COMMISSIONER OF INCOME TAX,VIS. V. M/S.CARGP\O HANDLING PVT.

ITTA/12/2011

AI Insights

The case revolves around the dispute concerning the eligibility of a Trust for tax exemption under Section 11 of the Income Tax Act, 1961. The Trust, engaged in organizing and regulating a pool of private workers at Visakhapatnam Dock, was initially denied exemption by the Assessing Officer, who classified its activities as commercial. The Commissioner of Income Tax (Appeals) upheld this decision, but the Income Tax Appellate Tribunal reversed it, recognizing the Trust's activities as charitable. The Revenue's appeal to the High Court contested the Tribunal's findings, arguing that the Trust's activities and financial dealings, including loans to settler associations, violated Sections 11(4A), 11(5), and 13 of the Act. The High Court, referencing Supreme Court precedents, upheld the Tribunal's decision, emphasizing that the Trust's activities, funded by user fees and not profit-driven, were charitable.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 730309 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 15-09-2022
• Assessment Year: misc
• Other Referred Cases: Sole Trustee, Loka Shikshana Trust V. Commissioner of Income-Tax, Mysore, Assistant Commissioner of Income Tax V. Surat City Gymkahana, C.I.T. V. Polisetty Somadundaram Charities, Nawn Estates (P.) Ltd. v. CIT, CIT v. External Science of Man's Society, GS1 India V. Director General of Income-Tax (Exemption) and Another
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Respondent
• Court: HIGH COURT
• Department Lawyers: M KIRANMAYEE ADVOCATE; C P RAMA SWAMI ADVOCATE
• Keywords: Appeal; Assessment Order; Business activity; Charitable Trust; Exemption under section 11; Income tax appellate tribunal; Investment Violation
• Section: 147; 148; 143(1); 11; 13(2); 11(2); 11(5); 13(1)(c); 13(3); 260-A; 234(B(3)

Judgement Text

"HON’BLE SRI JUSTICE C.PRAVEEN KUMAR AND HON’BLE SRI JUSTICE TARLADA RAJASEKHAR RAO I.T.T.A. No. 12 of 2011 JUDGMENT: (Per Hon’ble Sri Justice C. Praveen Kumar) 1. The present I.T.T.A is filed under Section 260(A) of the Income Tax Act, 1961 [„I.T. Act‟], assailing the Order passed in I.T.A. No. 297/Vizag/2006, for the Assessment Years 2003-2004. 2. The Respondent Assessee filed its return of income for the Assessment Year 2003-2004 on 31.10.2000, declaring “NIL” income, after claiming exemption to a tune of Rs.8,49,497/-, under Section 11 of the I.T. Act. The said assessment was processed under Section 143(1) of the I.T. Act. It was found that the Assessee was not engaged in any charitable activities, in order to avail the exemption of its income under Section 11 of the I.T. Act, and that it was only engaged in supply of labour to various stevedores at Visakhapatnam sea-port in an organized manner; earning wages from the stevedores and distributing it to the labourers, while retaining part of the wages. The Assessee is said to have invested its funds in non-specified modes as well and that too in concerns, in which the trustees are interested. 2 3. On a premise that, there was an escapement of income for the assessment year 2003-2004, the assessment was re-opened under Section 147 of the I.T. Act and a notice under Section 148 was issued. In response to the said notice, the Assessee submitted the return of income. After hearing the Assessee, an Assessment Order came to be passed on 04.01.2006, holding that the Assessee is liable to pay tax to a tune of Rs.3,35,93,179/-. 4. Assailing the Assessment Order, Appeal vide I.T.A. No. 297/Vizag/2006 came to be filed. After hearing the Assessee, the Commissioner of Income Tax (Appeals)-I, Hyderabad, passed an Order on 28.04.2006, which reads as under: “The aforesaid provisions provide that the assessee shall be liable to pay interest on the amount by which the tax on the total income determined on the basis of the reassessment exceeds the tax on the total income determined under sub- section (1) or sub-section (3) of section 143. Since in this case the tax on the total income was determined at NIL or zero in the assessment u/s 143(1), the tax of Rs.4,38,45,286/- determined on the basis of reassessment is to be considered as „the amount of tax exceeding the tax on the total income determined u/s 143(1)‟ on which the interest u/s 234(B(3) is chargeable. I do not agree with the contention of the Ld. AR that if no tax was found payable u/s 143(1)/143(3) then no interest u/s 234B(3) can be charged on the tax determined on the assessed income u/s. 147. Such interpretation which frustrates the very purpose and objective of the provisions 3 cannot be accepted. Hence, the ground raised by the appellant is dismissed. In the result, both the appeals are dismissed.” 5. Aggrieved by the decision of the Appellate Authority, the Assessee preferred an Appeal before the Income Tax Appellate Tribunal, Visakhapatnam. By an Order, dated 08.01.2010, the Appellate Tribunal allowed the appeal holding that the Assessee Trust is entitled to exemption under Section 11 of the Act. Accordingly, directed the A.O. to re-compute the income, in the light of the principles laid down in the said Order. Challenging the said findings, the Revenue preferred the present Appeal. 6. (i) Ms. M. Kiranmayee, learned Counsel for the Appellant/Revenue, mainly submits that, there is no material on record to show that the Assessee was carrying on charitable activity enabling to claim benefit under Section 11 of the I.T. Act. It is pleaded that, the Assessing Officer dealt with the issue in detail and held that the objects of the Trust are commercial in nature and, accordingly, they are not entitled for any exemption. It is further contended that, the activities conducted by the Trust are business activities in terms of Section 11 (4A) of the I.T. Act. The learned Counsel also submits that, the Trust has invested 4 money received in profit making, which does not part take the character of a Trust. It is further pleaded that, an amount of Rs.30.00 lakhs and Rs.5.00 lakhs advanced by the Assessee, have to be treated as investments and hence there is violation of Section 11(5) of the I.T. Act. (ii) Coming to violation of Section 13(1)(c) read with 13(2) of the I.T. Act, it is urged that, since advances to two settler associations, who are authors of the Assessee Trust and Trustees of the Assessee Trust, and also Office Bearers in the above said two associations, the finding of the Assessing Officer in treating these two associations as the persons referred to in Section 13(3) of the I.T. Act, cannot be found fault with. It is also urged that, a charitable trust will lose exemption under Section 11 of the I.T. Act, if any income or property is used or applied for the benefit of any person referred to in Section 13(3) of the I.T. Act. The learned Counsel also contends that, though, the Assessee did not charge interest from these two associations initially, but later on, the amounts were collected with interest @ 12%. In other words, the learned Counsel for the Appellant mainly submits that, the activities of the Assessee are not charitable in nature; there is an employee and employer relationship and that the predominant 5 object of the Trust is to give employment and after paying wages, surplus is retained. Having regard to the above, it is urged that the order under challenge warrants interference. 7. (i) Sri. C.P. Rama Swami, learned Counsel appearing for the Assessee would submit that, the Assessing Officer is not empowered to probe into the objects of the Charitable Trust, which is registered under Section 12(a) of the I.T. Act, and hold that the objects are commercial in nature, thereby denying exemption under Section 11 of the I.T. Act. In other words, he would submit that the Assessing Officer cannot sit in appeal over the order of the higher statutory authority. (ii) Coming to the issue, as to whether activities of the Trust can be termed as “business activity”, the learned Counsel drew the attention of the Court to the Judgment of the Hon‟ble Supreme Court in Sole Trustee, Loka Shikshana Trust V. Commissioner of Income-Tax, Mysore1 to contend that the principles laid down establish the fact that the activities of the assessee trust have been carried on, right from inception, only in advancement of general public utility, as ordained in Clause-3 of the Trust Deed. 1 [1975] 101 ITR 234 (SC) 6 (iii) Insofar as advancement of loans of Rs.30.00 lakhs and Rs.5.00 lakhs to the two settler associations, it is pleaded that in case of Visakhapatnam Customs Clearance and Forwarding Agents Associations, the principle amount was repaid on 26.02.2001 and interest on 15.05.2002. The other association has re-paid the principle amount of Rs. 30.00 lakhs with an aggregate of Rs.46,60,000/- in between October 2003 and March 2008. The interest liability in both the cases was recognised on accrual basis, from the beginning i.e., with effect from 03.11.1995 and the actual receipt of interest was accounted for on cash basis. The trust accounts for its receipts and payments on cash basis. Hence, it is pleaded that there is no violation of Section 13(1)(c) read with 13(2)(a) of the I.T. Act, as the amounts were advanced with adequate interest and that they are also fully secured. He further submits that, the findings of the Tribunal clearly indicate that there is no violation of Section 11(2) of the I.T. Act, as well. In view of the above, the learned Counsel would contend that, the order of the Tribunal cannot be found fault with. 7 8. The point that arises for consideration is: a) Whether the Assessing Officer is entitled to probe into the objects of the charitable trust which is already registered u/s. 12A of the Act and hold that the objects are commercial in nature and consequently deny exemption u/s. 11? b) Whether the activities carried on by the assessee can be termed as business activity in terms of Section 11(4A) of the Act? c) Whether the amount of Rs.30,00,000/- and Rs.5,00,000/- given to the two settler associations can be treated as investment in terms of Section 11(5) of the Act? d) Whether the said advance of Rs.30,00,000/- and Rs.5,00,000/- are hit by the provisions of Section 13(1) r.w.s. 13(2)(a) of the Act? e) Whether the objects for which accumulation was made u/s. 11(2) was for charitable purposes or not? 9. Before going into the issues framed, it is to be noted here that the Assessing Officer denied exemption under Section 11 of the Act, on the ground that the Assessee has not carried on any charitable activities during the relevant period and, as such, violated Section 11(2) and 11(5) of the Act. The reasons given by the Assessing Officer are, (1) the main activity of the Assessee being identifying, enrolling and allotment of work to the workers and payment of wages to them. (2) it has earned profits by engaging them at Visakhapatnam Dock Labour Board. (3) Since 8 the work carried out by the Assessee was allotment of work to workers and payment of their wages including statutory compliances, it cannot be said that there was any charitable activity by the Assessee. (4) Since the receipts from the said activity were accumulated and not spent on charitable activity, it is purely a business activity. (5) mere granting of registration under Section 12A of the Act, would not automatically exempt the Assessee. (6) the Assessee though registered under Section 12A of the Act, is entitled to exemption under Section 11 of the Act, subject to the conditions specified under Section 11 and 13 of the Act. In other words, the Assessing Officer observed that, in order to claim exemption under Section 11 of the Act, one should invariably spend its unspent amount in specified modes, as stated in Section 11 (5) of the Act. Any violation thereof does not make the Assessee eligible for exemption under Section 11 of the Act and (7) the advancement of loans is in violation of Section 13(1)(c) of the Act, as income of the Trust has been used for the benefit of Trustees of the Assessee Trust. Lastly, the Assessing Officer observed that the Assessee accumulated profits without spending or applying 75% of its income on charitable activities. 9 10. The Appeal filed by the Assessee before the Commissioner of Income-Tax (Appeals), came to be rejected, against which an Appeal was preferred before the Tribunal, which was allowed. We will discuss the findings a little later. Challenging the same, Revenue preferred the present Appeal. 11. Coming to the first issue, namely, “whether the Assessing Officer is entitled to probe into the objects of the charitable trust, which was registered u/s. 12A of the Act, and hold that the objects are commercial in nature and consequently deny exemption u/s. 11”:- It is seen from the record that, there is no dispute with regard to the fact that the Assessee Trust was registered by CIT, Visakhapatnam, under Section 12A of the I.T. Act. Once the Assessee is registered under Section 12A of the Act, it is to be presumed that the Trust is carrying on charitable activities. 12. The main objects of the Trust, as per Trust Deed, which was registered under the provisions of the Act, on 19th January, 1994, are: a) To identify, enrol, allot the work and regulate the Private Workers engaged by the Members and users of Stevedor‟s Association and Clearing and Forwarding Agents‟ Association of Visakhapatnam, only against short supply of the labour by The Visakhapatnam Dock Labour Board, Visakhapatnam. 10 b) To generally promote the welfare of the workers who are identified and enrolled in the Trust. c) To utilise the Funds of the Trust for the above purposes and also for other Charitable purposes such as Education, Health, Sports and Alleviation of sufferings of the Poor and the needy etc. d) To carryout other public utility activity within the meaning of “Charitable purposes” defined in the Income-Tax Act.” 13. Further, the objects ancillary or incidental to the attainment of the main objects are: i. To collect money from the users of the Private Workers‟ Pool and distribute wages to the Private Workers. ii. To collect subscriptions from the Members of the Stevedor‟s Association and Clearing and Forwarding Agents‟ Association of Visakhapatnam, who intend using the Private Workers who are identified and enrolled by the Trust. iii. To allot workers to the users as per their indent and for that purpose maintain Office or establishment, employing the necessary personnel. iv. To utilise the surplus arising out of the collections from the users and the voluntary contributions obtained from the public to such charitable purposes as the Board of Trustees may deem it expedient from time to time. v. To acquire Immovable and Movable Properties as may be found necessary and expedient in pursuance of the objects of the Trust. 11 vi. To open, operate, Bank Accounts in one or more scheduled Banks, as may be found expedient. vii. To organise Social, Cultural and Spiritual functions, seminars, conferences and congregation for the Cargo Handling Private Workers‟ Pool in particular and for the Public in general. viii. To carryout rehabilitation programmes for the deprived members of the community. ix. To render financial assistance, provide grants, scholarships and other aid to the poor and to the deserving. x. To collaborate in every possible manner with the organisations with similar objectives or with objectives of charitable nature. xi. To accept donations and gifts either in cash or in kind to fulfil the objectives of the Trust. xii. To promote, participate or operate institutions for Education and for Health. xiii. To promote self-employment schemes, imparting necessary vocational skills to the unemployed. xiv. To carryon all activities incidental to the attainment of the aforesaid activities. 14. A reading of the Trust Deed, which came to be registered under the provisions of the Act, would clearly indicate that the activity of the Trust was to allot workers to the users, as per their indent and for that purpose, maintain Office or establishment, employing necessary personnel. Further, utilise the surplus arising out of the collections from the users and voluntary 12 contributions obtained from the public to such charitable purposes as the Board of Trustees may deem it expedient from time to time. The objects of the Trust also clearly contemplate collection of money from the users of Private Workers‟ Pool and distribute wages to the Private Workers; apart from collecting subscriptions from the Members of the Stevedor‟s Association and Clearing and Forwarding Agents‟ Association of Visakhapatnam, who intend to use private workers enrolled by the Trust. 15. Therefore, once registration is done under Section 12A of the Act, it is a fait accompli and the Assessing Officer cannot thereafter probe into the objects of the Trust and hold that there was any charitable activity, unless the material on record indicate that there was violation of conditions/ objects of the Trust Deed, which does not appear to be the case on hand. The Tribunal while dealing with the said aspect relied, upon a judgment of the Hon‟ble Supreme Court in Assistant Commissioner of Income Tax V. Surat City Gymkahana2, wherein, the Court was dealing with a situation, where the respondent-assessee claimed exemption under Section 10(23) of the Income Tax Act, 1961, for the assessment years 1991-92 and 1992-93 on the ground that 2 (2008) 300 ITR 214 13 the activities of the Trust are charitable in nature. The Assessing Officer as well as the Appellate Authority rejected the claims of the Assessee. Challenging the same, appeals came to be preferred before the Income Tax Appellate Tribunal, which were allowed, as in this case. The issues before the High Court were as under:- (A) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the objects of the Trust restricting benefit to the members of the Club would fall within the purview of the act of \"general public utility\" u/s 2(15) of the Income Tax Act constituting as a section of public and not a body of individuals? (B) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that Registration u/s 12-A was a fait accompli to hold the Assessing Officer back from further probe into the objects of the Trust? 16. The High Court, after considering the material on record, dismissed the appeals in limine, relying upon the decision of the same court in Hiralal Bhagwati V. C.I.T.3. Being dissatisfied with the Order of the High Court, the Revenue preferred Civil Appeals before the Hon‟ble Supreme Court. On 22.07.2022, the Court granted leave in respect of question No. “B” i.e., whether 3 [2000] 246 ITR 188 ; [2000] 161 CTR 401 14 the Appellate Tribunal was justified in holding that registration u/s 12-A was a fait accompli, to hold the Assessing Officer back from further probe into the objects of the Trust. Though, the Court did not delve into the issue in detail, but observed in paragraph No.5, as under: “5. On a perusal of the judgment of the Gujarat High Court in the case of Hiralal Bhagwati (supra), we now find that Question No. “B” is also concluded by the said judgment [refer to 1st para of page 196]. Since the Revenue did not challenge the decision in the said case, the same has attained finality. Question No. “B”, therefore, is to meet the same fate as Question No. “A” as this Court had declined to grant leave in respect of Question No. “A” on the ground that the Revenue did not challenge the correctness of the decision in the case of Hiralal Bhagwati (supra). It appears that the fact, that Question No. “B” was also covered by the aforementioned judgment, was not brought to the notice of their Lordships and, therefore, leave granted was restricted to question No.“B”.” 17. Though the learned Counsel for the Appellant tried to contend that, the Hon‟ble Supreme Court did not lay down any ratio in the judgment referred to above, but a reading of the Order would indicate that, the Hon‟ble Apex Court, while referring to the case of Hiralal Bhagwati V. C.I.T. [cited 3rd supra], wherein, it was held that, the registration of a Trust under Section 12A of the Act, once done is a fait accompli and the Assessing Officer cannot 15 thereafter make further probe into the objects of the Trust, dismissed the appeals therein, has attained finality, as the Revenue did not challenge the decision in the said case. 18. In view of the judgment of the Hon‟ble Supreme Court, referred to above, the issue, in our view, is no more res integra and that the Assessing Officer totally erred in probing into the objects of the Trust. 19. The second main issue, which, falls for consideration is, whether the activities of the assessee trust can be termed as business activity in terms of Section 11(4A) of the Act? As observed earlier, the preamble of the Trust Deed contemplates that the purpose for which the Trust is constituted was to organize functioning of private workers pool, for the benefit of such workers. The main object, for which the Trust was formed, does not indicate any profit motive. As stated earlier, the role of the Trust was to identify, enrol, allot work and regulate the operation of private workers, which activity was being carried out by the Trust from its inception. The object of the Trust clearly indicate the surplus earned, while carrying on the said activity, shall be retained for carrying on the objects of the Trust. Therefore, in the 16 circumstances, we are of the view that the activities of the Trust cannot be treated as “business activity”. 20. On the other hand, as urged by the learned Counsel for the Respondent, the Assessee Trust was formed only for the purpose of regulating the operations of private workers in the Dockyard, which was approved as an act of “Charitable Purpose” by the C.I.T. 21. In Sole Trustee, Loka Shikshana Trust V. Commissioner of Income-Tax, Mysore4, the Hon‟ble Supreme Court while dealing with the word “Charitable Purpose”, which is only indicative but not defined under Section 2(15) of the Act, held as under: “….. As a rule, if the terms of the trust permit its operation \"for profit\", they become prima facie evidence of a purpose falling outside charity. They would indicate the object of profit-making unless and until it is shown that terms of the trust compel the trustee to utilise the profits of business also for charity. This means that the test introduced by the amendment is: Does the purpose of a trust restrict spending the income of a profitable activity exclusively or primarily upon what is \"charity\" in law? If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not 4 (1975) 101 ITR 234 (SC) 17 alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on \"charity\". If that obligation is there, the income becomes entitled to exemption. That, in our opinion, is the most reliable test. The difficult question, however, still remains: what is the meaning of \"charitable purpose\" which is only indicated but not defined by Section 2(15) of the Act? It seems to me that a common concept or element of \"charity\" is shared by each of the four different categories of charity. It is true that charity does not necessarily exclude carrying on an activity which yields profit, provided that profit has to be used up for what is recognised as charity. The very concept of charity denotes altruistic thought and action. Its object must necessarily be to benefit others rather than one's self. Its essence is selflessness. In a truly charitable activity any possible benefit to the person who does the charitable act is merely incidental or even accidental and immaterial. The action which flows from charitable thinking is not directed towards benefiting one's self. It is always directed at benefiting others. It is this direction of thought and effort and not the result of what is done, in terms of financially measurable gain, which determines that it is charitable. This direction must be evident and obligatory upon the trustee from the terms of a deed of trust before it can be held to be really charitable.” 22. Similar such view was taken by the Delhi High Court in GS1 India V. Director General of Income-Tax (Exemption) and Another5. Applying the principles laid down, it can be held that, 5 (2014) 360 ITR 138 (Del) 18 there was no profit motive in carrying on the objects by the Assessee Trust, namely, taking care of the welfare of labourers, who were not enrolled by the Dock Labour Board. The so-called business activity, when intrinsically woven into and is part of the charitable activity, the business activity is not feeding charitable activities, as they are integral to the charity / charitable activity. The wages and fees payable by the users and shipping companies are fixed by the Dock Labour Board and collected accordingly. The Trustees are not entitled for any remuneration/profit except reimbursement of expenses incurred by them on behalf of the Trust in terms of Clause 16 of the Trust Deed. 23. Therefore, all the above factors/activities of the Trust, which are being carried out right from the inception, would only indicate that the activities are for advancement of general public utility, as ordained in Clause 3 of the Trust Deed. Further, the Tribunal, which is a fact finding body has categorically held that these activities of the Trust are charitable in nature, which, in our view, cannot be overturned, unless it is established that there is a grave error apparent on record in coming to such conclusion, which is not so. 19 24. The third issue, relates to violation of Section 11(5) and Section 13(1)(c) read with Section 13(2) of the Act. 25. Section 11(5) of the Act postulates that, the amount accumulated under Section 11(2) of the Act, has to be invested or deposited in the forms and modes specified in the said Section. Section 13(d) contemplates that, a Charitable Trust will lose exemption under Sections 11 or 12, if any funds of Trust are invested otherwise than in any one or more of the forms or modes specified in Section 11(5) of the Act. It is also to be noted that, under Section 13(2)(a), if any part of income or property of the Trust is lent to any person referred to in Section 13(3) for any period during the previous year without adequate security, adequate interest or both, it shall be deemed that the income or the property of the Trust has been used or applied for the benefit of a person referred to in Section 13(3), in terms of Section 13(1)(c). 26. The record shows that, a sum of Rs.30,00,000/- and Rs.5,00,000/- was advanced to M/s. Visakhapatnam Stevedors Association and M/s. Visakhapatnam Clearing and Forwarding Agents Association, respectively, in the year 1995. The fact that the amount of Rs.30,00,000/- was paid back in the financial year 20 2007-2008, is not in dispute, and the second amount of Rs.5,00,000/- was returned in the financial year 2000-2001. The Assessing Officer treated both the amounts as investments, which is in violation of Section 11 (5) of the Act. 27. Similar issue came up for consideration before the Andhra Pradesh High Court in the case of C.I.T. V. Polisetty Somadundaram Charities6, wherein, the Court held as under: “The benefit to the prohibited persons listed out in sub- section (3) is elucidated and should be deemed to have been conferred in the circumstances detailed in sub-section (2). The two crucial provisions for the purpose of this reference are clause (a) of sub-section (2) wnich postulates the benefit in the event of lending the amount without adequate interest or security and clause (h) adverts to the benefit in the event of investment alone. The controversy is focussed upon the connotation of the words \"lend\" and \"invest\". As these expressions are sought to be made applicable in different situations, the legitimate inference is that they bear a distinct interpretation in the context of the set up and synonymity is ruled out. In commercial parlance, lending is associated with advancing money for an agreed rate of interest returnable within a specified period or on demand. Though the expression \"invest\" in a broad sweep takes in lending also, it can be considered as confined to laying out the amount in a venture or institution with a profit motive and with no promise of assured return. It is not feasible to survey the 6 (1990) 183 ITR 377 (AP) 21 multifarious mode of investment and it is sufficient to indicate prominent modes to convey the width of the expression \"invest\". Investment involves laying out the amount in partnership firms, shares in joint stock companies, real estate business and such other concerns or businesses. In the process of investment, an element of risk is involved and the expectation of return or profit is not assured and the depletion of capital itself is not an abnormal feature. In the case of lending, the return by way of interest is generally assured and the element of risk is minimal. In Nawn Estates (P.) Ltd. v. CIT [1977] 106 ITR 45 (SC), in the context of considering the connotation of the expression \"investment\" in section 23A and whether \"investments\" in section 23A can be stretched to house property or capital gains apart from the holding of shares, debentures, stocks or other securities, the Supreme Court held that \"investment\" covers acquisition of house property or capital gains and \"investment\" primarily means the act of laying out moneys in the acquisition of some species of property. In CIT v. External Science of Man's Society, the Delhi High Court held that the interest income received by a charitable institution has to be excluded from the taxable income of the assessee in view of clause section (2) and clause (h) is not attracted. We are in agreement with this view.” 28. In view of the above decision, the amounts advanced by the Trust cannot be treated as “investments” and, as such, there is no violation of Section 11(5) of the Act and, accordingly, the question of violation of Section 11(3) also does not arise. 22 29. The next question is, whether there was any violation of Section 13(1)(c) read with Section 13(2) of the Act?. It is not in dispute that the said amount was advanced to two settler associations, who are the authors of the Assessee Trust, Trustees of the Assessee Trust and also Office Bearers. The record discloses that, the Assessee did not charge interest on these two loans initially, but, later on both the amounts were collected with interest @ 12%. Both the loans were covered by adequate security and adequate interest. Hence, the finding of the Tribunal that there was no violation of Section 13(1)(c) read with Section 13(2), does not call for interference. At this stage, it would also be necessary to refer to the judgment of Polisetty Somadundaram Charities [cited 6th supra], which is as under: “Section 13(2)(a) provides that the exemption under section 11 cannot be denied in the event of lending the amount jacked up by interest or adequate security or both. The lending as such is not prohibited if adequate security are taken care of Section 13(2)(h) interdicts investment and the act of investment alone is sufficient to deny the exemption. In view of this seminal distinction, the Revenue endeavoured to bracket the transaction under investment so as to attract the denial of exemption under clause (h). The amount is advanced on an agreed rate of interest and, therefore, the transaction is within the fold of lending and it cannot be considered as an investment. The lending in clause (a) should be supported by 23 adequate interest or security. The Appellate Assistant Commissioner found that the rate of interest at 12% is normal and adequate and the firm is financially sound and the Appellate Tribunal confirmed the finding. Therefore, the assessee is entitled to exemption under section 11 and the conditions under section 13(2)(a) are satisfied and section 13(2)(h) is not applicable.” 30. From the facts in issue, we reiterate that the principal amount was repaid on 26.02.2001 and interest on 15.05.2002, while other association repaid the principal amount of Rs.30,00,000/- with interest aggregating to Rs.46,60,000/- between October 2003 and March 2008. The interest liability in both the cases was recognized on accrual basis from the beginning i.e., from 03.11.1995 and the actual interest was accounted on cash basis, as the Trust accounts for its receipts and payments on cash basis. Hence, there is no violation of the Act. 31. Coming to the next issue, namely, accumulation of income under Section 11(2) of the Act, it is to be noted that, as per Section 11(2), the amount that should have been applied as per Section 11, was not applied during any year and that the Assessee accumulated or set apart any amount for application to charitable purposes in future, then the amount so accumulated shall not be 24 included in the total income provided the following conditions are complied with. a) Such person specifies, by notice in writing given to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, subject to the ceiling of certain years. b) The money so accumulated or set apart is invested or deposited in the forms and modes specified in sub- section (5). c) The prescribe Form is Form No.10. 32. A perusal of Form No. 10, filed by the Assessee, for the assessment year 1999-2000, would show the purpose for accumulation was, (a) building construction, (b) for payment of provident fund, pension, gratuity, productivity bonus, family security scheme, time rate and piece rate wages and (c) to meet the expenditure for other welfare amenities provided by the pool. But, the Assessing Officer held that, the purpose of accumulation is general in nature and for welfare of the workers and not for any 25 charitable activities. It is to be noted here and as observed earlier, that the activities carried on by the Trust were in accordance with the objects for which it is formed and registered. Such activities or objects of the Trust has been approved as “charitable” by C.I.T., and registered the Trust under Section 12A of the Act. Therefore, even on this aspect, it cannot be said that there was any violation of Section 11(2) of the Act. 33. Since, all the substantial questions of law are answered against the Revenue and in favour the Assessee Trust, the Appeal is liable to be rejected. 34. Accordingly, the I.T.T.A. is dismissed. No order as to costs. 35. As a sequel, interlocutory applications, if any, pending shall stand closed. _________________________ C. PRAVEEN KUMAR, J __________________________________ TARLADA RAJASEKHAR RAO, J Date: 15.09.2022. SM.. 26 HON’BLE SRI JUSTICE C.PRAVEEN KUMAR AND HON’BLE SRI JUSTICE TARLADA RAJASEKHAR RAO I.T.T.A. No. 28 of 2011 (Per Hon’ble Sri Justice C. Praveen Kumar) Dt. 15.09.2022 SM "