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2013 (7) TMI 811 - HC - Income TaxBenefit u/s 11 an 12 - Loan given to society not registered u/s 12AA and it was less than 15% of the income over expenditure - A.O. held there was violation of Section 13(1)(d) - Tribunal denied to grant deduction u/s 11 and 12 - Held that - Excess of income over expenditure in the relevant year was less than 15% of the gross receipts. The loan was not given in the period relevant to assessment year - Amount was given by way of loan to a society, which was later on registered under Section 12A with the same objects and purpose as that of the assessee - Loan is neither investment nor deposit - The case of deposit is something more than a mere loan of money. It depends on the facts of the each case whether the transaction is clothed with the character of deposit of money - Where both the societies have similar objects and are registered under Section 12AA and have approvals under Section 80G, interest free loan cannot be treated as deposit or investment so as to attract Section 11 (5) of the Act - Following decision of Director of Income-Tax (Exemption) v. Acme Educational Society 2010 (7) TMI 159 - DELHI HIGH COURT and Mansa Ram & Sons v. Janki Dass Om Prakash & Ors. 1984 (4) TMI 251 - ALLAHABAD HIGH COURT - Decided in favour of assessee.
Issues:
Interpretation of Section 11 and Section 13 of the Income Tax Act regarding loans given by an assessee society to another educational society and the eligibility for exemption under the Act. Analysis: 1. Violation of Section 13 (1) (d) and Section 11 (5): The Assessing Officer (A.O.) held that there was a violation of Section 13 (1) (d) read with Section 11 (5) of the Income Tax Act, denying the benefit of Section 11 on the loan amount given by the assessee society to another educational society. The A.O. emphasized that even though the loan amount was less than 15% of the income over expenditure, since it was not deposited in the securities specified in Section 11 (5), no allowance could be granted. 2. Registration under Section 12AA and Compliance with Section 11: The appeal raised questions regarding the justification of the ITAT's decision on the source of the loan and the absence of registration under Section 12AA of the Act at the relevant time. The CIT (A) emphasized that the exemption under Section 11 is contingent upon the funds being invested or deposited in specified forms as per Section 11 (5). The CIT (A) concluded that giving a loan does not fulfill the conditions of investment or deposit, leading to a violation of the provisions. 3. Interpretation of Loan as Investment or Deposit: The ITAT's decision relied on the judgment of the Delhi High Court regarding the nature of loans given by societies. It was established that a loan is neither an investment nor a deposit, and the provisions of Section 13 (1) (d) were found to be inapplicable in the absence of investment or deposit in specified assets. The ITAT also highlighted that the loan was not given during the relevant assessment year and did not exceed the prescribed limit of surplus funds. 4. Distinction between Loan and Deposit: The Court referred to a previous judgment to distinguish between a loan and a deposit, emphasizing that the character of a transaction as a deposit depends on whether the debtor is obligated to repay the amount or keep it until requested by the creditor. It was concluded that in cases where both societies have similar objects and are registered under Section 12A, an interest-free loan cannot be considered a deposit or investment under Section 11 (5) of the Act. 5. Final Decision: Based on the analysis and precedents cited, the Court decided against the revenue and in favor of the assessee, dismissing the income tax appeal. The judgment upheld that a loan does not fall under the category of investment or deposit as specified in the Act, leading to the rejection of the revenue's claims. In conclusion, the judgment delves into the intricate details of the Income Tax Act, particularly Sections 11 and 13, to determine the eligibility of an assessee society for exemption based on the nature of loans provided to another educational society. The interpretation of investment, deposit, and compliance with regulatory requirements under the Act played a pivotal role in the Court's decision, emphasizing the need for adherence to specified conditions for claiming deductions and exemptions.
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