9911796707
TMI Blog2015 (8) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. It has been granted registration u/s 12A of the Income Tax Act, 1961 by the CIT-II, Visakhapatnam vide proceeding no.CIT-2/trusts/62/2005-06 dated 29.9.2006. The assessee is an educational institution, running Engineering and Pharmacy colleges. During the assessment year, the assessee filed its return of income on 30.9.2009 declaring nil income, after claiming excess of income over expenditure, amounting to Rs. 84,32,548/-. It claimed exemption u/s 11 r.w.s. 12A of the Act. The return of income was scrutinized under section 143(3) of the act. Assessing Officer's findings: 3. During the course of scrutiny assessment proceedings, the AO noticed that the assessee has been contributing to M/s. Margadarshi Chit Funds. The chit value is Rs. 15 lakhs and each installment is Rs. 30,000/- and the total installments are 50. During the year under consideration, the assessee society has contributed Rs. 2,65,300/- and received Rs. 1,24,700/- as dividend from the said chit fund company. The assessing officer on the ground that the assessee has not invested or deposited its funds in the mode of form specified u/s 11(5) of the Act held that the provisions of section 13(1)(d) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee would need more money for his expansion plan (c) however, for assessment year 2007-08, 2008-09 & 2009- 10, the assessee is having excess funds even after investing the funds in the fixed assets. (d) it is clear from the balance sheet that the assessee has taken secured loans from the banks and hence it cannot be said that the assessee is not having recourse to approved methods of funding and thus had to go in for chit borrowals (e) assessee at the time of investing in the chits is not expecting that it would require funds in May, 2009 and hence would use this as a method of borrowal. (f) when the assessee started contributing to chits, it is with an intention to park its extra funds and earn dividend on the same. (g) it is only investing of money in chits and got categorized as investment. (h) on the reliance placed by the assessee on the decision of the Visakhapatnam bench of the ITAT in the case of Gurajada Educational Society v. CIT [IT Appeal No.471 (Vizag.) of 2004], the Ld. CIT(A) held that the facts are different as in that case, the assessee has bid the chit first and repaid the money so borrowed. He referred to decision of the Visakhapatnam ITAT in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nthly subscription amount was Rs. 10,000/- each. Further, on verification of the balance sheet of the assessee under the head schedule-E "details of investments and deposits" Rs. 60,000/- has been shown towards investment in chits as at 31st March, 2003. Subsequently, contributions were made to another chit by name M/s.Srinivasa Chit Funds Private Limited and the total amount mentioned in the balance sheet at the end of 31st March of 2004, 2005 and 2006 respectively was Rs. 4,00,000; Rs. 7,80,000 and Rs. 6,91,540. The assessee had declared chit dividend income and also debited chit loss. The assessing officer reopened assessments for the all the four years and in the reassessment he held that the assessee has violated section 13(1)(d) of the Act by not making investments in the mode specified u/s 11(5) of the Act and denied exemption u/s 11 and brought to tax the entire surplus for all the four years. 10. Aggrieved, the assessee carried the matter in appeal. Before the first appellate authority, the assessee challenged reopening as well as on merits. The Ld. CIT(A) in his exhaustive order upheld the findings of the assessing officer. We are not referring to the observations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax at the maximum marginal rate under the provisions of section 164(2) of the Income Tax Act, 1961, only on account of subscription to a Chit Fund made by the appellant for the purpose of raising financial resources, whereas appellant most respectfully prays that at the most, it is only the amount of income derived from such contribution to Chit Fund which ought to have been held as income liable to levy of income tax at the maximum marginal rate under the provisions of section 164 of the Income Tax Act but not the entire income of appellant. 2.b Appellant most respectfully submits that the reliance placed by the CIT(A) on the decision of the hon'ble Hyderabad bench of Income Tax Appellate Tribunal in the case of National Academy of Construction is not correct and justified, when particularly the said judgement is contrary to the judicial principle laid down by the hon'ble High Court of Bombay in the case of DIT (Exemptions) v. S.M.F.B.B. Foundation Trust 259 ITR 533 (Bom.). Ground no.3: Without prejudice to Ground nos.1 and 2, appellant prays that CIT(A) is not justified in confirming the action of assessing officer in subjecting to levy of income tax at the maxim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he current year while arriving at the net deficit. For this proposition he relied on the following case laws: CIT Vs. Raghuvanshi Charitable Trust & Ors. (2010) 44 DTR (Del) 223 Govindu Naicker Estate Vs. ADIT (2001) 248 ITR 368 (Mad) CIT Vs. Shri Plot Swetamber Murti Pujak Kain Mandal (1995) 211 ITR 293 CIT Vs. Shri Gujrati Samaj (regd) (2011) 64 DTR (MP) 76 (b) The assessee has complied with the conditions prescribed u/s 11(1) of the Act which confers exemption from the income derived from property held under the trust in two ways (i) amount actually applied for such purposes during the year (ii) amount not exceeding 15% of the income though not actually spent during the year. He submitted that the restriction contained in section 13(1)(d) of the Act is relatable only to the second limb of section 11(1)(a) of the Act i.e. amount not exceeding 15% of the total income, not actually spent during the year. He submitted that if the consequences of violation of section 13(1)(d) of the Act are applied to the first limb i.e. amount actually applied for charitable purposes during the previous year, then it would lead to an absurd result, as what is actually spent cannot be inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en with regard to, utilization of funds accumulated u/s 11(1) of the Act. However, the choice of investment available to a charitable institution in respect of accumulation u/s 11(1) was a little wider than the choice available with regard to the accumulation u/s 11(2) of the Act and that ultimately the additional leverage available to funds accumulated u/s 11(1) of the Act was withdrawn and that both the accumulations u/s 11(1) and 11(2) of the Act have been brought at par. (f) That the Hon'ble High Court of Andhra Pradesh in the case of M/s. Priyadarshini Educational Academy Vs. DGIT (Inv.) (2011) 333 ITR 347 (AP), has held that what is required to be invested is only the income of the educational institutions. (g) For the meaning of the term "fund", he relied on the decision of the Hon'ble Delhi High Court in the case of CIT v. Sir Shri Ram Foundation [2001] 250 ITR 55 (delhi) and submitted that "fund" means what is available for being spent. He argued that, as the entire income of the assessee was applied for charitable purposes, there was no fund available and hence the question of relating the fund to contributions made to chit does not arise. (h) The Ld. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hriram Chits & Investment (P.) Ltd. v. Union of India AIR 1993 SC 2063 (2) Dhoosa Narasimloo v. Yelala Rajanna [1958] ILR AP 409 (j) It was submitted that certain decisions were not brought to the notice of Hon'ble AP High Court in the case of Priyadarshini Educational Academy (supra) and that the issue whether contribution to a chit fund, constitutes investment or not, was not a question before the Hon'ble High Court and hence it cannot be said that it is a binding precedent. He relied on the decision of Hon'ble Andhra Pradesh High court in the case of CIT v. Suman Chit Funds in ITTA No.120 of 2013 dated 27.6.2013, wherein it is held that in respect of dividend paid by the foreman, to the subscriber of the chit, provisions of section 194A are not applicable. (k) The Ld. Counsel relied upon the decision of the apex court in the case of Shriram Chits & Investment (P.) Ltd. (supra) and the judgement of the Hon'ble Madras High Court in the case of Raghavan v. Armugham (1934) 38 MLI 283 for the proposition that contribution to chit continues to be owned by the assessee and the foreman act only as a trustee and hence there is no parting of funds and principles of mutu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee while acting in a bonafide manner. He relied on the decision of Hon'ble Delhi High court in the case of DIT v. Agrim Charan Foundation [2002] 253 ITR 593. (n) Alternatively he submitted that the entire surplus cannot be brought to tax even if it is treated as a violation of section 13(1)(d) r.w.s. 11(5) of the Act and for this proposition he relied on the following case laws: 1. Gurudayal Charitable trust Vs. ITP (1990) 34 ITD (Bom) 489 2. DIT (Exemption) Vs. Sheth Mafatlal Galalbhai Foundation Trust (2001) 249 ITR 533 (Mum). (o) He submitted that income cannot be taxed at maximum marginal rate as the assessee is a non-profit organization and its bye laws prohibited explicitly distribution of surplus and hence the society's income has to be taxed as in the case of an ordinary AOP at progressive rate of taxation. Reliance was placed on the decision in the case of Samakar Nastik Kendram Vs. ITO (1993) 46 TTJ (Hyd) 283. (p) He submitted that the issue is covered in favour of the assessee by the judgement of the Chennai bench of the Tribunal in the case of M/s. Sethu Valliammal Educational Trust Vs. ITO (Exemption-3) ITA No.1445/MAS/2012 dated 10.1.2013 and the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence it should be avoided. He relied on the circular no.229 dated 9.8.1977 brought in by the Finance Act (no.2 of 1977) as well as the CBDT circular no.335 dated 13.4.1982 and submitted that it has clearly stated that both the requirements of applying 85% of the income to charitable purposes and investing the remaining income in the mode specified u/s 11(5) of the act is mandatory for claiming exemption u/s 11 of the Act. e) On the argument of the assessee that the entire income has been spent, he submitted that there is a basic flaw in the argument as the assessee is taking only revenue receipts as income for the purpose of calculations. He gave an example and submitted that word "any fund" used in the Act applies to both capital receipts and revenue receipts and the unspent capital receipt has to be invested in the mode specified u/s 11(5) of the Act. f) From the facts in the case of Sri Sivani Educational Society, he submitted that , the assessee has excess of income over expenditure of Rs. 84,32,548/- and that out of the receipt of Rs. 6.9 crores, only an amount of Rs. 6.05 crores was spent on revenue account and that the assessee spent Rs. 7.61 crores on capital accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submitted that there are catena of decisions in favour of the revenue and that these are brought out by the AO as well as the CIT in their order. He pointed out that the decisions in the case of Gurudayal Charitable trust (supra) and Sheth Mafatlal Gagalbhai Foundation Trust (supra) have been rightly distinguished by the AO. Ld. CIT(DR) in view of the above factual and legal position argued that, the orders of the lower authorities have to be sustained and the assessee's appeal be dismissed. Our Findings: 14. Rival contentions were heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record and the orders of the authorities below, as well as the case laws cited, we hold as follows: The relevant sections that come up for our consideration i.e. 11 (1), section 11(5) and 13(1)(d) are extracted for ready reference. Section 11(1): Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived. Section 11(5): The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely:- (i) investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for industrial development in India and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; (ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long term finance for urban infrastructure in India. Explanation.-For the purposes of this clause,-- (a) "long term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; (b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) "urban infrastructure" means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1993 whichever is later; (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. Explanation:- Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business. Explanation.-- For the purposes of sub-clause (ii) of clause (c) , in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the 50 subscribers so that each would get Rs. 250/-. This amount of Rs. 250/- can be set off by the subscribers against the second month's installment of Rs. 1,000/- payable by him and he can give only Rs. 750/-. The auction would be repeated in the subsequent months and the same procedure is followed. Any subscriber who delays the bidding or does not bid at all stands to gain the maximum discount. The chit is thus somewhat like a recurring deposit with the bank. There is no bar on the foreman of the chit fund also participating as a subscriber. 7. The business of chit funds is strictly regulated by the Chit Funds Act, 1982. It contains detailed provisions relating to registration of chits, commencement and conduct of chit business. Rights and duties of foreman, rights and duties of the subscribers, termination of chits, meetings of general body of subscribers, provisions relating to winding up, disputes and arbitration and other miscellaneous provisions. Suffice to note that section 11 recognises that a chit business can be known by several names such as chit, chit fund, chitty, kuri, etc. Dealing with the Chit Funds Act, the Supreme Court in Sriram Chits & Investment ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot also be construed that the person who gets chit later should be treated as a money lender. The agreement between the parties those entered as per section 6 of the Act only provides for distribution of the chit amount. The Supreme court however relied on the judgement of the Kerala High court in Janardhana Mallan and Others vs. Gangadharan and others AIR 1983 Kerala 178, wherein it was observed that on entering into a chit agreement, a debt is not incurred by the subscriber for the amount of all the future instalments and in respect of such amount there is no debtors-creditors relationship." The Hon'ble Delhi High Court further observed as follows: "This approach is fallacious on the face of it and particularly in view of the principle laid down in the aforesaid judgement of the Supreme court in Sriram Chits and Investment Pvt. Ltd. (supra), wherein the apex court observed that the subscription received from the members of the chit fund company in terms of contract are not treated as deposits for the purpose of Reserve Bank of India direction. The amount contributed by the members every month is given back to them in the following manner. The successful bidder takes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a license under Section 9(2) of the Hyderabad Money Lenders Act (Act V of 1349 F.) and on revision, the question that came for consideration was whether the chit fund organisation could be regarded as a money lender within the meaning of the said Act and whether its transaction partake the nature of a loan. Srinivasachari, J. speaking for the Court held that the amount drawn by a member of a chit fund who bid at the periodical auction giving the largest discount could not come within the definition of a loan within the meaning of the Money Lenders Act nor could such a transaction be regarded as a money lending transaction be and in the circumstances Section 9 of the Hyderabad Money Lenders Act (V of 1349 F.) could have no application to such a case. At page 415 of the aforesaid report it has been observed "in our opinion there is nothing in the chit fund transaction which could be called the business of money lending. It is in essence an organisation for mutual benefit." It approved the decision of the Madras High Court in Raghavan v. Armugham: (1934) 38M.L..I. 283. That was also a case of chit fund transaction and the question for decision was whether a provision in the bond for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of such fund, was not the business of the assessee. The transactions concerned here are contributions made to the fund by the assessee and the lump sum received by it, though at a discount and the subsequent distribution and receipt of amounts amongst the participants as premia or dividend. There is clearly mutuality amongst the contributors and the participants of the chit fund with their identity being known and established. When such is the case, contributions made to the chit fund cannot be treated as revenue expenditure nor indeed could the payment and receipt of any amount to and from the chit fund be treated to be the business activity of the assessee. The test of mutuality in this behalf, as laid down in CIT vs. Nataraj Finance Corporation (1988) 69 CTR (AP) 15: (1988)- 169 ITR 732 (AP) is that the entity would be a mutual benefit association if all the participators to the common fund are also contributors and their identity is established. The contributors to the common fund and the participators in the surplus must be an identical body. The court went on to observe that this does not mean that each member should contribute to the common fund or that each member shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is purpose, we analyse the following terms used in section 13(1)(d): i) Any funds ii) Investment or deposit 25. The term "any funds" when read with the phrase 'any income thereof', in our opinion signifies income defined u/s 2(24) of the Act. Thus any receipt, which falls within the definition of income u/s 2(24) of the Act is to be considered. As rightly contended by the learned counsel for the assessee, the restriction on utilization of funds belonging to a charitable institution have been brought in to curb the misuse of tax exempt funds by these charitable institutions. Therefore, on a harmonious construction of the provisions of S.13(1)(d) we are of the considered view that the term 'any funds' refers to only the income of a charitable institution. 26. The term "any funds" has been explained by the Hon'ble Delhi High court in the case of CIT Vs. Shree Sri Ram Foundation 250 ITR 55 wherein it is held as follows: "A similar issue had come up before various High Courts and there is unanimity in the view, as that taken by the Tribunal. In construing the provisions of section 13(2)(h), the expression "funds" has to be understood in the context of the provision and not only wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or revenue of a State or Government appropriated for the discharge of its debts. Generally, working capital ; sometimes used to refer to cash or to cash and marketable securities." "(b) Dictionary for Accountants, fourth edition, by Eric L. Kohler : 1. An asset or group of assets within any organisation, separated physically or in the accounts or both from other assets and limited to specific uses. Examples : a petty cash or working fund ; a replacement and renewal fund ; an accident fund ; a contingent fund ; a pension fund. Example : a trust fund created by a will ; an endowment fund ; a sinking fund. 4. pl. : Current assets less current liabilities (on an accrual basis) ; working capital ; a term used in cash flow statements. 5. pl. : cash (pp. 204-208)." "Chambers' Twentieth Century Dictionary, new edition : Fund : n. a sum of money on which some enterprise is founded or expense supported : a supply or source of money :" * "The Concise Oxford Dictionary, fifth edition : Fund n. 1. Permanent stock of something ready to be drawn upon- stock of money-pecuniary resources." "Webster's Seventh New Collegiate Dictionary-based on Webster's Third New International Dic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2] 2 KB 228. The expression "fund" or "funds" has a variety of meanings but the sense in which it is employed must be gathered from the context. It would not be correct to adopt a strictly literal or technical meaning of this expression while construing section 13(2)(h). In other words we must not construe that provision mechanically. We must construe it having regard to the object which the Legislature had in view in enacting it and in the context of the setting in which it occurs. That, provision came to be inserted in the Act by the Finance Act, 1970. On a plain reading of that provision, it is clear that clause (h) of sub-section (2) of section 15 covers investment of the trust funds in any concern in which any of the persons specified in sub-section (3) has substantial interest ("specified persons" in short) and if such investment of the trust funds is made after December 31,1970, it would result in forfeiture of exemption from tax. However, if the trust funds have already been invested in any concern as aforesaid before January 1, 1971, the exemption would be forfeited if the funds continued to remain so invested even after December 31, 1970. The object of the above provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, but has to be interpreted in a popular sense. It is not capable of legal definition, but a word of current vernacular. The words "invest" and "investment" are to be taken in the business sense of laying out of money for interest or profit. A plea similar to the one taken by learned counsel for the Revenue was raised before the Kerala High Court in CIT V. Chandrika Educational Trust [1994] 207 ITR 108. There also it was pleaded that the expression "continued to remain" qualifies the expression "in any concern" whether it was an investment or not. The plea was rejected by the Kerala High Court. It was observed that it would be doing violence to the plain language of the provision. Section 13(2)(h) requires that the funds of the trust are, or continue to remain invested in any concern of the nature mentioned therein. (underlined for emphasis)." 27. In the case of DIT (Exemption) Vs. Alarippu 244 ITR 358 it is held as follows: "The expressions used in both the provisions quoted above, are "investment" and "deposit". The former expression means to lay out money in business with a view to obtain an income or profit. Deposit, on the other hand, means that which is placed anywhere, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petition is dismissed." 28. The Hon'ble Bombay High court in the case of Income Tax Officer vs. Dr. Vikhe Patel Foundation (supra) held as follows: "It is well settled that the depiction in books of accounts is not a determinative test but the factual nature of the transaction which has to be considered for the purpose of taxation." In this case, the investment in the shares of Cooperative Bank was a pre condition for raising loans and it was therefore not an investment as normally understood. The Tribunal has recorded a finding of fact that the shares was subscribed only for purposes of obtaining the loan and the amounts so obtained were used for furtherance of the objects of the trust. There is no dispute about the facts that loans taken from the said two cooperative banks were not completely repaid in the assessment year 2008-09 and, therefore, the assessee would be required to hold shares to continue as member of the cooperative society running the banking business." 29. The `C' bench of the ITAT Delhi in the case of ADIT (Exemption) Vs. India Fringe Centre for the promotion of advanced research ITA No.3065 and 6164 Delhi 2012 assessment years 2008-09 and 2009-10 held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o income whatsoever derived. The income that can be derived was only the amount forgone by the bidders in an auction. Thus a chit fund is primarily intended to operate as a scheme for advancing loans from a common fund 10 I.T.A. No. 1445/Mds/12 created by the subscribers, and their turn for getting such loan is decided either by auction or by drawing lots. The nature of chit as aforesaid has been vividly described in the judgment of Kerala High Court in the case of Kottayam Co-operative Bank Ltd. (supra). 9. Amritsar Bench of this Tribunal in the case of Onkar Capital Growth (P) Ltd. (supra) has clearly held that the subscribers to a chit fund were entitled only for prizing the chits and the money placed by a subscriber to a chit fund could not be equated with deposits. The foreman of a chit fund is only acting as a conduit for the subscribers to pool their money every month for the benefit of one of them. Chit Funds Act, 1982 requires the concern running a chit to a subscriber of the chit also. We cannot say that persons, who are subscribers to a chit, are making any investment in the concern running the chit fund. We cannot say that subscriber to a chit fund is placing any depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if the chit fund contribution in question is not made as an investment, then the provisions of section 13(1)(d) are not attracted. In other words, it is an accepted position that Sec 13(1)(d) is attracted only if, on the facts and circumstances of the case, the contribution to chit is held to be an investment. The learned CIT(DR) placed reliance in the case of Priyadarshini Educational Academy Vs. DGIT (Supra) . Hon'ble A.P. High Court in that case was considering, in a writ petition, a case where exemption was denied u/s 10(23c)(vi) of the Act. The argument of the Ld. Counsel in this case are at para 4. These are extracted for ready reference: "The surplus income, if any, and all their funds stood invested in acquisition of assets, and in the modes and forms specified in section 11(5), for the assessment year 2008-09, i.e., the year for which approval was sought; the legal infirmity, on the basis of which exemption was denied to the society in the past assessment years, was because of its contribution to a chit fund scheme which was considered by the Assessing Officer as a contravention of section 13(1)(d) of the Act; the said infirmity did not exist in the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and has adhered to the modes specified in section 11(5) of the Act, that he would grant approval, or renew the approval granted earlier, under section 10(23C)(vi) of the Act. 9. Accepting the submission of the learned counsel for the petitioner that, since the petitioner's investment in a chit fund, (which is not one of the modes and forms specified in section 11(5) of the Act), was in the assessment year 2007-08, prior to the assessment year 2008-09 for which approval was sought, such investment or deposit cannot result in denial of grant of exemption, would render the requirement of furnishing the audited annual accounts for the previous three years, as stipulated in Form 56D, wholly unnecessary. A logical corollary of the aforesaid submission would be that only the income of the previous financial year, relevant to the assessment year in question, would be required to be examined by the prescribed authority, and not the two previous years prior thereto." 34. On perusal of the above judgment, it is clear that, the issue whether the contribution made by the asessee to a chit fund as an individual subscriber, either on the facts of the case, or under the scheme of the chit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he occasion. The allegation that the assessee has surplus fund, kept as deposits, is also wrong, for the reason that these fixed deposits were jointly held in the name of the assessee and the Governmental authority, as is was compulsory as per rules, for grant of permission to run educational institution. Thus, for all these reasons, we uphold the contention of the assessee that the contribution to chit, in the cases on hand, is not an investment nor a deposit and hence section 13(1)(d) of the Act is not attracted. 38. The term "fund" used in section 13(1)(d) of the Act, in our opinion, has to be r.w.s. 11(5) of the Act. Under section 11(5), the wording is "forms and modes of investing and depositing the money referred to in clause (b) of sub-section (2) is as follows: Sec.11 (2) (b) reads as follows: "the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5)". 39. Thus the requirement of investing or depositing, u/s 11(5) of the Act is confined to money in hand or cash. When the entire income of the year has already been spent towards the objects of the society, there cannot be said to be any funds remaining out of the fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid. 2. The Ld. CIT(A) has erred in holding that the assessment is reopened merely on change of opinion. 3. The CIT(A) ought to have considered the fact that the assessment is reopened within four years from the end of the relevant assessment year and the requirement of full and true disclosure of material facts are not applicable to this case. 4. In view of the explanation 2(c)(iii) of section 147, where assessment has been made but, such income has been made the subject of excessive relief under this act, the principle of change of opinion is not applicable to this case." 44. While all the other facts are identical to the assessment years involved in the appeals of the assessee, the only peculiar fact for this assessment year is that the assessment was originally completed u/s 143(3) of the Act. In the assessment completed vide order dt.18.9.2006 the assessing officer made addition for the amount contributed to the chit fund instead of bringing the surplus to tax. In the reassessment proceedings, the assessing officer took a different view and brought to tax the surplus earned by the assessee for the assessment year. 45. The CIT(A) held that the reassessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment made for A.Y.2005-06 is quashed. As already stated reopening of assessments for assessment years 2003-04, 2004-05 and 2006-07 is held to be valid." 46. Learned DR Smt.Komali Krishna submits that the CIT(A) is not justified in quashing the assessment for the A.Y.2005-06. She argued that the view taken by the assessing officer at the time of completing the assessment originally u/s 143(3) of the Act is an erroneous view and therefore the reopening was in accordance with law. 47. Learned counsel for the assessee placed strong reliance in the order of the CIT(A) and brought our attention to para 6.1.3. of the order of CIT(A). Further, he placed reliance in the decisions of hon'ble Delhi High Court in the cases of Orient Craft Limited (order dt.12.12.2012 in ITA No.555/2012), Mohan Gupta (HUF) (order dt.28.1.2014 in WP(C)7660/2012 and decision of hon'ble Gujarat High Court in the case of Inductotherm (India) Private Limited (order dt.6.8.2012 in Special Civil Application No.858 of 2006). It is the submission of the A.R. that in all the above cases it was categorically held that in the absence of new material the assessing officer is precluded from reopening an assessment comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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