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2015 (8) TMI 1152 - AT - Income TaxEligibility to claim exemption u/s 11 - whether the transactions with Kapil Chit Funds are in violation of the provisions u/s 11(5) of the I.T.Act? - Held that - The assessee has spent the entire income earned in the year for the objects of the trust. As has incurred excess amount, there is no surplus amount which needs to be invested u/s 11(5). Section 11(5) comes in to operation only when Trust has accumulated or set part the amount u/s 11(2). In the case of the assessee, there is a no surplus fund and hence, the question of investment or deposit as specified u/s 11(5) does not arise. Contribution to chit fund in this case is not an investments or deposit as specified u/s 11(5), it is, as submitted, only an arrangement for better management of funds of the assessee. The assessee has been complied with the provisions of section 11(1)(a) by applying entire amount for the objects of the trust. Therefore, respectfully following the Co-ordinate Bench decision of Vishakhapatnam reported in Sri Sivani Educational Society case (2015 (8) TMI 405 - ITAT VISAKHAPATNAM) it is concluded that there is no violation of section 11(5) and the assesse is eligible to claim exemption u/s 11. - Decided in favour of assessee.
Issues Involved:
1. Whether the transactions with Kapil Chit Funds violate the provisions of section 11(5) of the I.T. Act. 2. Whether the assessee is entitled to claim exemption under section 11 of the I.T. Act. 3. Whether the assessee is entitled to depreciation on assets used in deriving income when exemption under section 11 is denied. Issue-Wise Detailed Analysis: 1. Violation of Section 11(5) by Transactions with Kapil Chit Funds: The primary issue revolves around whether the contributions to Kapil Chit Funds by the assessee violate section 11(5) of the I.T. Act, thereby making the assessee ineligible for exemption under section 11. The Assessing Officer (AO) contended that the investment in the Chit Fund Company violated section 11(5), which specifies permissible forms and modes of investment for charitable trusts. The AO denied the exemption under section 11 based on this violation. However, the assessee argued that the contributions were not investments but were made for better management of funds and did not constitute a deposit or investment as contemplated under section 11(5). The Tribunal examined the provisions of sections 11(2) and 11(5) and concluded that these sections apply only when there is an accumulation or setting apart of income. Since the assessee had no surplus funds and had applied its entire income towards its charitable objectives, there was no requirement to invest in the modes specified under section 11(5). The Tribunal held that contributions to a chit fund, governed by the principles of mutuality, do not amount to investments or deposits as defined under section 11(5). 2. Eligibility for Exemption under Section 11: The Tribunal found that the assessee, a society registered under section 12AA and running a cancer hospital, had applied its entire income towards its charitable purposes, resulting in a deficit. The Tribunal noted that the assessee had obtained approval under section 10(23C) belatedly from the assessment year 2007-08 onwards. The Tribunal held that since the entire income was applied for charitable purposes and there was no surplus, the provisions of section 11(5) did not apply. Consequently, the assessee was eligible for exemption under section 11, as there was no violation of section 11(5). 3. Entitlement to Depreciation on Assets: The assessee raised an additional ground seeking depreciation on assets used in deriving income if exemption under section 11 was denied. However, since the Tribunal allowed the main ground and concluded that the assessee was eligible for exemption under section 11, the additional ground became academic and was not adjudicated. Conclusion: The Tribunal concluded that the contributions to the chit fund did not violate section 11(5) and the assessee was eligible for exemption under section 11. The appeal was partly allowed in favor of the assessee. The additional ground regarding depreciation was not adjudicated as it became academic. Order Pronounced: The appeal of the assessee was partly allowed, and the order was pronounced in the open Court on 31.07.2015.
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