an "investment" or "deposit" under Section 13(1)(d) read with Section 11(5) of the Income-tax Act, 1961. Consequently, there was no violation of the said provisions. The allegations of the entry scam were also dismissed. Thus, the appeal was dismissed with no order as to costs.
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