The ITO, Ward-2, ELURU, Eluru V. M/s Siddhartha Educational Society, Eluru

CO 24/VIZ/2012

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0265 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 3 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-01-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 13-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR
• Keywords: Charitable institution; Retrospective amendment; Question of law; Fair market value; Revenue expenditure
• Section: 143(3); 234B; 12A; 148; 11; 15; 139

Judgement Text

ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NOS.265 TO 267 & 269/VIZAG/2012 AND CO NOS.24 TO 27/VIZAG/2012 (ARISING OUT OF ITA NOS.265 TO 267 & 269/VIZAG/2012 ) ASSESSMENT YEARS : 2003-04, 2005-06, 2006-07& 2007-08 RESPECTIVELY ITO WARD-2 ELURU VS. SIDDHARTHA EDUCATIONAL SOCIETY ELURU (APPELLANT) (RESPONDENT) PAN NO.AABTS 1259E ITA NOS.289 & 290/VIZAG/2012 ASSESSMENT YEARS : 2006-07 & 2008-09 SIDDHARTHA EDUCATIONAL SOCIETY ELURU VS. ITO WARD-2 ELURU (APPELLANT) ITA NOS.268 & 270/VIZAG/2012 ASSESSMENT YEARS : 2006-07 & 2008-09 ITO WARD-2 VS. SI DDHARTHA EDUCATIONAL SOCIETY ELURU ELURU (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI, ADVOCATE RESPONDENT BY : SHRI D. MANOJ KUMAR, DR DATE OF HEARING : 03.12.2014 DATE OF PRONOUNCEMENT : 12.01.2015 ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 2 ORDER PER BENCH THESE APPEALS PERTAINING TO THE ASSESSMENT YEARS 2003-04, 2005-06, 2006-07, 2007-08 & 2008-09 ARE DIRECTED AG AINST COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), VISAKHAPA TNAM DATED 17.01.2012. CROSS OBJECTIONS HAVE BEEN FILED BY TH E ASSESSEE IN ALL THE REVENUE APPEALS FOR THE ASSESSMENT YEARS 2003-04, 2 005-06, 2006-07 (ARISING OUT OF ORIGINAL ASSESSMENT) & 2007-08. CR OSS APPEALS HAVE BEEN FILED FOR THE ASSESSMENT YEARS 2006-07 (ARISING OUT OF REASSESSMENT) & 2008- 09. AS THE ISSUES ARISING IN ALL THESE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AND DISPOSED O F BY WAY OF THIS COMMON ORDER. 2. FACTS IN BRIEF. THE ASSESSEE SOCIETY IS ENGAGED IN THE RUNNING OF AN EDUCATIONAL INSTITUTION. IT IS REGISTERED WITH THE R EGISTRAR OF SOCIETIES AND HAS ALSO GOT REGISTRATION U/S 12A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED AS ACT). THE EDUCATIONAL INSTITUTIONS ARE RUN IN THE NAME OF SIDDHARTHA GROUP OF EDUCATIONAL INSTITUTIONS, IN AND AROUND ELURU. INITIALLY, SHRI SURESH BABU AND SMT. VIJAYA LAKSHMI WHO ARE AC TIVE AND FOUNDER MEMBERS OF THE SOCIETY, WERE RUNNING REGULAR COACHI NG CLASSES, AS WELL AS RESIDENTIAL CLASSES IN THEIR INDIVIDUAL CAPACITY AN D WERE BEING REGULARLY ASSESSED TO TAX ON THE INCOME DERIVED THERE FROM. LATER ON, THEY FLOATED A SOCIETY IN THE YEAR 1993 AND SINCE THEN EDUCATIONAL ACTIVITIES ARE BEING CARRIED ON IN THE NAME OF THIS SOCIETY. 3. DURING THE ASSESSMENT YEAR 2004-05, FOR THE VARI OUS REASONS GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, HE H ELD THAT THE SOCIETY DID NOT EXIST SOLELY FOR EDUCATIONAL PURPOSES BUT IS WORKIN G WITH A PROFIT MOTIVE. HE DENIED EXEMPTION U/S 11 OF THE ACT AND ASSESSED THE ASSESSEE SOCIETY UNDER THE NORMAL PROVISIONS OF INCOME-TAX ACT UNDER THE H EAD INCOME FROM BUSINESS. ON APPEAL, THE LD. CIT(A) RAJAHMUNDRY CO NFIRMED THE ACTION OF ASSESSING OFFICER VIDE HIS ORDER DATED 04.05.2007. SUBSEQUENTLY, THE ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 3 COMMISSIONER OF INCOME TAX, RAJAHMUNDRY, CANCELLED THE REGISTRATION GRANTED TO THE SOCIETY U/S 12A OF THE ACT, VIDE HIS ORDER DATED 26.11.2007, WITH RETROSPECTIVE EFFECT FROM 01.04.2003. THE ASS ESSING OFFICER THEREAFTER COMPLETED THE ASSESSMENT FOR THE ASSESSMENT YEAR 20 05-06 VIDE ORDER DATED 17.12.2007 DENYING EXEMPTION U/S 11 OF THE ACT BASE D ON THE SAME REASONS AS CITED FOR THE ASSESSMENT YEAR 2004-05. THIS ORD ER WAS ALSO A SUBJECT MATTER OF APPEAL BEFORE THE LD. CIT(A) RAJAHMUNDRY, WHO DISMISSED THE ASSESSEES APPEAL VIDE ORDER DATED 11.02.2009. THE ORDERS OF THE LD. CIT(A) RAJAHMUNDRY FOR THE ASSESSMENT YEARS 2004-05 AND 20 05-06 AS WELL AS THE ORDER OF THE CIT RAJAHMUNDRY CANCELLING REGISTRATIO N U/S 12A OF THE ACT, WERE SUBJECT MATTER OF APPEAL BEFORE THE ITAT. THE REVE NUE ALSO FILED CROSS OBJECTIONS. ITAT VIDE ITS COMMON ORDER DATED 09.05 .2011 ALLOWED THE APPEAL OF THE ASSESSEE, THUS RESTORING THE REGISTRATION GR ANTED U/S 12A OF THE ACT AND ALSO ALLOWING THE APPEALS OF THE ASSESSEE AGAIN ST THE ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2004-05 AND 2005-06. THE CROSS OBJECTIONS FILED BY THE REVENUE WERE DISMISSED. 4. IN THE MEANWHILE, THE ASSESSING OFFICER COMPLETED ASSESSMENTS FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 BY DENYING THE EXEMPTION U/S 11 OF THE ACT AND BRINGING TO TAX THE INCOME OVER EXPENDI TURE VIDE ORDER DATED 10.12.2008 AND 23.12.2009 RESPECTIVELY. AS THINGS STOOD SO, THE ASSESSEE SOCIETY FILED AN APPLICATION IN FORM 56D ON 1.4.200 9 SEEKING EXEMPTION U/S 10(23C)(VI) OF THE ACT, FOR THE ASSESSMENT YEAR 200 9-10 ONWARDS, BEFORE THE CHIEF COMMISSIONER OF INCOME TAX, VISAKHAPATNAM. TH E LD. CCIT VISAKHAPATNAM VIDE ORDER DATED 31.3.2010 REJECTED T HE APPLICATION OF THE ASSESSEE FOR EXEMPTION U/S 10(23C)(VI) OF THE ACT V IDE ORDER DATED 31.3.2010 FOR THE VARIOUS REASONS MENTIONED THEREIN. 5. WHILE IT IS SO, THE ASSESSING OFFICER REOPENED T HE ASSESSMENTS FOR THE ASSESSMENT YEAR 2003-04, 2005-06 AND 2006-07 BY ISS UING NOTICES U/S 148 OF THE ACT DATED 29.3.2010, 31.03.2010 AND 31.03.2010 RESPECTIVELY. REASONS FOR REOPENING THE ASSESSMENT FOR ASSESSMENT YEAR 20 03-04 ARE THAT THE ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 4 ASSESSEES REGISTRATION U/S 12A OF THE ACT HAS BEEN CANCELLED AND THAT THE ASSESSEE IS RECEIVING DONATIONS WHICH ARE NOT VOLUN TARY IN NATURE. FOR THE ASSESSMENT YEARS 2005-06 & 2006-07, THE REASONS FOR REOPENING THE ASSESSMENTS, ARE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AS THE ASSESSEE VIOLATED THE PROVISIONS OF S.11(5), 13(2)(A), 13(2)(G) AND 13(2)(H) OF THE ACT. THE REOPENED ASSESSMENTS OF T HE ASSESSMENT YEARS 2003-04 AND 2005-06 WERE COMPLETED U/S 143(3) R.W.S . 147 OF THE ACT, WHEREAS THE ASSESSMENTS FOR THE ASSESSMENT YEARS 20 07-08 & 2008-09 WERE COMPLETED U/S 143(3) OF THE ACT. FOR THE ASSESSMEN T YEAR 2006-07, ONE ASSESSMENT WAS MADE U/S 143(3) OF THE ACT AND A SEC OND ASSESSMENT WAS MADE U/S 143(3) R.W.S. 147 OF THE ACT. THE ASSESSE E CHALLENGED ALL THESE ASSESSMENT ORDERS BEFORE THE FIRST APPELLATE AUTHOR ITY. THE FIRST APPELLATE AUTHORITY PARTLY ALLOWED THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2003-04 AND 2005-06 AS WELL AS FOR THE ASSESSMENT Y EAR 2006-07 PASSED U/S 143(3) R.W.S. 147 OF THE ACT AND THE APPEAL FOR THE ASSESSMENT YEAR 2008-09. THE APPEALS FOR THE ASSESSMENT YEAR 2006-07 PASSED U/S 143(3) OF THE ACT AND APPEAL AGAINST THE ORDER FOR THE ASSESSMENT YEA R 2007-08 WERE ALLOWED. 6. AGGRIEVED, THE REVENUE HAS FILED THE APPEALS FOR THE ASSESSMENT YEARS 2003-04, 2005-06, 2006-07 (BOTH AGAINST ORIGINAL AS SESSMENT AND REASSESSMENT), 2007-08 & 2008-09. THE ASSESSEE HAS FILED APPEALS FOR THE ASSESSMENT YEARS 2006-07 (AGAINST REASSESSMENT) & 2 008-09. CROSS OBJECTIONS ARE FILED BY THE ASSESSEE FOR THE ASSESS MENT YEARS 2003-04, 2005- 06, 2006-07 (AGAINST ORIGINAL ASSESSMENT) & 2007-08 . 7. THE LD. COUNSEL FOR THE ASSESSEE MR. G.V.N. HARI SUBMITTED THAT THE REVENUE APPEALS FOR THE ASSESSMENT YEARS 2003-04, 2 005-06, 2006-07 (AGAINST THE ORIGINAL ASSESSMENT) AND FOR THE ASSES SMENT YEAR 2007-08 ARE COVERED IN FAVOUR OF THE ASSESSEE, FOR THE REASON T HAT THE ASSESSING OFFICER HAD COMPLETED THE ASSESSMENT BY DISALLOWING THE EXE MPTION U/S 11 EITHER ON THE GROUND THAT THE REGISTRATION GRANTED TO THE ASS ESSEE SOCIETY U/S 12A OF THE ACT WAS CANCELLED OR ON THE GROUND THAT THE ASS ESSEE CARRIED ON THE ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 5 EDUCATIONAL INSTITUTION IN A COMMERCIAL MANNER. AL L THE ISSUES RAISED BY THE ASSESSING OFFICER FOR THESE ASSESSMENT YEARS WERE C ONSIDERED BY THE TRIBUNAL IN ITS ORDER DATED 9.5.2011 IN ITA NO.349/VIZAG/200 7, ITA NO.99/VIZAG/2008 & ITA NO.202/VIZAG/2009 FOR THE ASSESSMENT YEARS 20 04-05, 2004-05 AND 2005-06 RESPECTIVELY. 8. THE LD. D.R. THOUGH NOT LEAVING HIS GROUND ADMIT TED THAT THE ISSUES ARISING IN THESE PARTICULAR APPEALS ARE COVERED BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE EARL IER ASSESSMENT YEARS. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL ON RECORD AND THE ORDERS OF THE LOWER AUTHORITIES, WE UPHOLD THE FINDING OF THE FIRST APPELLATE AUTHORITY FOR THE ASSESSMENT YEARS 2003-04, 2005-06, 2006-07 (AGAINST ORIGINAL ASSESSMENT) AND 2007-08, WHEREIN HE DIRECTED THE ASSESSING OFFICER TO GRANT EXEMPTION TO THE ASSESSEE U/S 11 O F THE ACT IN VIEW OF THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE FOR TH E ASSESSMENT YEAR 2004- 05. WHILE DEALING WITH THE APPEAL FOR THE A.Y.2003 -04, THE RELEVANT FINDINGS OF THE LD CIT(A) AT PARA NO.4.3 OF PAGE 9 OF THE IM PUGNED ORDER ARE AS UNDER: AS ALREADY DISCUSSED AOS DENIAL OF EXEMPTION IS B ASED ON THE FACT THAT THE ASSESSEE IS COLLECTING DONATIONS AND THE SOCIET Y IS BEING RUN ON COMMERCIAL LINES WITH A PROFIT MOTIVE. THUS IT IS HELD THAT THE ACTIVITIES OF SOCIETY ARE AKIN TO BUSINESS ACTIVITIES OF THE PROM OTERS. AO IN THE ASSESSMENT ORDER CLEARLY STATED THAT FOR THE SAME R EASONS EXEMPTION WAS DENIED FOR ASSESSMENT YEAR 2004-05. THUS IT IS CLE AR THAT THE BASIS FOR DENIAL OF EXEMPTION IS THE REASONS STATED IN ASSESS MENT YEAR 2004-05. THEREFORE, I HOLD THAT THE ISSUE OF DENIAL OF EXEMPT ION IS COVERED AGAINST THE DEPARTMENT BY THE HONBLE ITAT DECISION FOR THE A.Y.2004-05. IN VIEW OF THE ABOVE RESPECTFULLY FOLLOWING THE HONBLE ITA T DECISION IN ASSESSEES OWN CASE I HOLD THAT AO IS NOT CORRECT IN DENYING EX EMPTION TO THE ASSESSEE AND BRINGING TO TAX INCOME OVER EXPENDITUR E. THUS AO IS ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 6 DIRECTED TO ALLOW EXEMPTION U/S 11 TO THE ASSESSEE. THIS ISSUE IS THUS DECIDED IN FAVOUR OF THE ASSESSEE. SIMILAR FINDINGS WERE GIVEN BY THE LD CIT(A) AT PAR A NO.5.1 FOR THE A.Y.2005- 06 AND AT PARA NO.6.1 FOR THE A.Y.2006-07 AGAINST T HE ORIGINAL ASSESSMENT ORDER DT.10.12.2008. FOR A.Y.2007-08, THE FINDINGS OF THE LD. CIT(A) ARE AT PARA NO.8.1 OF PAGE 20 OF HIS ORDER. THE LD. CIT(D R) COULD NOT BRING ANY MATERIAL ON RECORD TO CONTROVERT THESE FINDINGS OF THE LD CIT(A) AND THEREFORE CONSISTENT WITH THE VIEW TAKEN BY THIS BENCH IN THE ORDER DT.9.5.2011 WE UPHOLD THE FINDINGS OF THE LD CIT(A). THUS THE APPEALS OF THE REVENUE IN ITA NOS.265/VIZA G/2012, 266/VIZAG/2012, 267/VIZAG/2012 & 269/VIZAG/2012 ARE DISMISSED . 10. THE CROSS OBJECTION NO.24/VIZAG/2012 FOR THE AS SESSMENT YEAR 2003- 04, NO.25/VIZAG/2012 FOR THE ASSESSMENT YEAR 2005-0 6, NO.26/VIZAG/2012 FOR THE ASSESSMENT YEAR 2006-07 AND NO.27 FOR A.Y.2007- 08 ARE FILED BY THE ASSESSEE, EITHER CHALLENGING THE ORDER OF THE FIRST APPELLATE AUTHORITY UPHOLDING THE VALIDITY OF THE REOPENING OF ASSESSME NTS OR IN SUPPORT OF THE ORDER OF THE FIRST APPELLATE AUTHORITY DIRECTING TH E ASSESSING OFFICER TO GRANT EXEMPTION U/S 11 OF THE ACT. IN VIEW OF OUR UPHOLD ING THE ORDER OF THE FIRST APPELLATE AUTHORITY BY FOLLOWING THE ORDER OF THE C OORDINATE BENCH OF THE ITAT FOR THE EARLIER ASSESSMENT YEARS, WE DO NOT SPECIFI CALLY DEAL WITH THIS ISSUE OF REOPENING RAISED BY THE CROSS OBJECTIONS AS IT WOUL D BE AN ACADEMIC EXERCISE. IN THE RESULT, THE CROSS OBJECTIONS ARE DISPOSED OF AS SUCH. 11. WE NOW TAKE UP THE APPEAL OF THE REVENUE FOR TH E ASSESSMENT YEAR 2006-07 IN ITA NO.268/VIZAG/2012 AND THE CROSS APPE AL OF THE ASSESSEE IN NO.289/VIZAG/2012 FOR THE ASSESSMENT YEAR 2006-07. GROUNDS OF REVENUES APPEAL IN ITA NO.268/VIZAG/201 2: 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN PASSING THE ORDER. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 7 2. THE CIT(A) ERRED IN RESTORING THE MATTER BACK/SETTI NG ASIDE THE MATTER TO THE ASSESSING OFFICER FOR FRESH EXAMINATION IN R ELATION TO CERTAIN ISSUES BECAUSE SUCH POWER OF SETTING ASIDE IS NOT V ESTED WITH THE CIT(A) AS PER I.T. ACT. 3. THE CIT(A) OUGHT TO HAVE RENDERED A DECISION DIRECT ING THE ASSESSING OFFICER TO ADOPT THE FIGURE REPRESENTING INCOME OVE R EXPENDITURE AS THE BASE FIGURE FOR STARTING THE COMPUTATION IN THE ORD ER PASSED U/S 143(3) R.W.S. 147 OF THE ACT, INSTEAD OF ADOPTING THE FIGU RE OF TOTAL INCOME ASSESSED DURING THE ASSESSMENT U/S 143(3) OF THE AC T AS THE BASE FIGURE FOR COMPUTATION, PARTICULARLY IN VIEW OF THE DECISION OF THE CIT(A) ON THE ORDER PASSED U/S 143(3) OF THE ACT WH EREBY THE EXEMPTION WAS DIRECTED TO BE ALLOWED. 4. THE CIT(A) ERRED IN DELETING THE ADDITION REPRESENT ING THE DISALLOWANCE 10% OF EXPENDITURE MADE BY THE ASSESSING OFFICER, W ITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO P RODUCE NECESSARY DOCUMENTARY EVIDENCES FOR CLAIMING SUCH EXPENDITURE S. 5. THE CIT(A) OUGHT TO HAVE CONDUCTED INDEPENDENT EXAM INATION OF THE ISSUES BEFORE RENDERING A DECISION. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF H EARING. GROUNDS OF ASSESSEES APPEAL IN ITA NO.289/VIZAG/20 12: 1. THE ORDER OF THE LD. CIT(A), VISAKHAPATNAM DATED 17 .1.2012, IN ITA NO.204/ITO/WARD-2/ELURU/10-11/11-12, PARTLY ALLOWIN G THE APPEAL ON THE ORDER U/S 143(3) R.W.S. 147 DT.31.12.2010 OF TH E ITO, WARD-2, ELURU, IS CONTRARY TO LAW, THE WEIGHT OF EVIDENCE A ND PROBABILITIES OF THE CASE. 2. THE LD. CIT(A) SHOULD HAVE SEEN THAT REOPENING OF A SSESSMENT U/S 147 IS NOT IN ACCORDANCE WITH LAW, IN AS MUCH AS I) THE NOTICE WAS ISSUED IN RESPECT OF ISSUES THAT ARE SUBJECT MATTER OF APPEAL. II) THERE IS NO NEXUS OR LIVE LINK BETWEEN THE REASONS RECORDED AND THE BELIEF FORMED. 3. THE LD. CIT (A) ERRED IN DENYING THE APPELLANTS CL AIM OF EXEMPTION U/S 11. 4. THE LD. CIT(A) SHOULD HAVE SEEN THAT THE APPELLANT SOCIETY HAS BEEN RUNNING AN EXCLUSIVE EDUCATIONAL INSTITUTION PURELY ON CHARITABLE LINES. 5. THE LD. CIT(A) OUGHT TO HAVE SEEN THAT THERE IS NO VIOLATION OF PROVISIONS OF SEC. 11(5) AND SEC.13 IN THE CIRCUMST ANCES OF THE CASE. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 8 6. THE LD. CIT(A) SHOULD HAVE SEEN THAT THE DONATIONS RECEIVED BEING OF CAPITAL NATURE, CANNOT BE BROUGHT TO TAX. 7. THE LD. CIT(A) OUGHT TO HAVE SEEN THAT THE RENTS PA ID TO THE FOUNDER MEMBERS OF THE APPELLANT SOCIETY WERE LESS THAN PRE VAILING MARKET RATE AND HENCE THERE IS NO VIOLATION OF PROVISIONS OF SEC. 13 AND ADDITION U/S 40(A)(2) IS NOT CALLED FOR. 8. THE LD. CIT(A) SHOULD HAVE SEEN THAT THE ADVANCING OF AMOUNTS TO THE FOUNDER MEMBERS OF THE APPELLANT SOCIETY DOES NOT V IOLATE OF THE PROVISIONS OF SEC.11(5) AND SEC.13 IN THE CIRCUMSTA NCES OF THE CASE. 9. THE LD. CIT(A) FAILED TO SEE THAT THE CONTRIBUTIONS TO CHITS DOES NOT CONTRAVENE THE PROVISIONS OF SEC.11(5) IN THE CIRCU MSTANCES OF THE CASE. 10. THE LD. CIT(A) OUGHT TO HAVE SEEN THAT THERE IS NO VIOLATION OF SEC.40(A)(IA) IN THE CIRCUMSTANCES OF THE CASE. 11. THE LD. CIT(A) FAILED TO SEE THAT THERE IS NO DISCR EPANCY IN THE BOOKS NOR ANY EXCESS INTEREST ON RENTS WAS PAID. 12. THE LD. CIT(A) FAILED TO SEE THAT LEVY OF TAX AT MA XIMUM MARGINAL RATE AND INTEREST U/S 234B IS NOT CORRECT IN THE CIRCUMS TANCES OF THE CASE. 13. IN ANY CASE, THE LD. CIT(A) SHOULD HAVE SEEN THAT TH E APPELLANT IS ELIGIBLE FOR EXEMPTION U/S 10(23C)(IIIAD) IN RESPEC T OF ITS INCOME. 14. FOR THESE AND OTHERS THAT MAY BE URGED AT THE TIME OF APPEAL HEARING APPELLANT PRAYS THE APPEAL MAY BE ALLOWED. 12. THE ASSESSING OFFICER REOPENED THE ASSESSMENT U /S 147 OF THE ACT BY ISSUING NOTICE U/S 148 OF THE ACT ON 31.3.2010 ON T HE GROUND THAT (A) IT IS NOTICED THAT DONATIONS WERE NOT INCLUDED IN THE INC OME ASSESSED (B) THE SOCIETY HAS ADVANCED MONEY TO FOUNDERS (C) RENTS WE RE PAID TO FOUNDERS IN VIOLATION OF PROVISIONS OF SECTION 11(5) AND PROVIS IONS OF SECTION 13 OF THE ACT AND THE NOTICES WERE SERVED ON THE ASSESSEE ON 31.3 .2010. ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 147 OF THE ACT ON 31.12 .2010 BY CONCLUDING THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION U/S 11 OF THE ACT ON THE GROUNDS THAT: (A) THE ASSESSEE SOCIETY ADVANCED LOANS TO ITS ME MBERS WHO ARE PERSONS REFERRED TO IN SECTION 13(3) OF THE ACT AND THUS VI OLATING THE PROVISIONS ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 9 OF SECTION 13(1)(D), 13(2)(H), 13(1)(C)(II) AS WELL AS SECTION 11(5) OF THE ACT. (B) THE ASSESSEE SOCIETY MADE EXCESSIVE RENT PAYME NTS FOR THE BUILDINGS TAKEN ON LEASE FROM THE PROMOTERS AND HENCE THERE I S VIOLATION OF SECTION 13 AND 11(5) OF THE ACT. (C) THE REGISTRATION U/S 12A OF THE ACT STOOD CA NCELLED BY THE LD. CIT. (D) THE OBSERVATIONS MADE BY THE ASSESSING OFFICE R IN HIS ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004-05 ARE APPLICABLE TO T HE ASSESSEE FOR THIS ASSESSMENT YEAR ALSO. THESE FINDINGS ARE GIVEN IN PARA NOS.7(I) TO 7(V) O F THE ASSESSMENT ORDER AT PAGE 7 TO 11. 13. THE FIRST APPELLATE AUTHORITY DISCUSSED THESE I SSUES AT PARA 7.5 TO 7.10 OF HIS ORDER AT PAGES 13 TO 15. HIS FINDINGS ARE A S FOLLOWS: (A) THE FUNDS OF THE SOCIETY WERE GIVEN TO THE PROM OTERS, TO ENABLE THEM TO CONSTRUCT PROPERTIES IN THEIR NAMES AND THUS HEL PING THE MEMBERS, THE PROPERTY SO ACQUIRED ARE RENTED BACK TO THE APP ELLANT SOCIETY. THE RENTAL AGREEMENTS ARE DRAFTED IN A MANNER BENEFICIA L TO THE MEMBERS AND THUS THE ASSESSEE SOCIETY IS GOING OUT OF THE W AY TO HELP THE PROMOTERS CLEAR THEIR BANK LOANS. HAD THE ASSESSEE SOCIETY ITSELF ACQUIRED THE PROPERTIES, IT WOULD HAVE OWNED THE AS SETS. (B) THE RENT PAID BY THE ASSESSEE SOCIETY IS ON THE HIGHER SIDE AND IT COULD HAVE BARGAINED FOR THE LOWER RENT, AS IT FINA NCED THE CONSTRUCTION OF THE PROPERTY. (C) THE AMOUNT ADVANCED TO THE PROMOTERS, IS A LOAN AND IT ASSUMES THE CHARACTER OF AN INVESTMENT, CONSIDERING THE PERMANE NCY OF THE LOAN AND HENCE THERE IS A VIOLATION OF THE PROVISIONS OF SECTION 11(5) OF THE ACT. (D) WHILE ADMITTING THAT INTEREST IS CHARGED @ 21% ON THE ADVANCES GIVEN BY THE SOCIETY, TO ITS PROMOTERS, IT IS STATED THAT THE LD. CIT(A) WAS OF THE VIEW THAT THE ADVANTAGE TO THE PROMOTERS, IS IN THE FORM OF APPRECIATION OF PROPERTY AND THAT THIS IS FAR HIGHE R AND THAT THE ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 10 PROMOTERS ARE NOT ONLY GETTING LONG TERM FUNDS BUT ARE ALSO GETTING RENT. THE PROPERTIES IN THE NAME OF THE PROMOTERS, COULD HAVE BEEN PURCHASED BY THE ASSESSEE SOCIETY ITSELF. (E) THE LD. CIT(A) CONCLUDED THAT THERE IS VIOLATI ON OF SECTION 13(1)(C)(II) R.W.S. 13(3)(A) OF THE ACT AS THE FUNDS OF THE ASSE SSEE SOCIETY WERE DIVERTED TO THE MEMBERS OF THE SOCIETY WITHOUT ADEQ UATE SECURITY. 14. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL. 15. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REASSESSMENT IS BAD IN LAW AS THE ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 10.12.2008, SUBSEQUENT TO THE CANCELLATION OF REGIS TRATION U/S 12A OF THE ACT BY THE CIT AND THUS THE EXEMPTION U/S 11 OF THE ACT ALREADY STOOD DISALLOWED IN THE ORIGINAL ASSESSMENT. IT WAS SUBMITTED THAT ALL THE CLAIMS OF THE ASSESSEE WERE FOUND TO BE CORRECT AND NO ADDITIONS WERE MADE FOR ANY OTHER ITEM, EXCEPT BRINGING TO TAX THE SURPLUS FOR THE YE AR. IT WAS ARGUED THAT IN THE REASSESSMENT, THE ASSESSING OFFICER IS HAVING A RELOOK AT THE INCOME TO BE COMPUTED CONSEQUENT OF DENIAL OF EXEMPTION, WHICH I S A MERE CHANGE IN OPINION. IT WAS FURTHER CONTENDED THAT THERE ARE N O NEW FACTS THAT HAVE COME TO LIGHT SUBSEQUENT TO THE ORIGINAL ASSESSMENT AND THAT ALL THE FACTS WERE AVAILABLE ON RECORD. 16. THE LD. D.R. MR. D. MANOJ KUMAR SUBMITS THAT TH E ASSESSING OFFICER WAS IN POSSESSION OF NEW FACTS AND INFORMATION, IN THE FORM OF VIOLATION U/S 11(5) AND U/S 13 OF THE ACT, FOUND BY THE CCIT, WHI LE REJECTING THE APPLICATION FILED BY THE ASSESSEE FOR GRANT OF REGI STRATION U/S 10(23C)(VI) OF THE ACT. IT WAS SUBMITTED THAT THE AO HAD REASON T O BELIEVE THAT INCOME ESCAPED ASSESSMENT AND WHAT WAS REQUIRED FOR THE RE OPENING OF THE ASSESSMENT IS ONLY THAT THERE ARE REASONS TO BELIEV E AND NOT THE ESTABLISHED FACT OF CONCEALMENT. RELIANCE WAS PLACED ON THE OR DER OF THE FIRST APPELLATE AUTHORITY AND SPECIFICALLY ON THE FINDING THAT THE REOPENING WAS NOT BASED ON THE DIRECTIONS OR OPINION OF THE SUPERIOR OFFICER N OR AT THE BEHEST OF THE CCIT ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 11 BUT ON THE BASIS OF THE BELIEF OF THE ASSESSING OFF ICER. ON THE SECOND PROVISO TO SECTION 147 OF THE ACT, IT WAS ARGUED THAT THE A SSESSING OFFICER HAD THE POWER TO REOPEN THE ASSESSMENTS, EVEN IN CASES WHER E THE APPEAL WAS PENDING WITH THE FIRST APPELLATE AUTHORITY ON HIS O RIGINAL ASSESSMENT ORDER PASSED, WHEN THE ISSUES BEFORE THE FIRST APPELLATE AUTHORITY ARE NOT THE SAME AS THE ISSUES ON WHICH THE REOPENING IS MADE. 17. AFTER HEARING RIVAL CONTENTIONS, WE ARE OF THE CONSIDERED OPINION THAT THE REOPENING IN THIS CASE IS BAD IN LAW, FOR THE R EASON THAT THE ASSESSING OFFICER REOPENED THE ASSESSMENT AS HE BELIEVED THAT THE ASSESSEE IS NOT ENTITLED EXEMPTION U/S 11 OF THE ACT FOR VARIOUS RE ASONS. IN THE ORIGINAL ASSESSMENT, THE ASSESSING OFFICER HAD IN AN ORDER P ASSED U/S 143(3) OF THE ACT, ALREADY DENIED EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE, FOR THE REASONS THAT THE CIT HAD CANCELLED THE REGISTRATION GRANTED U/S 12A OF THE ACT. REOPENING OF THE ASSESSMENTS FOR ACHIEVING TH E VERY SAME OBJECTIVE OF DENYING EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE , IS IN OUR VIEW BAD IN LAW. THE ORIGINAL ASSESSMENT PASSED U/S 143(3) OF THE ACT, WAS A SUBJECT MATTER OF APPEAL BEFORE THE LD. CIT(A). VIOLATION OF SECTION 11(5) OR VIOLATIONS OF SECTION 13 OF THE ACT ARE ALL DIFFERE NT PROVISIONS, LEADING TO DENIAL OF EXEMPTION U/S 11 OF THE ACT. THIS ISSUE OF DENI AL OF EXEMPTION U/S 11 OF THE ACT, IS A SUBJECT MATTER OF APPEAL BEFORE THE L D. CIT(A). THUS IN OUR VIEW THE AO IS PROHIBITED FROM REOPENING THE ASSESSMENTS AS PER THE SECOND PROVISO OF SECTION 147 OF THE ACT. WHILE COMING TO THIS CONCLUSION, WE DRAW SUPPORT FROM THE DECISION OF HONBLE GUJARAT HIGH C OURT IN THE CASE OF NATIONAL DAIRY DEVELOPMENT BOARD VS. DCIT (2013) 35 3 ITR 538 (GUJ). 18. ON MERITS THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE IS NO T ENTITLED FOR EXEMPTION U/S 11 OF THE ACT FOR THE FOLLOWING REASONS: (A) THERE IS NO BAR IN THE ACT PROHIBITING ADVANCIN G OF LOANS TO PROMOTERS. RELIANCE IS PLACED ON SECTION 13(2)(A) OF THE ACT W HICH SPEAKS ABOUT LOANS GIVEN WITHOUT EITHER INTEREST OR ADEQUATE SECURITY. RELIANCE WAS PLACED ON ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 12 THE DECISION IN THE CASE OF ITO VS. SHRIRAM MEMORIA L FOUNDATION 9 ITD (DELHI) 655 (TM). (B) THE ADVANCES WERE GIVEN TO THE PROMOTERS AS REN TAL ADVANCES AND NOT MERE LOANS AND INTEREST @21% WAS CHARGED. (C) THE LEASE AGREEMENTS PROVIDE THAT THE ASSESSEE SHALL CONTINUE TO OCCUPY THE PREMISES, TILL SUCH TIME THAT THE ADVANC ES WERE CLEARED AND THIS CLAUSE IS ADEQUATE SECURITY. (D) AS ON DATE ALL THE ADVANCES GIVEN TO THE PROMOT ERS REMAIN UNPAID. (E) WHEN COMPARED TO THE COST OF THE BUILDING MEASU RING 90,000 SQ.FT., ADVANCES GIVEN TO THE PROMOTERS BY THE ASSESSEE SOC IETY IS MARGINAL. (F) THE PROMOTERS HAD AVAILED BANK LOANS AND THE RI SK FOR REPAYMENT OF THESE LOANS TO THE BANKS WAS WITH THE PROMOTERS AND NOT THE SOCIETY. (G) THE RENT PAID TO THE BUILDING CANNOT BE TERMED AS EXCESSIVE CONSIDERING THE FACT THAT THE BUILDING WAS CONSTRUC TED TO SUIT THE PURPOSES OF THE EDUCATIONAL ACTIVITIES OF THE ASSESSEE SOCIETY. (H) THE LD. CIT(A) ERRED IN HOLDING THAT LOANS GIVE N TO THE MEMBERS OF THE SOCIETY IS AKIN TO INVESTMENT AND RELIANCE WAS PLAC ED ON THE DECISION IN THE CASE OF CIT VS. SARLADEVI SARABHAI TRUST 172 ITR 69 8. (I) THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE P AYMENT OF RENT TOWARDS BUILDING OWNED BY THE PROMOTERS IS IN EXCESS OF THE FAIR MARKET VALUE AND HENCE THERE IS DIVERSION OF FUNDS OF THE ASSESSEE S OCIETY, FOR THE REASON THAT, DURING THE SAME PERIOD, THE ASSESSEE SOCIETY TOOK A NOTHER BUILDING FOR RENT AND PAID RS.69,620/- P.M. AS RENT, WHICH WORKED OUT TO RS.3.30 PER SQ.FT. IT WAS FURTHER ARGUED THAT THE REVENUE COMMITTED AN ER ROR IN TAKING AND IN PICKING UP COMPARABLES OF BUILDINGS, WHICH WERE NOT TAILOR MADE FOR RENTING BIG EDUCATIONAL INSTITUTIONS AND IN AREAS WHICH ARE NOT SUITABLE FOR RENTING BIG EDUCATIONAL INSTITUTIONS. THE BUILDINGS WHICH THE REVENUE SOUGHT TO COMPARE HAD NO FRONTAGE AND THE ENTRANCE WAS FROM THE SIDE OF THE BUILDING WITH A PASSAGE OF 4 FT. AND IT WAS SURROUNDED BY AUTOMOBIL E SHOPS AND HAD ONLY ONE STAIR CASE. IT WAS SUBMITTED THAT THE BUILDING OF THE PROMOTERS, WERE SITUATED IN AREA SURROUNDED BY EDUCATIONAL INSTITUTIONS AND SO IT IS BUILT EXCLUSIVELY FOR EDUCATIONAL ACTIVITY WITH ALL FACILITIES LIKE SEMIN AR HALLS, CLASS ROOMS, LUNCH ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 13 ROOMS, LIBRARY HALL, THREE STAIR CASES, PLACE SURRO UNDING AS PER FIRE NORMS AND OTHER REGULATORY REQUIREMENTS. HENCE, IT WAS SUBMI TTED THAT LIKE BUILDINGS WERE NOT COMPARED. IT WAS ALSO POINTED OUT THAT THE RENTAL AGREEMENTS FOR THOSE BUILDINGS TAKEN FOR COMPARISON, HAD ANNUAL IN CREMENTAL CLAUSE AND WHEREAS THE RENTAL AGREEMENTS FOR THE BUILDINGS BEL ONGING TO THE PROMOTERS DID NOT HAVE ANY ANNUAL INTEREST ON RENTALS. IT WA S SUBMITTED THAT TILL DATE THERE IS NO INCREASE IN THE RENTALS PAID TO THE BUI LDINGS BELONGING TO THE PROMOTERS. THE LD. COUNSEL SUBMITTED THAT DETAILED SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, ON THESE ASPECTS WERE IGNORED. 19. THE LD. D.R. ON THE OTHER HAND RELIED ON THE OR DER OF THE FIRST APPELLATE AUTHORITY AND SUBMITTED THAT THERE WAS VI OLATION OF SECTION 13(1)(C) OF THE ACT. HE RELIED ON THE JUDGEMENT OF THE HON BLE A.P. HIGH COURT IN THE CASE OF ACTION FOR WELFARE AND AWAKENING IN RURAL E NVIRONMENT (AWARE) VS. DCIT 263 ITR 13 AND ARGUED THAT THERE IS VIOLATION OF SECTION 11(5) OF THE ACT AS WELL AS 13(1)(C)(II) R.W.S. 13(3) OF THE ACT . HE REITERATED THE FINDINGS OF THE FIRST APPELLATE AUTHORITY THAT THE SOCIETY M EMBERS AND THE PROMOTERS OF THE SOCIETY HAVE, BY TAKING LOANS FROM THE SOCIETY BENEFITTED BY WAY OF INCREASE IN THE MARKET VALUE OF PROPERTIES AND ALSO BY WAY OF EXCESSIVE RENT. HE WONDERED WHY THE SOCIETY DID NOT PURCHASE ASSETS FOR ITSELF, INSTEAD OF ADVANCING MONIES TO THE PROMOTERS OF THE ASSESSEE S OCIETY. 20. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE FACT IN THE CASE OF AWARE VS. DCIT (SUPRA) WERE DIFFERENT A S IT WAS A CASE WHERE THE FDRS BELONGING TO THE ASSESSEE SOCIETY WERE PLE DGED AND PERSONAL LOANS WERE TAKEN BY THE CHAIRMAN AND THERE WAS ALSO A FIN DING OF FACT THAT FRAUD WAS COMMITTED BY ONE MR. BABU REDDY. RELIANCE WAS PLACED ON THE DECISION OF THE ITAT VISAKHAPATNAM BENCH IN THE CASE OF SHRI GOWTHAMI EDUCATIONAL SOCIETY, HYDERABAD VS. CIT CENTRAL IN ITA NOS.181 T O 183/VIZAG/2011 DATED 18.7.2011 TO SUPPORT THE CASE OF THE APPELLANT. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 14 21. AFTER HEARING RIVAL CONTENTIONS, WE HOLD AS FOL LOWS. THE ISSUES THAT ARISE FOR ADJUDICATION ARE (A) WHETHER THE ASSESSEE SOCIETY ADVANCED MONIES TO THE PROMOTERS OF THE SOCIETY WITHOUT ADEQUATE IN TEREST OR WITHOUT ADEQUATE SECURITY AS REQUIRED U/S 13(2)(A) OF THE A CT. (B) WHETHER THE VIOLATION AS CONTEMPLATED IN S.13(1)(C)(II) OF THE ACT IS APPLICABLE IN THE CASE OF THE ASSESSEE SOCIETY. (C) WHETHER, THE RENT PAI D BY THE ASSESSEE SOCIETY FOR THE BUILDINGS OF THE PROMOTERS TAKEN ON LEASE I S EXCESSIVE. 22. ON THE FIRST ISSUE, WE FIND THAT SECTION 13(2)( A) OF THE ACT READS AS FOLLOWS: S. 13(2): WITHOUT PREJUDICE TO THE GENERALITY OF THE P ROVISIONS OF CLAUSE (C) AND CLAUSE (D) OF SUB-SECTION (1), THE I NCOME OR THE PROPERTY OF THE TRUST OR INSTITUTION OR ANY PART OF SUCH INCOME OR PROPERTY SHALL, FOR THE PURPOSES OF THAT CLAUSE, BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A PERSON RE FERRED TO IN SUB- SECTION (3),-- (A) IF ANY PART OF THE INCOME OR PROPERTY OF THE TRUST OR INSTITUTION IS, OR CONTINUES TO BE, LENT TO ANY PERSON REFERRED TO IN SUB-SECTION (3) FOR ANY PERIOD DURING THE PREVIOUS YEAR WITHOUT EITHER ADEQUATE SECURITY OR ADEQUATE INTEREST OR BOTH 23. A PERUSAL OF THE ABOVE SECTION MAKES IT CLEAR T HAT ONLY WHEN THE PROPERTY OF THE SOCIETY CONTINUES TO BE LENT TO ANY PERSON REFERRED TO IN SECTION 13(3) FOR ANY PERIOD DURING THE PREVIOUS YE AR, WITHOUT EITHER ADEQUATE SECURITY OR ADEQUATE INTEREST OR BOTH, THE N ONLY PROVISIONS OF SECTION 13(2)(A) OF THE ACT GET ATTRACTED. IN THIS CASE, THE ASSESSEE SOCIETY HAS GIVEN ADVANCES TO ITS PROMOTERS AS RENTAL ADVAN CES. THE ASSESSEE SOCIETY HAS TAKEN ON LONG LEASE THE BUILDINGS CONST RUCTED BY THE PROMOTERS EXCLUSIVELY FOR THE USE OF THE ASSESSEE SOCIETY. I NTEREST @21% HAS BEEN PAID BY THE PROMOTERS TO THE ASSESSEE SOCIETY. THUS, IT IS NOT A CASE WHERE ADEQUATE INTEREST IS NOT PAID TO THE ASSESSEE SOCIE TY. THE OTHER CONDITION THAT IS TO BE CUMULATIVELY FULFILLED IS ADEQUATE SE CURITY. WHAT IS ADEQUATE SECURITY IS NOT DEFINED IN THE ACT. THE LD. COUNSE L FOR THE APPELLANT HAS DRAWN OUR ATTENTION TO THE DECISION OF ITO VS. SHRI RAM MEMORIAL FOUNDATION (1984) 9 ITD (DEL) 655 (TM) WHEREIN IT WAS HELD THA T THE EXPRESSION WITHOUT ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 15 ADEQUATE SECURITY MEANS WITHOUT ADEQUATELY SECURE D AND NO FORMAL OVERT ACT IS NECESSARY. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER: 7. AS REGARDS THE SECOND POINT OF DIFFERENCE, IT I S DESIRABLE TO REFER TO THE PROVISIONS OF S. 13(2)(A) WHICH RUN AS UNDER : '(1) NOTHING CONTAINED IN S. 11 OR S. 12 SHALL OPER ATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE P ERSON IN RECEIPT THEREOF- (2) WITHOUT PREJUDICE TO THE GENERALITY OF THE PROV ISIONS OF CL. (C) OF SUB-S. (1), THE INCOME OR THE PROPERTY OF THE TRUST OR INS TITUTION OR ANY PART OF SUCH INCOME OR PROPERTY SHALL, FOR THE PURPOSES OF THAT CLAUSE, BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A P ERSON REFERRED TO IN SUB-S. (3),-- (A) IF ANY PART OF THE INCOME OR PROPERTY OF THE TR UST OR INSTITUTION IS, OR CONTINUES TO BE, LENT TO ANY PERSON REFERRED TO IN SUB-S. (3), FOR ANY PERIOD DURING THE PREVIOUS YEAR WITHOUT EITHER ADEQUATE SE CURITY OR ADEQUATE INTEREST OR BOTH ;' THERE IS NO DISPUTE THAT THE INTEREST CHARGED IS AD EQUATE AND THAT DCM WITH WHOM THE AMOUNT IS DEPOSITED IS A COMPANY HIT BY THE PROVISIONS OF S. 13(3)(B). THEREFORE, THE ONLY QUESTION THAT REQU IRES CONSIDERATION IS WHETHER THE AMOUNT OF RS. 77,000 DEPOSITED BY THE A SSESSEE-TRUST WITH DCM WAS OR CAN BE SAID TO BE WITHOUT ADEQUATE SECUR ITY. IN THIS CONTEXT IT MAY BE MENTIONED THAT THERE IS NO DISPUTE ABOUT THE FINANCIAL SOUNDNESS OF DCM AND THE SATISFACTORY REGULATORY PROVISIONS O F THE COMPANY LAW ADMINISTRATION IN THE MATTERS OF ACCEPTANCE OF DEPO SITS, ETC. IT IS ALSO NOT IN DISPUTE THAT HAVING REGARD TO THE DONATIONS RECE IVED BY THE ASSESSEE- TRUST FROM THE SAID COMPANY, THE SMALL INVESTMENT O F RS. 77,000 IS VERY MUCH SECURED. THE SHORT QUESTION IS WHETHER THE EXP RESSION 'ADEQUATE SECURITY' HEREIN MEANS THAT THERE MUST BE A FORMAL OVERT ACT OR WHETHER THE TRUSTEES' SATISFACTION FROM THE MATERIAL CIRCUM STANCES THAT THE INVESTMENT IS ADEQUATELY SECURED, IS ENOUGH. ACCORD ING TO ME, THE VIEW PROPOUNDED BY THE LEARNED STANDING COUNSEL IS TOO T ECHNICAL A VIEW. IN THE CIRCUMSTANCES, WHILE THE DEPARTMENTAL AUTHORITI ES CAN GO INTO THE QUESTION WHETHER THE INVESTMENT IS REALLY SAFE OR S ECURED, IT IS NOT DESIRABLE TO DENY EXEMPTION ON THE GROUND THAT THER E IS NO FORMAL ADEQUATE SECURITY. I AM INCLINED TO' TAKE THE VIEW T HAT 'WITHOUT ADEQUATE SECURITY' MEANS 'WITHOUT ADEQUATELY SECURED' AND SI NCE IT CANNOT BE SAID THAT THE DEPOSIT WAS NOT SAFE, I AGREE WITH THE LEAR NED ACCOUNTANT MEMBER THAT THE ASSESSEE'S CASE DOES NOT FALL WITHI N THE PROVISIONS OF S. 13(2)(A). ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 16 FURTHER, IN THE CASE OF CIT VS. POLISETTY SOMASUNDA RAM CHARITIES (1990) 183 ITR 377 (AP) THE HONBLE ANDHRA PRADESH HIGH COURT HELD THAT WHERE THE FIRM TO WHICH THE AMOUNTS WERE LENT IS IN GOOD FINANCIAL HEALTH, PROVISIONS OF S.13(2)(A) ARE NOT ATTRACTED. IN THE CASE OF THE APP ELLANT, THE RENTAL AGREEMENTS PROVIDE THAT THE ASSESSEE SOCIETY WOULD CONTINUE TO BE IN OCCUPATION OF THE BUILDINGS THAT ARE LET OUT BY THE PROMOTERS TO THE ASSESSEE SOCIETY, TILL THE REPAYMENT OF THE RENTAL ADVANCES IN QUESTION. THE LD CIT(A) HIMSELF OBSERVED THAT CERTAIN BUILDINGS OF THE PROM OTERS WERE ALREADY OCCUPIED BY THE ASSESSEE SOCIETY. FURTHER, THE LES SOR EXTENDED PERSONAL GUARANTEE FOR REPAYMENT OF THE ADVANCE. THIS IN OU R VIEW IS ADEQUATE SECURITY. THE FACT OF SUBSEQUENT REPAYMENT OF THE ADVANCE MAY NOT BE THE SOLE CRITERION FOR ASSESSING THE ADEQUACY OF THE SE CURITY IN AS MUCH AS REPAYMENT IS A SUBSEQUENT ACT. HOWEVER, WHEN CONSI DERED ALONG WITH THE OTHER FACTS DISCUSSED ABOVE THE FACT OF SUBSEQUENT REPAYMENT SUBSTANTIATES THE ARGUMENT OF THE APPELLANT THAT THE ADVANCES WER E ADEQUATELY SECURED. THUS, IN OUR CONSIDERED VIEW THE TWIN CONDITIONS OF ADEQUATE INTEREST AND ADEQUATE SECURITY AS STIPULATED IN S.13(2)(A) ARE F ULFILLED IN THE CASE OF THE APPELLANT. 24. COMING TO THE FINDINGS OF THE LOWER AUTHORITIES , IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE APPELLANT VIOLATED THE P ROVISIONS OF S.13(2)(A). THE STATUTORY PROVISIONS APPLIED WERE S.13(1)(D), 13(2) (H) AND S.13(1)(C)(II). IT IS ONLY THE LD. CIT(A) WHO APPLIED THE PROVISIONS OF S .13(2)(A) AS WELL. THE CASE OF THE ASSESSING OFFICER AND ALSO THE FIRST AP PELLATE AUTHORITY IS THAT THE FUNDS OF THE APPELLATE SOCIETY WERE APPLIED FOR THE BENEFIT OF THE PROMOTERS AND THUS THE SOCIETY IS HELPING ITS PROMOTERS ETC. WE FIND THAT THE AMOUNT OF RENTAL ADVANCE GIVEN BY THE SOCIETY TO ITS PROMOTER S, DOES NOT MEET THE COST OF THE BUILDINGS. THE PROMOTERS HAVE OBTAINED BANK LOANS ALSO FOR MEETING THE COST OF CONSTRUCTION OF THE BUILDING AND COMPLE TING THE CONSTRUCTION. FURTHER, THE LAND BELONGS TO THE PROMOTERS AND IF T HE SOCIETY WERE TO CONSTRUCT THIS BUILDING IT HAD TO INVEST FUNDS EVEN FOR MEETING THE COST OF THE LAND. HENCE, THE OBSERVATIONS OF THE FIRST APPELLA TE AUTHORITY THAT THE ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 17 ASSESSEE COULD HAVE ITSELF PURCHASED THE ASSET, COU LD HAVE REPAID THE LOAN ON ITS OWN AND THAT THE MARKET VALUE OF THE PROPERTY W OULD HAVE INCREASED ETC. ARE IN THE REALM OF IMAGINATION. THE PROPERTY IN Q UESTION CANNOT BE ACQUIRED WITH THE QUANTUM OF ADVANCE THAT THE ASSESSEE SOCIE TY HAS GIVEN TO THE PROMOTERS. BE THAT AS IT MAY, IT IS NOT FOR THE RE VENUE AUTHORITIES TO DETERMINE THE MANNER IN WHICH THE ASSESSEE AND THE PROMOTERS SHOULD CONDUCT THEIR AFFAIR. FURTHER, WHEN THE STATUTE IT SELF PERMITTED EXTENDING OF LOAN TO RELATED PARTIES SUBJECT HOWEVER THAT ADEQUA TE INTEREST IS CHARGED AND THE LOAN IS ADEQUATELY SECURED IT CANNOT BE ARGUED THAT BY EXTENDING A LOAN BY FULFILLING THE ABOVE TWO CRITERIA WOULD AMOUNT T O ANY UNDUE BENEFIT TO SUCH RELATED PARTIES. 25. WE HAVE CAREFULLY PERUSED THE DECISION OF AWARE (SUPRA) IN WHICH THE LD DR PLACED HEAVY RELIANCE. WE FIND THAT THE FACT S IN THIS CASE ARE COMPLETELY DIFFERENT AND WOULD NOT HELP THE CASE OF THE REVENUE. ON THE CONTRARY, WE FIND THAT THIS VISAKHAPATNAM BENCH OF THE TRIBUNAL HAD AN OCCASION TO DEAL WITH AN IDENTICAL ISSUE IN THEIR O RDER DT.18.7.2011 IN THE CASE OF SRI GOWTHAMI EDUCATIONAL SOCIETY IN ITA NO.181/V IZAG/2011. THE FACTS IN THAT CASE ARE THAT THE ASSESSEE SOCIETY WHICH WAS R UNNING EDUCATIONAL INSTITUTIONS, GAVE A RENT ADVANCE OF RS.75,00,000 F REE OF INTEREST TO ONE OF THE FOUNDER MEMBERS EVEN BEFORE THE PROPERTY WAS AC TUALLY CONSTRUCTED AND HANDED OVER TO THE ASSESSEE SOCIETY. THE CASE OF T HE REVENUE WAS THAT THE FUNDS OF THE ASSESSEE SOCIETY WERE DIVERTED FOR THE BENEFIT OF ITS MEMBERS. THE FINDINGS OF THE TRIBUNAL IN ALLOWING THE APPEAL PREFERRED BY THE ASSESSEE SOCIETY ARE AS UNDER: 10. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD, WE FIND THAT REGISTRATION WAS GRANTED U/S 12A BY THE COMMISSIONER OF INCOME TAX W.E.F. 1.4 .2005 TO RUN AN EDUCATIONAL INSTITUTION. THE ASSESSEE SOCIETY HAS E NTERED INTO LEASE AGREEMENT WITH SHRI K. KOTESWARA RAO, SECRETARY OF THE SOCIETY FOR TAKING THE MINIMUM 3 ACRES OF LAND AND 1,20,000 SQ.FT. OF THE SCHEDULED BUILDING FOR A PERIOD OF 15 YEARS AT A MONTHLY RENT OF RS.8, 40,000/-. AS PER THIS ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 18 LEASE AGREEMENT, ASSESSEE IS REQUIRED TO MAKE THE P AYMENT OF ADVANCE RENTAL TO THE LESSOR WHICH WOULD BE REPAID ON COMPL ETION OF THE LEASE PERIOD AND ON HANDING OVER THE TENANT PREMISES IN V ACANT POSSESSION TO THE LESSOR. THE ASSESSEE SOCIETY HAS GIVEN THE LEAS E RENTAL ADVANCE OF 9 MONTHS AMOUNTING TO RS.75 LAKHS BEFORE THE START OF CONSTRUCTION OF PROPERTY. THIS ACTION OF THE ASSESSEE WAS CONSIDERE D BY THE CIT AS A DIVERSION OF FUNDS FOR THE BENEFIT OF ITS MEMBERS. IN THIS REGARD, WE HAVE TO EXAMINE WHETHER THIS ACTION OF THE ASSESSEE SOCI ETY IS A NORMAL ACTIVITY IN HIRING OF THE PROPERTIES OR THE SOCIETY HAS ACTE D IN AN UNUSUAL MANNER. IT IS NOT OUT OF PLACE TO MENTION HERE THAT THE PRAC TICE PREVAILING IN MARKET IS WHENEVER ONE INTEND TO HIRE A PROPERTY, HE IS RE QUIRED TO PAY SOME ADVANCES AS A SECURITY TO THE LESSOR AND THE SAID S ECURITY WOULD BE REFUNDED AT THE TIME OF VACATION OF TENANT PREMISES . DURING THE COURSE OF HEARING BEFORE THE CIT, THE ASSESSEE HAS FILED THE LEASE DEED IN VARIOUS CASES, WHERE THE LEASE RENTAL ADVANCES WERE GIVEN T O THE LESSOR AND IN THOSE CASES, THE LEASE RENTAL ADVANCES WERE FOR 12 MONTHS AND THE CIT HIMSELF HAS MENTIONED THESE FACTS IN HIS ORDER. THE ASSESSEE HAS ALSO FILED THE COPY OF LEASE DEEDS BEFORE US EXECUTED IN THOSE CASES. THE REVENUE HAS NOT MADE OUT A CASE THAT THE ASSESSEE HAS HIRED A BUILDING ON A HIGHER RENT. WHEREAS, THE ASSESSEE HAS CLAIMED THAT THE RENT OF THE PREMISES IS LESSER THAN THE PREVAILING RATE IN THE MARKET. THEREFORE, THE ONLY QUESTION IS WHETHER THE RENTAL ADVANCE GIVEN T O ITS MEMBERS BY THE SOCIETY AMOUNTS TO A DIVERSION OF FUNDS OF SOCIETY FOR THE BENEFIT OF THE MEMBERS? IN THIS REGARD, WE ARE OF THE VIEW THAT ALL TRANSACTIONS ARE TO BE INDEPENDENTLY EXAMINED IN THE LIGHT OF PREVAILING P RACTICE IN THE MARKET. WE DO NOT FIND ANY PROVISION IN THE ACT, WHICH DEBA RS THE SOCIETY FROM ENTERING ANY COMMERCIAL TRANSACTIONS WITH ITS MEMBE RS. IF IT IS PERMITTED, THEN ONE HAS TO SEE WHETHER THE COMMERCIAL TRANSACT IONS ENTERED WITH ITS MEMBERS IS AT PAR WITH THE COMMERCIAL TRANSACTIONS PREVAILING IN THE MARKET. IF IT IS AT PAR, THEN THERE SHOULD NOT BE AN Y REASON FOR DOUBTING THE TRANSACTIONS. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 19 26. IN VIEW OF THE ABOVE DISCUSSION, WE FIND THAT TH ERE IS NO VIOLATION OF SECTION 13(2)(A) OR SECTION 13(1)(C) (II) OF THE AC T AND HENCE DENIAL OF EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE SOCIETY FOR THIS REASON IS BAD IN LAW. 27. THIS BRINGS US TO THE ISSUE WHERE THE RENT PAID BY THE ASSESSEE FOR THE BUILDINGS TAKEN FROM THE PROMOTERS ON LEASE IS EXCE SSIVE OR NOT. THE UNDISPUTED FACT IS THAT THESE BUILDINGS ARE SITUATE D IN EDUCATIONAL AREAS AND THEY ARE SPECIFICALLY DESIGNED AND CONSTRUCTED FOR RENTING EDUCATIONAL INSTITUTIONS IN THEM. THE RENT PAID IS RS.3.30 PER SQ.FT. THE ASSESSEE SUBMITS THAT THE ASSESSEE SOCIETY IS PAYING RS.3.30 P.SQ.FT . FOR ANOTHER BUILDING WHICH WAS TAKEN ON RENT FROM A PERSON WHO IS NOT A PROMOT ER, DURING THE SAME PERIOD. THIS CLAIM IS NOT CONTRADICTED BY THE REVE NUE. UNDER THESE CIRCUMSTANCES, WE HAVE TO NECESSARILY COME TO A CON CLUSION THAT THE PAYMENT OF RENT TO THE PROMOTERS FOR NEW BUILDINGS TAILOR M ADE TO SUIT THE REQUIREMENTS OF THE ASSESSEE SOCIETY IS NOT EXCESSI VE AS COMPARED WITH SIMILAR TRANSACTIONS UNDERTAKEN DURING THE SAME PER IOD. COMPARISON OF RENTAL WITH THE BUILDING SURROUNDED BY AUTOMOBILE S HOPS AND IN NARROW OLD TOWN AREAS, WITH 4 FT. WIDTH STAIR CASE, WITHOUT PA RKING IS NOT PROPER. NEW BUILDINGS WITH MODERN FACILITIES CANNOT BE COMPARED WITH AGE OLD BUILDINGS SITUATED IN NARROW MARKET AREAS OF THE OLD CITY. B UILDINGS WITH FACILITIES LIKE SEMINAR HALLS, CLASS ROOMS, LUNCH ROOMS, LIBRARY HA LL, THREE SPACIOUS STAIR CASES, BUILDINGS MEETING FIRE AND OTHER REGULATORY REQUIREMENTS WITH PLENTY OF PARKING SPACE CANNOT BE COMPARED WITH OLD BUILDINGS SITUATED IN THE NARROW STREETS. IN OUR VIEW OF THE ABOVE DISCUSSION, WE U PHOLD THE ABOVE DISCUSSION OF THE ASSESSEE THAT THE RENT PAID BY THE ASSESSEE SOCIETIES TO THE BUILDINGS OWNED BY THE PROMOTERS IS NOT EXCESSIVE. THUS THE DENIAL OF EXEMPTION U/S 11 OF THE ACT ON BOTH THESE GROUNDS IS BAD IN LAW. 28. THE NEXT ISSUE IS WHETHER THE GRANT OF LOAN BY THE SOCIETY TO ITS MEMBERS COULD BE TERMED AS AN INVESTMENT AND CONSEQ UENTLY COULD BE TERMED AS VIOLATION OF SECTION 11(5) OF THE ACT. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 20 29. HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S. SARLADEVI SARABHAI TRUST (SUPRA) HELD AS FOLLOWS: 13. SO FAR AS THE SECOND CONTENTION IS CONCERNED, T HE REVENUE IS ON A STILL WEAKER FOOTING. UNDER WHAT CIRCUMSTANCES A CH ARITABLE TRUST CAN BE SAID TO HAVE LOST EXEMPTION UNDER S. 11(1)(A) AND I N WHAT CASES THE PROVISIONS OF S. 13(2)(H) CAN BE SAID TO BE APPLICA BLE, IS ALSO A QUESTION WHICH IS COVERED BY ANOTHER CIRCULAR OF THE CBDT. T HE SAID CIRCULAR NO. 45 IS DT. 2ND SEPT., 1970. IT READS AS UNDER : 'FOR THE PURPOSE OF THE PROVISION IN CL. (H) OF SUB -S. (2), RELATING TO INVESTMENT OF THE TRUST FUNDS IN ANY CONCERN IN WHI CH ANY OF THE SPECIFIED PERSONS HAS A SUBSTANTIAL INTEREST, IT MAY BE NOTED THAT THIS PROVISION HAS TO BE APPLIED ONLY WITH REFERENCE TO INVESTMENTS IN THE CAPITAL OF THE CONCERN AS DISTINCT FROM INVESTMENTS IN THE DEBENTU RES OF A COMPANY OR BY WAY OF LOANS TO A COMPANY OR OTHER CONCERN. THIS IS BECAUSE UNDER CL. (A) OF SUB-S. (2), A TRUST WILL BE DEEMED TO HAVE U SED OR APPLIED ITS INCOME OR PROPERTY FOR THE BENEFIT OF THE SPECIFIED PERSONS IF ANY PART OF SUCH INCOME OR PROPERTY IS, OR CONTINUES TO BE, LEN T TO ANY SUCH PERSON FOR ANY PERIOD DURING THE PREVIOUS YEAR WITHOUT ADEQUAT E SECURITY OR ADEQUATE INTEREST OR BOTH. FROM THIS, IT FOLLOWS TH AT IF THE LENDING OF THE TRUST FUND TO ANY OF THE SPECIFIED CONCERNS EITHER BY WAY OF DEBENTURES OR OTHERWISE IS FOR ADEQUATE SECURITY AND FOR ADEQUATE INTEREST, THAT WOULD NOT CONSTITUTE USE OR APPLICATION OF THE INCOME OR PROPERTY FOR THE BENEFIT OF ANY OF THE SPECIFIED PERSONS. IF CL. (H) OF SUB- S. (2) IS APPLIED TO SUCH LENDING BY WAY OF DEBENTURES OR LOANS FOR ADEQUATE SECURITY AND ON ADEQUATE INTEREST, THAT WOULD NULLIFY THE PROVISION IN CL. (A) AND RENDER IT OTIOSE. SUCH AN INTERPRETATION WILL NOT BE A HARMON IOUS INTERPRETATION OF THE PROVISIONS IN CL. (A) AND CL. (H) AND CANNOT, T HEREFORE, BE SUSTAINED.' THIS CIRCULAR CLEARLY INDICATES THAT S. 13(2)(H) WI LL COVER ONLY THOSE CASES IN WHICH INVESTMENTS ARE MADE BY THE ASSESSEE-TRUST IN THE CAPITAL OF THE CONCERNS TO WHICH S. 13(2) APPLIES. THE CIRCULAR FU RTHER INDICATES THAT IN THE CASE OF LENDINGS BY TRUST, THE PROVISIONS OF CL . (A) OF SUB-S. (2) OF S. 13 WILL APPLY AND NOT S. 13(2)(H) AND ANY CONTRARY INT ERPRETATION WOULD NOT BE A HARMONIOUS INTERPRETATION OF CLS. (A) AND (H) OF SUB-S. (2) OF S. 13. IT IS, THEREFORE, OBVIOUS THAT ON THE FACTS OF SUCH CA SES, IF AT ALL, CL. (A) OF SUB-S. (2) OF S. 13 WILL APPLY AND NOT CL. (H) THER EOF, IF IT IS SHOWN THAT THE LENDING WAS WITHOUT ADEQUATE SECURITY OR ADEQUATE I NTEREST OR BOTH. UNDER THESE CIRCUMSTANCES, IF DEPOSITS ARE MADE BY A TRUST IN SUCH CONCERN, SUCH DEPOSITS WILL NOT BE COVERED BY S. 13 (2)(H) AND IF AT ALL, IT IS ONLY S. 13(2)(A) WHICH WOULD APPLY TO SUCH DEPOSITS . CONSEQUENTLY, THE ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 21 CASE OF THE REVENUE THAT TO SUCH DONATION MADE BY T HE ASSESSEE-TRUST, S. 13(2)(H) WILL APPLY CANNOT BE COUNTENANCED. IT STAND S SQUARELY ANSWERED AGAINST THE REVENUE BY THE AFORESAID CIRCULAR NO. [ 45 SEE (1971) 79 ITR (ST.) 33, 45], OF THE BOARD ITSELF. THE SAID CIRCUL AR OBVIOUSLY IS BINDING ON THE REVENUE. IN VIEW OF THIS CONCLUSION OF OURS, IT IS NOT NECESSARY FOR US TO EXAMINE THE WIDER SUBMISSION CANVASSED BY THE LE ARNED ADVOCATE FOR THE ASSESSEE PLACING RELIANCE ON THE DECISIONS OF T HE DELHI HIGH COURT IN CIT VS. ETERNAL SCIENCE OF MAN'S SOCIETY (1980) 19 CTR (DEL) 384 : (1981) 128 ITR 456 (DEL) AND OF THE MADRAS HIGH COURT IN C IT VS. NACHIMUTHU INDUSTRIAL ASSOCIATION (1982) 31 CTR (MAD) 50 : (198 2) 138 ITR 585 (MAD) : TC23R.1508, WHICH HAVE TAKEN THE VIEW EVEN INDEPENDENTLY OF THE SAID CIRCULAR THAT IN SUCH CIRCUMSTANCES AND ON SUCH FACTS, S. 13(2)(H) WOULD NOT APPLY. WE, THEREFORE, NEED NOT DILATE ON THESE DECISIONS. CONSEQUENTLY, EVEN THE SECOND CONTENTION CANVASSED BY THE LEARNED ADVOCATE FOR THE REVENUE IS FOUND TO BE DEVOID OF A NY SUBSTANCE AND IS REJECTED. 30. EVEN OTHERWISE A PERUSAL OF SECTION 13(2)(A) OF THE ACT DEMONSTRATES THAT THE VIEW TAKEN BY THE FIRST APPELLATE AUTHORIT Y IS BAD IN LAW. 31. IN THE RESULT, WE HOLD THAT THE ASSESSEE IS ENTI TLED TO EXEMPTION U/S 11 OF THE ACT. 32. ONCE IT IS HELD THAT THE ASSESSEE IS ENTITLED F OR EXEMPTION U/S 11 OF THE ACT, THE ADDITIONS MADE ON ACCOUNT OF DONATIONS AND ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) AS WELL AS 40(A)(2) OF T HE ACT AND OTHER DISALLOWANCE OF EXPENSES ARE OF NO CONSEQUENCE. TH US, WE DO NOT DEEM IT NECESSARY TO DEAL WITH THE ARGUMENTS OF THE ASSESSE E ON THIS ISSUE. 33. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.289/VIZAG/2012 IS ALLOWED. 34. WE NOW TAKE UP THE REVENUES APPEAL IN ITA NO.2 68/VIZAG/2012. GROUND NOS.1, 5 & 6 ARE GENERAL IN NATURE. GROUND NO.2 IS AGAINST THE LD. CIT(A) RESTORING AND SETTING ASIDE THE MATTER TO TH E FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION. THE REVENUES CASE IS THAT THE LD. CIT(A) DOES NOT HAVE THE POWER TO SET ASIDE CONSEQUENT TO THE A MENDMENT BROUGHT ABOUT ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 22 TO SECTION 251(1) OF THE ACT BY THE FINANCE ACT, 20 01 W.E.F. 1.6.2001. WHILE THIS GROUND OF THE REVENUE HAS TO BE ALLOWED, AS TH E FIRST APPELLATE AUTHORITY DOES NOT HAVE THE POWER TO SET ASIDE, WE FIND THAT THE ISSUES SET ASIDE TO THE ASSESSING OFFICER DO NOT SURVIVE AS WE HELD THAT TH E APPELLANT IS ENTITLED FOR EXEMPTION U/S 11 OF THE ACT. IN THE RESULT, THIS GRO UND OF THE REVENUE IS ALLOWED ONLY FOR STATISTICAL PURPOSES. 35. REGARDING THE OTHER GROUNDS RAISED BY THE REVEN UE, IN VIEW OF OUR DECISION IN THE ASSESSEES APPEAL, THAT THE ASSESSE E IS ENTITLED FOR EXEMPTION U/S 11 OF THE ACT, ADJUDICATION OF THESE GROUNDS IS NOT NECESSARY. THUS, THESE GROUNDS ARE DISPOSED AS SUCH. 36. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.268/VIZAG/2012 IS ALLOWED IN PART FOR STATISTICA L PURPOSES. 37. IN THE ASSESSEES APPEAL IN ITA NO.290/VIZAG/201 2 THE ORDER OF THE CIT(A) DENYING EXEMPTION U/S 11 OF THE ACT IS CHALL ENGED. THE REASONS CITED BY THE FIRST APPELLATE AUTHORITY FOR DENIAL OF EXEM PTION U/S 11 OF THE ACT ARE THE SAME AS THE REASONS CITED BY HIM FOR THE ASSESS MENT YEAR 2006-07. IN ADDITION ONE MORE REASON IS CITED I.E. CONTRIBUTION TO CHIT FUND IS TAKEN AS VIOLATION OF SECTION 11(5) OF THE ACT. 38. AFTER HEARING RIVAL CONTENTIONS, CONSISTENT WIT H THE VIEW TAKEN BY US IN ITA NO.268/VIZAG/2012, WE HOLD THAT THERE IS NO VIO LATION OF EITHER SECTION 13 OR SECTION 11(5) OF THE ACT IN THE ASSESSEE SOCIETY ADVANCING AMOUNTS TO THE PROMOTERS OF THE ASSESSEE SOCIETY AND THAT THERE IS NO EXCESSIVE PAYMENT OF RENT FOR THE BUILDINGS TAKEN BY THE ASSESSEE SOCIET Y ON RENT FROM THE PROMOTERS OF THE ASSESSEE SOCIETY. 39. AS REGARDS THE ALLEGATION OF VIOLATION OF SECTI ON 11(5) R.W.S. 13 OF THE ACT, WITH REGARD TO CONTRIBUTION TO CHITS, THIS BEN CH OF THE TRIBUNAL IN THE CASE ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 23 OF SHRI SHIVANI EDUCATIONAL SOCIETY IN ITA NO.175/V IZAG/2012 DATED 28.4.2014 HELD AS FOLLOWS: 14. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CO NSIDERATION 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 CAS E LAWS CITED, WE HOLD AS FOLLOWS: THE RELEVANT SECTIONS THAT COME UP FOR OUR CONSIDER ATION I.E. 11 (1), SECTION 11(5) AND 13(1)(D) ARE EXTRACTED FOR READY REFERENC E. SECTION 11(1) : SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63, T HE 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 WHICH SUCH INC OME IS APPLIED TO SUCH PURPOSES IN INDIA; AND, WHERE ANY SUCH INCOME IS AC CUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTEN T TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF [FIFTE EN] PERCENT OF THE INCOME FROM SUCH PROPERTY; (B) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST IN PART ONLY FOR SUCH PURPOSES, THE TRUST HAVING BEEN CREATED BEFORE THE COMMENCEMENT OF THIS ACT, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SU CH PURPOSES IN INDIA; AND, WHERE ANY SUCH INCOME IS FINALLY SET APART FOR APPL ICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO SET APA RT IS NOT IN EXCESS OF [FIFTEEN] PER CENT OF THE INCOME FROM SUCH PROPERTY ; (C) INCOME [DERIVED] FROM PROPERTY HELD UNDER TRUST (I) CREATED ON OR AFTER THE 1 ST DAY OF APRIL, 1952, FOR A CHARITABLE PURPOSE WHICH TENDS TO PROMOTE INTERNATIONAL WELFARE IN WHICH IND IA IS INTERESTED, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURP OSES OUTSIDE INDIA, AND (II) FOR CHARITABLE OR RELIGIOUS PURPOSES, CREATED BEFORE THE 1 ST DAY OF APRIL, 1952, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES OUTSIDE INDIA: PROVIDED THAT THE BOARD, BY GENERAL OR SPECIAL ORDER, HAS DI RECTED IN EITHER CASE THAT IT SHALL NOT BE INCLUDED IN THE TOTAL INC OME OF THE PERSON IN RECEIPT OF SUCH INCOME; (D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS M ADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS O F THE TRUST OR INSTITUTION.] EXPLANATION FOR THE PURPOSES OF CLAUSES (A) AND ( B),-- (1) IN COMPUTING THE FIFTEEN PERCENT OF THE INCOME WHIC H MAY BE ACCUMULATED OR SET APART, ANY SUCH VOLUNTARY CONTRI BUTIONS AS ARE REFERRED TO IN SECTION 12 SHALL BE DEEMED TO BE PART OF THE INCOME ; (2) IF, IN THE PREVIOUS YEAR, THE INCOME APPLIED TO CHA RITABLE OR RELIGIOUS PURPOSES IN INDIA FALLS SHORT OF EIGHT-FIVE PER CEN T OF THE INCOME DERIVED DURING THAT YEAR FROM PROPERTY HELD UNDER TRUST, OR , AS THE CASE MAY BE, HELD UNDER TRUST IN PART, BY ANY AMOUNT (I) FOR THE REASON THAT THE WHOLE OR ANY PART OF THE IN COME HAS NOT BEEN RECEIVED DURING THAT YEAR, OR ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 24 (II) FOR ANY OTHER REASON, THEN (A) IN THE CASE REFERRED TO IN SUB-CLAUSE (I), SO MUCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING AS D OES NOT EXCEED 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 IMM EDIATELY FOLLOWING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED AS DO ES 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 INC OME) 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 INC OME 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 REF ERRED 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 TH E MONEY REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2) SHALL BE THE FOLLOWING, NAMELY:- (I) INVESTMENT IN SAVINGS CERTIFICATES AS DEFINED IN CL AUSE (C) OF SECTION 2 OF THE GOVERNMENT SAVINGS CERTIFICATES ACT, 1959 (4 6 OF 1959), AND ANY OTHER SECURITIES OR CERTIFICATES ISSUED BY THE CENTRAL GO VERNMENT UNDER THE SMALL SAVINGS SCHEMES OF THAT GOVERNMENT; (II) DEPOSIT IN ANY ACCOUNT WITH THE POST OFFICE SAVINGS BANK; (III) DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED BANK OR A C O-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INC LUDING A CO-OPERATIVE LAND MORTGAGE BANK OR A CO-OPERATIVE LAND DEVELOPMENT BA NK). EXPLANATION IN THIS CLAUSE, SCHEDULED BANK MEAN S THE STATE BANK OF INDIA CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955), A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDI ARY BANKS) ACT, 1959 (38 OF 1959), A CORRESPONDING NEW BANK CONSTITUTED UNDE R SECTION 3OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS ) ACT, 1970 (5 OF 1970), OR UNDER SECTION 3 OF THE BANKING COMPANIES (ACQUIS ITION AND TRANSFER OF UNDERTAKINGS) ACT, 1980 (40 OF 1980), OR ANY OTHER BANK BEING A BANK INCLUDED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA ACT, 1934 (2 OF 1934); (IV) INVESTMENT IN UNITS OF THE UNIT TRUST OF INDIA ESTA BLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963); (V) INVESTMENT IN ANY SECURITY FOR MONEY CREATED AND IS SUED BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT; (VI) INVESTMENT IN DEBENTURES ISSUED BY, OR ON BEHALF OF , ANY COMPANY OR CORPORATION BOTH THE PRINCIPAL WHEREOF AND THE INTE REST WHEREON ARE FULLY AND UNCONDITIONALLY GUARANTEED BY THE CENTRAL GOVERNMEN T OR BY A STATE GOVERNMENT; ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 25 (VII) INVESTMENT OR DEPOSIT IN ANY PUBLIC SECTOR COMPANY: PROVIDED THAT WHERE AN INVESTMENT OR DEPOSIT IN ANY PUBLIC S ECTOR COMPANY HAS BEEN MADE AND SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SECTOR COMPANY,-- (A) SUCH INVESTMENT MADE IN THE SHARES OF SUCH COMPANY SHALL BE DEEMED TO BE AN INVESTMENT MADE UNDER THIS CLAUSE F OR A PERIOD OF THREE YEARS FROM THE DATE ON WHICH SUCH PUBLIC SECTOR COMPANY C EASES TO BE A PUBLIC SECTOR COMPANY; (B) SUCH OTHER INVESTMENT OR DEPOSIT SHALL BE DEEMED TO BE AN INVESTMENT OR DEPOSIT MADE UNDER THIS CLAUSE FOR TH E PERIOD UPTO THE DATE ON WHICH SUCH INVESTMENT OR DEPOSIT BECOMES REPAYABLE BY SUCH COMPANY; (VIII) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG TERM FINANCE FOR INDUSTRIAL DEVELOPMENT IN INDIA AND WHICH IS ELIGIBLE FOR DEDU CTION 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 CONSTRU CTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES AND WHICH IS ELIG IBLE FOR DEDUCTION UNDER CLAUSE (VIII) OF SUB-SECTION (1) OF SECTION 36; (IXA) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSU ED 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 I NFRASTRUCTURE 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 REP AYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN F IVE 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 PROVIDIN G POTABLE WATER SUPPLY, SANITATION AND SEWERAGE, DRAINAGE, SOLID WA STE MANAGEMENT, ROADS, BRIDGES AND FLYOVERS OR URBAN TRANSPORT; (X) INVESTMENT IN IMMOVABLE PROPERTY, EXPLANATION,-- IMMOVABLE PROPERTY DOES NOT INCLUD E ANY MACHINERY OR PLANT (OTHER THAN MACHINERY OR PLANT INSTALLED IN A BUILD ING FOR THE CONVENIENT OCCUPATION OF THE BUILDING) EVEN THOUGH ATTACHED TO , OR PERMANENTLY FASTENED TO, ANYTHING ATTACHED TO THE EARTH; (XI) DEPOSITS WITH THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ESTABLISHED UNDER THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ACT, 1964 (18 OF 1964); (XII) ANY OTHER FORM OR MODE OF INVESTMENT OR DEPOS IT AS MAY BE PRESCRIBED. SECTION 13(1)(D): NOTHING CONTAINED IN SECTION11 OR SECTION 12 SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE P ERSON IN RECEIPT THEREOF__ .. (D) IN THE CASE OF A TRUST FOR CHAIRTABLE OR RELIGIOUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION, ANY INCOME THEREOF, IF FOR A NY PERIOD DURING THE PREVIOUS YEAR ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 26 (I) ANY FUNDS OF THE TRUST OR INSTITUTION ARE INVESTED OR DEPOSITED AFTER THE 28 TH DAY OF FEBRUARY, 1983 OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECTION 11; O R (II) ANY FUNDS OF THE TRUST OR INSTITUTION INVESTED OR D EPOSITED BEFORE THE 1 ST DAY OF MARCH, 1983 OTHERWISE THAN IN ANY ONE OR MOR E OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECTION 11 CONTINUE TO REMAIN SO INVESTED OR DEPOSITED AFTER THE 30 TH DAY OF NOVEMBER, 1983; OR (III)ANY SHARES IN A COMPANY, NOT BEING A GOVERNMEN T COMPANY AS DEFINED IN SECTION 617 OF THE COMPANIES ACT, 1956 ( 1 OF 19 56) OR A CORPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR PROVINC IAL ACT ARE HELD BY THE TRUST OR INSTITUTION AFTER THE 30 TH DAY OF NOVEMBER, 1983: PROVIDED THAT NOTHING IN THIS CLAUSE SHALL APPLY IN RELATION TO (I) ANY ASSETS HELD BY THE TRUST OR INSTITUTION WHERE S UCH ASSETS FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION AS ON THE 1 ST DAY OF JUNE, 1973; (IA) ANY ACCRETION TO THE SHARES, FORMING PART OF THE CORPUS MENTIONED IN CLAUSE (I), BY WAY OF BONUS SHARES ALLOTTED TO THE THE TRUST OR INSTITUTION; (II) ANY ASSETS (BEING DEBENTURES ISSUED BY, OR ON BEHAL F OF, ANY COMPANY OR CORPORATION) ACQUIRED BY THE TRUST OR INSTITUTIO N BEFORE THE 1 ST DAY OF MARCH, 1983; (IIA) ANY ASSET, NOT BEING AN INVESTMENT OR DEPOSIT IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECT ION 11, WHERE SUCH ASSET IS NOT HELD BY THE TRUST OR INSTITUTION, OTHERWISE THA N IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECTION 11, A FTER THE EXPIRY OF ONE YEAR FROM THE END OF THE PREVIOUS YEAR IN WHICH SUCH ASS ET IS ACQUIRED OR THE 31 ST DAY OF MARCH, 1993 WHICHEVER IS LATER; (III)ANY FUNDS REPRESENTING THE PROFITS AND GAINS O F BUSINESS, BEING PROFITS AND GAINS OF ANY PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 1984 OR ANY SUBSEQUENT ASSESSMENT YE AR. EXPLANATION:- WHERE THE TRUST OR INSTITUTION HAS AN Y OTHER INCOME IN ADDITION TO PROFITS AND GAINS OF BUSINESS, THE PROV ISIONS OF CLAUSE (III) OF THIS PROVISO SHALL NOT APPLY UNLESS THE TRUST OR INSTITU TION 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 P ROPERTY OF ANY TRUST OR INSTITUTION IS DURING THE PREVIOUS YEAR USED OR APP LIED, DIRECTLY OR INDIRECTLY, FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB-SE CTION (3), IN SO FAR AS SUCH USE OR APPLICATION RELATES TO ANY PERIOD BEFORE THE 1 ST DAY OF JULY, 1972, NO REGARD SHALL BE HAD TO THE AMENDMENTS MADE TO THIS SECTION BY SECTION 7 OTHER THAN SUB-CLAUSE (II) OF CLAUSE (A) THEREOF OF THE F INANCE ACT, 1972. 15. THE FIRST ISSUE THAT ARISES FOR ADJUDICATION, I S WHETHER THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT ARE APPLICABLE TO THE C ASE OF THE ASSESSEES. BEFORE WE CONSIDER THIS ASPECT, WE DISCUSS THE NATURE OF C HIT BUSINESS. THERE ARE A CATENA OF DECISIONS OF VARIOUS COURTS INCLUDING HON BLE SUPREME COURT ON THIS ISSUE. THE HONBLE DELHI HIGH COURT IN THE CASE OF DELHI CHIT FUNDS ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 27 ASSOCIATION VS. UOI AND ANOTHER W.P.(C) 4512/2012 A T PARA 6 & 7 OF PAGE 6 OF JUDGEMENT DATED 23.4.2013 STATED AS FOLLOWS: 6. IT IS NECESSARY TO GIVE A BRIEF ACCOUNT OF THE OP ERATIONS OF A CHIT FUND BUSINESS. SUPPOSING 50 PERSONS COME TOGETHER T O ORGANISE A CHIT. LET US FURTHER SUPPOSE THAT EACH OF THEM UNDE RTAKE TO CONTRIBUTE RS.1,000/-. THE TOTAL CHIT AMOUNT WOULD BE `50,000/-. LET US FURTHER SUPPOSE THAT THE FUND WOULD OPERATE FOR A PERIOD OF 50 MONTHS. THUS THE MEMBER SUBSCRIBERS AND THE NUMBER OF MONTHS FOR WHICH THE CHIT WOULD OPERATE WOULD BE THE SAME. IN THIS EXAMPLE AT THE END OF EACH MONTH, AN AMOUNT OF RS.50,000/- (RS .1,000/- X 50) WOULD BE AVAILABLE IN THE KITTY OF THE CHIT FUND. T HE SAID AMOUNT WOULD BE PUT TO AUCTION AND THOSE SUBSCRIBERS WHO A RE INTERESTED IN DRAWING THE MONEY EARLY BECAUSE OF THEIR NEEDS MAY PARTICIPATE IN THE AUCTION. THE SUCCESSFUL BIDDER WHO IS NORMALLY THE PERSON WHO OFFERS THE HIGHEST DISCOUNT IS GIVEN THE CHIT AMOUN T. FOR EXAMPLE IF THERE ARE THREE BIDDERS OFFERING TO TAKE THE CHIT O F RS.50,000/- FOR RS.40,000/-, RS.37,500/- AND RS.35,000/- RESPECTIVE LY, THE CHIT WOULD BE GIVEN TO THAT SUBSCRIBER WHO IS WILLING TO TAKE IT FOR RS.35,000/- SINCE HE HAS OFFERED A DISCOUNT OF `15,000/-. THIS LEAVE A BALANCE OF RS.15,000/- (RS.15,000 RS.50,000) IN THE KITTY. T HE AMOUNT OF RS.15,000/- WHICH REPRESENTS THE DISCOUNT WHICH THE SUCCESSFUL BIDDER HAS FOREGONE BECOMES THE DIVIDEND WHICH IS T O BE DISTRIBUTED TO ALL THE SUBSCRIBERS AFTER DEDUCTING A FIXED AMOU NT REPRESENTING THE COMMISSION PAYABLE TO THE FOREMAN. A FOREMAN IS N ORMALLY A PERSON WHO ORGANISES THE AUCTION AND CONDUCTS THE P ROCEEDINGS. IF IN THE EXAMPLE GIVEN ABOVE, THE COMMISSION PAYABLE TO THE FOREMAN IS FIXED AT 5%, THEN AFTER DEDUCTING RS.2,500/- (5% OF RS.50,000/-, THE CHIT AMOUNT) THE BALANCE OF RS.12,500/- WOULD B E DISTRIBUTED AMONG ALL THE 50 SUBSCRIBERS SO THAT EACH WOULD GET RS.250/-. THIS AMOUNT OF RS.250/- CAN BE SET OFF BY THE SUBSCRIBER S 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 I N THE SUBSEQUENT MONTHS AND THE SAME PROCEDURE IS FOLLOWED. ANY SUBS CRIBER WHO DELAYS THE BIDDING OR DOES NOT BID AT ALL STANDS TO GAIN THE MAXIMUM DISCOUNT. THE CHIT IS THUS SOMEWHAT LIKE A RECURRIN G DEPOSIT WITH THE BANK. THERE IS NO BAR ON THE FOREMAN OF THE CHIT FU ND 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 SUBSCRI BERS, TERMINATION OF CHITS, MEETINGS OF GENERAL BODY OF SUBSCRIBERS, PROVISIONS RELATING TO WINDING UP, DISPUTES AND ARBITRATION AND OTHER M ISCELLANEOUS PROVISIONS. SUFFICE TO NOTE THAT SECTION 11 RECOGNI SES 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 ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 28 IN SRIRAM CHITS & INVESTMENT (P) LTD. VS. UNION OF IND IA : AIR 1993 SC 2063 HAS LAID DOWN THE FOLLOWING PROPOSITIONS: - (A) THE ACT, IN PITH AND SUBSTANCE, DEALS WITH SPEC IAL CONTRACT AND CONSEQUENTLY FALLS WITHIN ENTRY 7 OF LIST III OF THE 7 THE SCHEDULE TO THE CONSTITUTION OF INDIA; (B) A CHIT FUND TRANSACTION IS NOT A CASE OF BORROW ING, NOR IS IT A LOAN TRANSACTION. IF A SUBSCRIBER ADVANCES ANY AMOUN T, HE DOES SO ONLY TO ONE OF THE MEMBERS; (C) THE FUNDS OF THE CHIT FUND BELONG TO THE ENTIRE LOT OF SUBSCRIBERS; (D) THE AMOUNTS ARE IN DEPOSIT WHICH THE STAKE HOLD ER ONLY HOLDS IN TRUST FOR THE BENEFIT OF THE MEMBERS OF THE FUND ; (E) THE FOREMAN ACTS ONLY AS A PERSON TO BRING TOGE THER THE SUBSCRIBERS AND HE IS SUBJECT TO CERTAIN OBLIGATION S WITH A VIEW TO PROTECTING THE SUBSCRIBERS FROM ANY MISCHIEF OR FRA UD COMMITTED BY HIM BY USING THE POSITION; (F) COMMISSION IS PAYABLE TO THE FOREMAN FOR THE SE RVICE RENDERED BY HIM AS HE DOES NOT LEND MONEY BELONGING TO HIM . 16. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS . BILAHARI INVESTMENTS PVT. LTD. 299 ITR 1 STATED AS FOLLOWS: THE SUPREME COURT NOTED THAT CHIT FUNDS ARE BASIC ALLY SAVING SCHEMES IN WHICH A CERTAIN NUMBER OF SUBSCRIBERS JO IN TOGETHER AND EACH CONTRIBUTES A CERTAIN FIXED SUM EACH MONTH, TH E TOTAL NUMBER OF MONTHS BEING EQUAL TO THE TOTAL NUMBER OF SUBSCR IBERS. THE SUBSCRIPTIONS ARE PAID TO THE MANAGER OF THE FUND B Y A CERTAIN PRESCRIBED DATE EACH MONTH AND THE TOTAL SUBSCRIPTI ONS TO THE FUND ARE AUCTIONED EACH MONTH AMONGST THE SUBSCRIBERS. A T EACH AUCTION, THE LOWEST BIDDER IS PAID THE AMOUNT OF HI S BID AND THE BALANCE RECEIVED FROM OUT OF THE TOTAL SUBSCRIPTION S RECEIVED IS DISTRIBUTED EQUALLY AMONGST OTHER SUBSCRIBERS, AS P REMIUM. THE MANAGER IS PAID A CERTAIN PERCENTAGE OF THE COLLECT IONS EACH MONTH ON ACCOUNT OF EXPENSES AND CHARGES FOR CONDUCTING T HE AUCTION. IN THE AUCTION, A MAXIMUM AMOUNT, WHICH THE HIGHEST BI DDER AGREES TO FORGO, IS THE AMOUNT, WHICH IS DISTRIBUTED TO TH E OTHER MEMBERS, SUBJECT TO DEDUCTION OF THE MANAGERS COMMISSION. 17. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAHEB CHITS (DELHI) PVT. LTD. ITA NO.44 OF 2008 JUDGEMENT DATED 24.7.2009 HAS OBSERVED AS FOLLOWS: ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 29 FURTHER, IT WAS OBSERVED BY THE HONBLE SUPREME CO URT IN SRIRAM CHITS AND INVESTMENTS (P) LTD. (SUPRA) THAT IT WOUL D NOT BE CORRECT TO STATE THAT EACH SUBSCRIBER LENT MONEY TO THE PERSON WHO G ETS CHITS EARLIER. IT CANNOT ALSO BE CONSTRUED THAT THE PERSON WHO GETS C HIT LATER SHOULD BE TREATED AS A MONEY LENDER. THE AGREEMENT BETWEEN THE PARTIES THOSE ENTERED AS PER SECTION 6 OF THE ACT ONLY PROVIDES F OR DISTRIBUTION OF THE CHIT AMOUNT. THE SUPREME COURT HOWEVER RELIED ON THE JUDGEMENT OF THE KERALA HIGH COURT IN JANARDHANA MALLAN AND OTHERS V S. GANGADHARAN AND OTHERS AIR 1983 KERALA 178, WHEREIN IT WAS OBS ERVED THAT ON ENTERING INTO A CHIT AGREEMENT, A DEBT IS NOT INCUR RED BY THE SUBSCRIBER FOR THE AMOUNT OF ALL THE FUTURE INSTALMENTS AND IN RES PECT OF SUCH AMOUNT THERE IS NO DEBTORS-CREDITORS RELATIONSHIP. THE HONBLE DELHI HIGH COURT FURTHER OBSERVED AS FO LLOWS: THIS APPROACH IS FALLACIOUS ON THE FACE OF IT AND P ARTICULARLY IN VIEW OF THE PRINCIPLE LAID DOWN IN THE AFORESAID JUDGEMENT OF THE SUPREME COURT IN SRIRAM CHITS AND INVESTMENT PVT. LTD. (SUPRA), WHER EIN THE APEX COURT OBSERVED THAT THE SUBSCRIPTION RECEIVED FROM THE ME MBERS OF THE CHIT FUND COMPANY IN TERMS OF CONTRACT ARE NOT TREATED AS DEP OSITS FOR THE PURPOSE OF RESERVE BANK OF INDIA DIRECTION. THE AMOUNT CONTRI BUTED BY THE MEMBERS EVERY MONTH IS GIVEN BACK TO THEM IN THE FOLLOWING MANNER. THE SUCCESSFUL BIDDER TAKES THE ENTIRE AMOUNT (MINUS) THE BID AMOU NT AND THE BID AMOUNT IS DISTRIBUTED EQUALLY AMONG THE MEMBERS. THEREFORE, BY NO STRETCH OF IMAGINATION, THE AFORESAID AMOUNT CONTRIBUTED BY TH E MEMBERS CAN BE TREATED AS A DEPOSIT WITH THE COMPANY MUCH LESS MON EY BORROWED BY THE ASSESSEE. 18. THE HONBLE SUPREME COURT IN THE CASE OF M/S. S RIRAM CHITS AND INVESTMENTS VS. UNION OF INDIA AND OTHERS AIR 1993 (S C)2063 AT PARA 14 HELD AS FOLLOWS: 14. THE QUESTION AS TO THE NATURE OF CHIT AGREEMEN T CAME UP FOR CONSIDERATION BEFORE A FULL BENCH OF FIVE JUDGES OF THE KERALA HIGH COURT IN JANARDHANA MALLAN AND ORS. V. GANGADHARAN AND OR S.. THE FULL BENCH THERE WAS CONCERNED WITH THE CHIT AGREEMENT UNDER T HE KERALA CHITTIES ACT (ACT 23 OF 1975) WHERE THE KERALA HIGH COURT SPEAKIN G THROUGH POTI, ACTING CHIEF JUSTICE, TOOK THE VIEW THAT ON ENTERING INTO THE CHITTY AGREEMENT A DEBT IS NOT INCURRED BY THE SUBSCRIBER FOR THE AMOUNT OF ALL THE FUTURE INSTALLMENTS AND IN RESPECT OF SUCH AMOUNT TH ERE IS NO DEBTOR- CREDITOR RELATIONSHIP. THE CHITTY VARIOLA ONLY EMBODI ES A PROMISE TO PAY ON FUTURE DATES. THAT IS NOT A PROMISE TO REPAY AN EXIS TING DEBT, BUT TO PAY IN DISCHARGE OF A CONTRACTUAL OBLIGATION. FOR SIMILAR R EASONS NEITHER THE PRIZING OF THE CHITTY NOR THE EXECUTION OF THE SECU RITY BOND WOULD GIVE RISE TO A DEBT, FOR , THE PRIZE AMOUNT IS NOT RECEIVED A S A LOAN, BUT AS OF RIGHT BY VIRTUE OF THE TERMS OF THE CONTRACT BETWEEN THE PART IES. THEREFORE, NO DEBT DUE TO THE FOREMAN ARISES BY REASON OF THE RECEIPT OF T HE PRIZE AMOUNT OR OF THE EXECUTION OF THE SECURITY BOND FOR SECURING FUTURE SUBSCRIPTIONS. THE FULL BENCH IN THIS DECISION OVER-RULED ITS EARLIER DECIS ION IN THE CASE OF P.K ACHUTAN V. STATE BANK OF TRAVANCORE, CALICUT. WHILE RENDERING THE DECISION ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 30 IN JANARDHANA MALLAN AND ORS. (SUPRA) THE FULL BENC H OF THE KERALA HIGH COURT CONSIDERED A CATENA OF DECISIONS STARTING FRO M 1937 IN THE MATTER OF RAMANATHA LYYAR V. NARAYANASWAMI. THE ANDHRA PRADESH HIGH COURT ALSO, WHILE DEALING WITH THE TRANSACTION OF A CHIT FUND OR GANISATION, IN THE MATTER OF DHOOSA NARSIMLOO V. YELALA RAJANNA AND ANR. I.L. R. (1958) ANDHRA PRADESH 409, WHERE THE PETITIONER HAD FILED A SUIT IN THE COURT OF THE DISTRICT JUDGE AGAINST THE RESPONDENTS ON A PROMISSORY NOTE EXECUTED BY THEM FOR THE AMOUNT THEY DREW IN A POOL FROM A CHIT FUND ORGANI SATION AND WHERE THE DISTRICT JUDGE HAD DISMISSED THE SUIT FOR WANT OF 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 TH E CHIT FUND ORGANISATION COULD BE REGARDED AS A MONEY LENDER WITHIN THE MEAN ING OF THE SAID ACT AND WHETHER ITS TRANSACTION PARTAKE THE NATURE OF A LOA N. SRINIVASACHARI, J. SPEAKING FOR THE COURT HELD THAT THE AMOUNT DRAWN B Y A MEMBER OF A CHIT FUND WHO BID AT THE PERIODICAL AUCTION GIVING THE L ARGEST DISCOUNT COULD NOT COME WITHIN THE DEFINITION OF A LOAN WITHIN THE MEA NING OF THE MONEY LENDERS ACT NOR COULD SUCH A TRANSACTION BE REGARDE D AS A MONEY LENDING TRANSACTION BE AND IN THE CIRCUMSTANCES SECTION 9 O F THE HYDERABAD MONEY LENDERS ACT (V OF 1349 F.) COULD HAVE NO APPLICATIO N 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 FO R MUTUAL BENEFIT.' IT APPROVED THE DECISION OF THE MADRAS HIGH COURT IN R AGHAVAN V. ARMUGHAM: (1934) 38M.L..I. 283. THAT WAS ALSO A CAS E OF CHIT FUND TRANSACTION AND THE QUESTION FOR DECISION WAS WHETH ER A PROVISION IN THE BOND FOR PAYMENT OF THE WHOLE AMOUNT IN DEFAULT OF ANY O NE INSTALMENT WAS IN THE NATURE OF A PENALTY COMING WITHIN SECTION 74, ILLUS TRATION (G) OF THE CONTRACT ACT. THE LEARNED JUDGES RULED THAT A CHIT FUND TRAN SACTION WAS NOT A CASE OF BORROWING AT ALL AND IT WAS ENTIRELY DIFFERENT FROM A LOAN TRANSACTION. THE LEARNED JUDGES FURTHER HELD THAT 'A LOAN ENVISAGES THE RELATIONSHIP OF A CREDITOR AND DEBTOR IN SO TAR AS THE LENDER AND THE BORROWER ARE CONCERNED. THERE CANNOT BE THE RELATIONSHIP OF A CREDITOR AND DEBTOR BETWEEN THE STAKE HOLDER AND A SUBSCRIBER, IN A CHIT FUND TRANSACTION . IF THE STAKE-HOLDER ADVANCES ANY AMOUNT HE ADVANCES ONLY TO ONE OF THE M EMBERS, THE FUNDS OF THE WHOLE BODY OF THE CHIT FUND, AS THE FUNDS BELON G TO THE WHOLE LOT OF SUBSCRIBERS, THE MEMBERS, BORROWER IS AS MUCH A CRED ITOR AS A DEBTOR. THE AMOUNTS ARE IN DEPOSIT WITH THE STAKE-HOLDER ONLY AS A TRUSTEE FOR THE BENEFIT OF THE MEMBERS OF THE FUND.' SRINIVASACHARI, J. NOTICED THE OBSERVATIONS OF SRINIVASA LYENGAR, J. IN TIM-MARSA PAI V. SUBBA RAO : AIR (1928) MADRAS 256 WHERE SRINIVASA LYENGAR, J. REGAR DED THE POSITION OF THE MANAGER OF A KURI CHIT AS A TRUSTEE FOR ALL THE SUBSCRIBERS OF THE CHIT FUND. 19. ON A CONSPECTUS OF THE ABOVE JUDGEMENT, IT IS C LEAR THAT THE HONBLE SUPREME COURT HAS APPROVED THE OPINION OF HONBLE A NDHRA PRADESH HIGH COURT IN THE CASE OF DHOOSA NARASIMLOO VS. YELLALA RAJANNA AND ANOTHER (SUPRA) THAT IT IS IN ESSENCE AN ORGANIZATION FOR MUTUAL BENEFI T . IT IS FURTHER MADE CLEAR THAT CHIT TRANSACTION IS NOT A M ONEY LENDING TRANSACTION AND THAT THERE IS NO RELATIONSHIP OF DEBTOR AND CREDITO R. THE ROLE OF THE FOREMAN IS THAT OF A TRUSTEE. HE CHARGES COMMISSION FOR HIS S ERVICE. THE MONEY ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 31 CONTRIBUTED BY THE SUBSCRIBERS TO THE CHIT DOES NOT BELONG TO THE FOREMAN. IT BELONGS TO ALL THE STAKE HOLDERS. UNDER THESE CIRC UMSTANCES, IT HAS TO BE CONCLUDED THAT THE CONTRIBUTION TO CHIT FUND IS A M UTUAL ACTIVITY AND THE FUND BELONGS TO ALL THE PARTICIPANTS. THERE IS NO MONEY LENT OR KEPT BY ONE PARTY WITH ANOTHER PARTY AS AN INVESTMENT OR DEPOSIT. 20. HONBLE HARYANA HIGH COURT IN THE CASE OF SODA SILICATE & CHEMICAL WORKS VS. CIT 179 ITR 588 (P&H) HELD AS FOLLOWS: 'IN ORDER TO ANSWER THE QUESTION POSED, REGARD MUST BE HAD TO THE NATURE AND WORKING OF THE CHIT FUND, IN THE CONTEXT OF THE ASS ESSEE, WITH PARTICULAR REFERENCE TO THE FACT THAT RUNNING A CHI T FUND OR BEING A MEMBER OF SUCH FUND, WAS NOT THE BUSINESS OF THE AS SESSEE. 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 AMON GST 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 CONTRIBUT ORS AND THEIR IDENTITY IS ESTABLISHED. THE CONTRIBUTORS TO THE CO MMON FUND AND THE PARTICIPATORS IN THE SURPLUS MUST BE AN IDENTICAL B ODY. THE COURT WENT ON TO OBSERVE THAT THIS DOES NOT MEAN THAT EACH MEMBER SHOULD CONTRIBUTE TO THE COMMON FUND OR THAT EACH MEMBER SHOULD PARTICIPATE IN THE SURPLUS OR GET BACK FROM THE SUR PLUS PRECISELY WHAT HE HAS PAID. WHAT IS REQUIRED IS THAT THE MEMBER AS A CLASS SHOULD CONTRIBUTE TO THE COMMON FUND AND PARTICIPATORS AS A CLASS MUST BE ABLE TO PARTICIPATE IN THE SURPLUS'. 21. THE SAME JUDGMENT RELIED ON ANOTHER DECISION OF THE MADRAS HIGH COURT IN THE CASE OF BOARD OF REVENUE VS. NORTH MADRAS MUTUA L BENEFIT CO. LIMITED 1922 I ITC 172 (MADRAS) WHEREIN IT WAS HELD THAT TH E OPERATIONS OF CHIT FUND CANNOT BE SAID TO BRING ANY PROFIT TO ITS SUBSCRIBERS AS A BODY AND THE INCOME REPRESENTED BY PREMIA WAS THUS NOT A SSESSABLE TO INCOME TAX. 22. THE HONBLE HIGH COURT OF ANDHRA PRADESH IN TH E CASE OF CIT (TDS) VS. SUMAN CHIT FUNDS PRIVATE LIMITED HELD THAT THE DISCOUNT PAID BY THE FOREMAN TO THE SUBSCRIBERS TO A CHIT FUND TRANSACTI ON DOES NOT PARTAKE THE CHARACTER OF INTEREST WITHIN THE MEANING OF SECTION 2(28A) OF THE INCOME TAX ACT. THIS DECISION WAS RENDERED FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE DELHI HIGH COURT IN SAHIB CHITS (DEL HI) (P) LIMITED IN ITA NO.44 OF 2008 AND ALSO THE HONBLE SUPREME COUR T IN THE CASE OF CIT VS. BILAHARI INVESTMENT PRIVATE LIMITED. REFER ENCE WAS MADE TO A DECISION OF BANGALORE BENCH OF ITAT IN THE CASE OF MARGA SOOCHI PRIVATE LIMITED IN ITA NO.995/BANGALORE/2008. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 32 23. THUS FROM THE ABOVE IT IS CLEAR THAT THE CONTRI BUTION TO A CHIT IS A MUTUAL ACTIVITY AND CANNOT BE HELD AS AN INVESTMENT, AS T HERE IS NO QUESTION OF A INDIVIDUAL SUBSCRIBER BEING ENTITLED TO RECEIVE P ROFIT OR INCOME UNDER A SCHEME OF CHIT FUNDS. NO MONEY IS LAID OUT WITH A S ECOND PARTY THAT TOO WITH AN INTENTION TO EARN PROFIT. THE FOREMAN HOLDS THE MONEY RECEIVED FROM THE CHIT SUBSCRIBERS ONLY AS A TRUSTEE. SECTION 11(5) OF THE ACT ONLY REFERS MONEY THAT IS TO BE INVESTED OR DEPOSITED WITH A PERSON O R ENTITY OR ORGANIZATION OR GOVERNMENT WHICH IS OTHER THAN THE ASSESSEE ITSELF. INVESTMENT HELD BY SELF I. E. WHERE NO SECOND PARTY IS INVOLVED IS OBVIOUSLY N OT COVERED TO THESE SECTIONS. THUS, WE CAN CONCLUDE THAT CHIT FUND BUS INESS IS GOVERNED BY THE PRINCIPLES OF MUTUALITY AND CONTRIBUTING TO A CHIT FUND IS CONTRIBUTION TO ONESELF ON THE PRINCIPLE OF MUTUALITY AND HENCE, IT IS NOT AN INVESTMENT AS CONTEMPLATED BY SEC 13(1) (D) R.W.S. 11(5) OF THE A CT. 24. NOW, WE PROCEED TO EXAMINE TO WHAT EXTENT A CHA RITABLE INSTITUTION IS REQUIRED TO INVEST THE FUNDS FOR PURPOSES OF S.13(1 )(D). FOR THIS 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, I N OUR OPINION SIGNIFIES INCOME DEFINED U/S 2(24) OF T HE ACT. THUS ANY RECEIPT, WHICH FALLS WITHIN THE DEFINITION OF INCOME U/S 2(2 4) OF THE ACT IS TO BE CONSIDERED. AS RIGHTLY CONTENDED BY THE LEARNED CO UNSEL 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 FU NDS BY THESE CHARITABLE INSTITUTIONS. THEREFORE, ON A HARMONIOUS CONSTRUCT ION OF THE PROVISIONS OF S.13(1)(D) WE ARE OF THE CONSIDERED VIEW THAT THE T ERM ANY FUNDS REFERS TO ONLY THE INCOME OF A CHARITABLE INSTITUTION. 26. THE TERM ANY FUNDS HAS BEEN EXPLAINED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHREE SRI RAM FOUNDATI ON 250 ITR 55 WHEREIN IT IS HELD AS FOLLOWS: A SIMILAR ISSUE HAD COME UP BEFORE VARIOUS HIGH CO URTS AND THERE IS UNANIMITY IN THE VIEW, AS THAT TAKEN BY THE TRIBUNA L. IN CONSTRUING THE PRO- VISIONS OF SECTION 13(2)(H), THE EXPRESSION 'FUNDS' HAS TO BE UNDERSTOOD IN THE CONTEXT OF THE PROVISION AND NOT ONLY WITH REFERENC E TO DICTIONARIES OR TO COMMERCIAL PARLANCE OR TO THE PRINCIPLES OF ACCOUNT ANCY. IT IS TO BE NOTED THAT THE EXPRESSION USED IS 'FUNDS' AND NOT 'FUND'. 'FUN DS' MEANS MONEY IN HAND OR CASH ACCORDING TO SOME DICTIONARIES. THIS, ACCORDIN G TO US, WOULD BE THE PROPER MEANING TO BE ATTRIBUTED TO THE EXPRESSION ' FUNDS' AS APPEARING IN THE PROVISION. THE FUNDAMENTAL REQUIREMENT OF SECTION 1 3(2)(H) IS THAT THERE MUST BE INVESTMENT OF FUNDS OF A TRUST. IF ANY EXPANDED MEA NING IS GIVEN TO INCLUDE ASSETS OTHER THAN MONEY IN HAND OR CASH OR CREDIT BALANCE IN A BANK ACCOUNT, IT IS EVIDENT THAT THEY ARE NOT CAPABLE OF BEING INVESTED AS SUCH. OTHER ASSETS OF THE TRUST APART FROM MONEY IN HAND OR CASH OR BALANCE I N BANK WILL HAVE TO BE CONVERTED INTO MONEY OR CASH BEFORE THE SAME CAN BE INVESTED, AS WAS OBSERVED BY THE CALCUTTA HIGH COURT IN CJT V. BIRLA CHARITY TRUST [1988] 170 ITR 150. THE EXPRESSION 'INVEST' CONNOTES A POSITIV E ACT ON THE PART OF THE TRUST WHERE-BY THE FUNDS OF THE TRUST ARE LAID OUT OR COM MITTED IN ANY PARTICULAR PROPERTY OR BUSINESS OR TRANSACTION WITH THE OBJECT OF EARNING A PROFIT OR ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 33 FINANCIAL ADVANTAGE OR RETURN. WHAT IS CONTEMPLATED IS THAT THE TRUST HAVING ASSETS IN THE FORM OF MONEY OR CASH OR BALANCE IN A BANK OR ANY OTHER FORM CAPABLE OF BEING INVESTED OR BY A POSITIVE ACT AND PURSUANT TO A DECISION OF THE TRUST WAS LAID OUT OR COMMITTED IN A CONCERN OF A N ATURE SPECIFIED BEFORE IT CAN BE HELD THAT SUCH AN INVESTMENT COMES WITHIN THE MISCH IEF OF SECTION 13(2)(H). THE MEANING OF THE EXPRESSION 'FUNDS' GIVEN IN THE STANDARD DICTIONARIES ARE AS FOLLOWS : 'BLACK'S LAW DICTIONARY, FIFTH EDITION : 'FUND'... AN ASSET OR GROUP OF ASSETS SET ASIDE FOR A SPECIFIC PURPOSE . . , A GENERIC TERM AND ALL-EMBRACING AS COMPARED WITH T ERM 'MONEY', ETC., WHICH IS SPECIFIC. A SUM OF MONEY OR OTHER LIQUID ASSETS SET APART FOR A SPECIFIC PURPOSE OR AVAILABLE FOR THE PAYMENT OF DEBTS OR CL AIMS. IN THE PLURAL, THIS WORD HAS A VARIETY OF SLIGHTLY DIFFERENT MEANINGS, AS FOLLOWS : 'MONEYS' AND MUCH MORE, SUCH AS NOTES, BILLS, CHEQUES, DRAFTS, S TOCKS AND BONDS, AND IN BROADER MEANING MAY INCLUDE PROPERTY OF EVERY KIND . . . MONEY IN HAND, ASSETS, CASH, MONEY AVAILABLE FOR THE PAYMENT OF A DEBT, LEGACY, ETC. CORPORATE STOCKS OR GOVERNMENT SECURITIES ; IN THIS SENSE USUALLY SPOKEN OF AS THE 'FUNDS'. ASSETS, SECURITIES, BONDS OR REVENUE O F A STATE OR GOVERNMENT APPROPRIATED FOR THE DISCHARGE OF ITS DEBTS. GENERA LLY, WORKING CAPITAL ; SOMETIMES USED TO REFER TO CASH OR TO CASH AND MARK ETABLE SECURITIES.' '(B) DICTIONARY FOR ACCOUNTANTS, FOURTH EDITION, BY ERIC L. KOHLER : 1. AN ASSET OR GROUP OF ASSETS WITHIN ANY ORGANISATION, SEPARAT ED PHYSICALLY OR IN THE ACCOUNTS OR BOTH FROM OTHER ASSETS AND LIMITED TO S PECIFIC USES. EXAMPLES : A PETTY CASH OR WORKING FUND ; A REPLACEMENT AND RENE WAL FUND ; AN ACCIDENT FUND ; A CONTINGENT FUND ; A PENSION FUND. EXAMPLE : A TRUST FUND CREATED BY A WILL ; AN ENDOW MENT FUND ; A SINKING FUND. 4. PL. : CURRENT ASSETS LESS CURRENT LIABILITIES (O N 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 I S FOUNDED OR EXPENSE SUPPORTED : A SUPPLY OR SOURCE OF MONEY :' 'THE C ONCISE OXFORD DICTIONARY, FIFTH EDITION : FUND N. 1. PERMANENT STOCK OF SOMETHING READY TO BE DRAWN UPON STOCK OF MONEYPECUNIARY RESOURCES.' 'WEBSTER'S SEVENTH NEW COLLEGIATE DICTIONARY-BASED ON WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY (P. 538) : FUND. 1. AN AVAILABLE QUANTITY OR MATERIAL OR INTAN GIBLE RESOURCES ; SUPPLY ; 2. A SUM OF MONEY OR OTHER RESOURCES THE PRINCIPAL OR INTEREST OF WHICH IS SET APART FOR A SPECIFIC OBJECTIVE.' THE EXPRESSION, 'INVEST' I N THE SAID SECTION 13(2)(H) IS USED AS A VERB AND T HE MEANING OF THE SAID EXPRESSION IN THE STANDARD DICT IONARIES IS AS FOLLOWS : 'CHAMBER'S TWENTIETH CENTURY DICTIONARY, NEW EDITIO N : ... TO LAY OUT FOR PROFIT AS BY BUYING PROPERTY, SHARES, ETC.' 'THE CONCISE O XFORD DICTIONARY, FIFTH EDITION: ... LAY OUT MONEY ON, AS (INVEST) IN A CAR.' 'WEBST ER'S SEVENTH NEW COLLEGIATE DICTIONARY : ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 34 VB. VT 1: TO COMMIT (MONEY) IN ORDER TO EARN A FINA NCIAL RETURN ; 2 TO MAKE USE OF FOR FUTURE BENEFITS OR ADVANTAGESVT. TO MAKE AN INVESTMENT.' 'CORPUS JURIS SECUNDUM, VOLUME XXXVII: IN GENERAL.THE WORD HAS A VARIETY OF MEANINGS, BUT THE SENSE IN WHICH IT IS EMPLOYED MUST BE GATHERED FROM THE CONTEXT. IT IS N OT A LEGAL TERM WITH A SETTLED MEANING, BUT IT IS A TERM IN COMMON USE, SU GGESTING MONEY, IN COMMON SPEECH, ALTHOUGH TECHNICALLY IT MAY BE EMPLOYED TO COVER OTHER ARTICLES OF VALUE, FOR THE TERM 'FUND' OR 'FUNDS' IS GENERIC AN D ALL-EMBRACING AS COMPARED WITH THE TERM 'MONEY', ETC. WHICH IS SPECIFIC . . , IN THE PLURAL, 'CAPITAL : CASH, MONEY, OR MONEYS ; MONEY AND NEGOTIABLE PAPER IMMED IATELY OR READILY CONVERTIBLE INTO CASH, AVAILABLE PECUNIARY RESOURCE S ; MONEY IN HAND OR AVAILABLE FOR THE PAYMENT OF A DEBT, LEGACY, ETC., SPECIE, OR A STOCK OF CONVERTIBLE WEALTH; AND 'FUNDS' MAY MEAN OR INCLUDE NOT ONLY MONEY, AS THE TERM IS GENERALLY UNDERSTOOD, BUT OTHER CIRCULATING MEDIUM OR INSTRUMENT OR TOKENS IN GENERAL USE IN THE COMMERCIAL WORLD AS TH E REPRESENTATIVES OF VALUE, SUCH AS BANK NOTES, BILLS, CHEQUES, DRAFTS, NOTES, STOCKS AND BONDS, DEPOSITS OR CERTIFICATES OF DEPOSIT, EVIDENCES OF MONEY LENT TO THE GOVERNMENT, CONSTITUTING A NATIONAL DEBT, FOR WHICH INTEREST IS PAID AT PRES CRIBED INTERVALS. ... .' IN R. K. DALMIA V. DELHI ADMINISTRATION [1962] 32 C OMP CAS 699 ; AIR 1962 SC 1821, IT WAS OBSERVED THAT THE WORD 'FUND' MAY M EAN ACTUAL CASH RESOURCES OF A PARTICULAR KIND (E.G., MONEY IN A DR AWER OR IN A BANK OR IT MAYBE A MERE ACCOUNTANCY EXPRESSION USED TO DESCRIB E A PARTICULAR CATEGORY WHICH A PERSON USES IN MAKING UP HIS ACCOUNTS). A S IMILAR VIEW WAS EXPRESSED IN AHCHM V. COULLKARD [1942] 2 KB 228. THE EXPRESSI ON 'FUND' OR 'FUNDS' HAS A VARIETY OF MEANINGS BUT THE SENSE IN WHICH IT IS EM PLOYED MUST BE GATHERED FROM THE CONTEXT. IT WOULD NOT BE CORRECT TO ADOPT A STR ICTLY LITERAL OR TECHNICAL MEANING OF THIS EXPRESSION WHILE CONSTRUING SECTION 13(2)(H). IN OTHER WORDS WE MUST NOT CONSTRUE THAT PROVISION MECHANICALLY. W E MUST CONSTRUE IT HAVING REGARD TO THE OBJECT WHICH THE LEGISLATURE HAD IN V IEW IN ENACTING IT AND IN THE CONTEXT OF THE SETTING IN WHICH IT OCCURS. THAT, PR OVISION CAME TO BE INSERTED IN THE ACT BY THE FINANCE ACT, 1970. ON A PLAIN READIN G 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 PERS ONS SPECIFIED IN SUB-SECTION (3) HAS SUBSTANTIAL INTEREST ('SPECIFIED PERSONS' I N 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 HAV E ALREADY BEEN INVESTED IN ANY CONCERN AS AFORESAID BEFORE JANUARY 1, 1971, TH E EXEMPTION WOULD BE FORFEITED IF THE FUNDS CONTINUED TO REMAIN SO INVES TED EVEN AFTER DECEMBER 31, 1970. THE OBJECT OF THE ABOVE PROVISION IS TO DISCO URAGE INVESTMENT OF TRUST FUNDS IN THE CONCERNS IN WHICH SPECIFIED PERSONS HA VE SUBSTANTIAL INTEREST AND IF AN INVESTMENT IS ALREADY MADE IN SUCH CONCERNS, TO DISCOURAGE CONTINUANCE THEREOF AFTER DECEMBER 31, 1970. IN ORDER TO ATTRAC T THE PROVISIONS OF SECTION 13(2)(H), WHAT IS ESSENTIAL IS THAT THE FUNDS OF TH E TRUST ARE INVESTED IN A CONCERN COVERED BY SECTION 13{2)(C) AND IF SUCH INV ESTMENT IS MADE PRIOR TO JANUARY 1, 1971, FUNDS ARE CONTINUED TO BE NOT INVE STED AFTER DECEMBER 31, 1970. IT IS ONLY IF THE FUNDS OF THE TRUST ITSELF A RE UNDER SECTION 11, THE FUNDS HAVE TO BE SUCH AS ARE CAPABLE OF INVESTMENT. THERE FORE, IN ORDER TO ATTRACT SECTION 13(2)(H}, IT HAS TO BE ESTABLISHED THAT THE FUNDS OF THE TRUST WHICH ARE CAPABLE OF BEING INVESTED HAVE BEEN UTILISED FOR MA KING INVESTMENT AS PROVIDED THEREIN. WHEN THE FUNDS OF THE TRUST ARE S O INVESTED AND SUCH ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 35 INVESTMENT IS CONTINUED AFTER DECEMBER 31, 1970, TH E TRUST WHOSE FUNDS ARE SO INVESTED WILL NOT BE ENTITLED TO CLAIM EXEMPTION UN DER SECTION 11. THE ABOVE POSITION HAS BEEN ELABORATELY DEALT WITH BY THE GUJ ARAT HIGH COURT IN CIT V. INSANIYAT TRUST [1988] 173 ITR 248. THE WORD 'INVESTMENT' MEANS TO LAY OUT MONEY IN BU SINESS WITH A VIEW TO OBTAIN INCOME OR PROFIT. IN ORDER TO CONSTITUTE AN INVESTMENT THE AMOUNT LAID DOWN SHOULD BE CAPABLE OF RESULTING IN AN INCOME OR RETURN OR PROFIT TO THE INVESTOR AND IN EVERY CASE OF INVESTMENT, THE INTEN TION AND POSITIVE ACT ON THE PART OF THE INVESTOR SHOULD BE TO EARN SUCH INCOME, RETURN OR PROFIT TO THE INVESTOR. IN ORDER TO CONSTITUTE AN INVESTMENT, THE MONEY SHALL BE LAID OUT IN SUCH MANNER, AS TO ACQUIRE SOME SPECIES OF PROPERTY WHICH BRINGS IN AN INCOME TO THE INVESTOR. AN INVESTMENT POPULARLY MEA NS EVERY APPLICATION OF MONEY WHICH IS INTENDED TO FETCH RETURN BY WAY OF I NTEREST INCOME OR PROFIT. THUS ONLY EMPLOYED AS CAPITAL IN A BUSINESS IS MONE Y INVESTED IN BUSINESS. (VIDE EDWARDS ]., IN TAX COMMISSIONER V. AUSTRALIAN MUTUAL PROVIDENT FUND SOCIETY [1902] 22 NZLR 445). IN ARNAJLD V. GRINSTEA D (21 WR ENG 155), IT WAS OBSERVED THAT IN ITS MOST COMPREHENSIVE SENSE IT IS GENERALLY UNDERSTOOD TO SIGNIFY THE LAYING OUT OF MONEY IN SUCH A MANNER TH AT IT PRODUCES A REVENUE. AN ILLUMINATING OBSERVATION WAS MADE IN IRC V. DESO UTTER BROS, LTD. [1946] 1 ALL ER 58 (CA) ABOUT WHAT 'INVESTMENT' MEANS. IT WAS OB SERVED THAT THE WORD 'INVESTMENT' IS NOT A WORD OF ART, BUT HAS TO BE IN TERPRETED IN A POPULAR SENSE. IT IS NOT CAPABLE OF LEGAL DEFINITION, BUT A WORD O F 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 ED UCATIONAL TRUST [1994] 207 ITR 108. THERE ALSO IT WAS PLEADED THAT THE EX PRESSION CONTINUED TO REMAIN QUALIFIES THE EXPRESSION IN ANY CONCERN W HETHER IT WAS AN INVESTMENT OR NOT. THE PLEA WAS REJECTED BY THE KE RALA HIGH COURT. IT WAS OBSERVED THAT IT WOULD BE DOING VIOLENCE TO THE PLA IN LANGUAGE OF THE PROVISION. SECTION 13(2)(H) REQUIRES THAT THE FUND S OF THE TRUST ARE, OR CONTINUE TO REMAIN INVESTED IN ANY CONCERN OF THE N ATURE 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, AS IN ANY ONES HAND S FOR SAFE-KEEPING, SOMETHING ENTRUSTED TO THE CARE OF ANOTHER. THESE TWO EXPRESSIONS HAVE BEEN USED IN A COGNATE SENSE AND HAVE TO BE UNDERSTOOD A S SUCH. IN ORDER TO CONSTITUTE AN INVESTMENT THE AMOUNT LAID DOWN SHOULD BE CA PABLE OF AND RESULT IN ANY INCOME RETURN OR PROFIT TO THE INVESTOR AND IN EVERY CASE OF INVESTMENT, THE INTENTION AND POSITIVE ACT ON THE PART OF THE INVESTOR SHOULD BE TO EARN SUCH INCOME, RETURNS, PROFIT IN ORDER TO CON STITUTE AN INVESTMENT, THE MONIES SHALL BE LAID OUT IN SUCH A MANNER AS TO ACQUIR E SOME SPECIES OF ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 36 PROPERTY WHICH WOULD BRING IN AN INCOME TO THE INVESTOR. A LOAN, ON THE OTHER HAND, IS GRANTING TEMPORARY DEPOSIT AND LO AN ARE CERTAINLY DIFFERENT. SECTION 11(5) REFERS TO PATTERN OF INVE STMENT BY THE ASSESSEE. SECTION 11(5) WAS INTRODUCED BY THE FINANCE ACT, 19 83, WITH EFFECT FROM APRIL 1, 1983, I.E., FOR AND FROM ASSESSMENT YEAR 1983-84 . IT PRESCRIBES THE FORMS AND MODES OF INVESTING AND DEPOSITING MONEY REFERRE D T IN SECTION 11(2)(B). SUBSEQUENTLY, NEW FORMS AND MODES HAVE BEEN ADDED. SECTION 13(1)(D) AS AMENDED BY THE FINANCE ACT, 1983, PROVIDES THAT THE INCOME OF ANY CHARITABLE OR RELIGIOUS TRUST OR INSTITUTION WILL NOT BE ENTIT LED TO EXEMPTION UNDER SECTION 11 AND 12, IF CERTAIN CONDITIONS STIPULATED THEREIN ARE NOT COMPLIED WITH. THE WORD DEPOSIT DOES NOT COVER TRANSACTION OF LOAN WHI CH CAN BE MORE APPROPRIATELY DESCRIBED AS DIRECT BAILMENT. THE ES SENCE OF DEPOSIT IS THAT THERE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM OR ON WHOSE BEHALF HAS BEEN MADE ON FULFILLMENT OF CERTAIN CONDITIONS. IN THE COMMERCIAL SENSE, THE TERM IS USED TO INDICATE THE AFORESAID TRANSACT ION AS DEPOSIT OF MONEY FOR EMPLOYMENT, IN BUSINESS, DEPOSITS FOR VALUE TO INIT IATE SECURITY FOR DEPOSIT OF TITLE DEEDS, SIMILAR DOCUMENTS AS SECURITY FOR LOAN , DEPOSIT OF MONEY BILLS IN A BANK IN THE ORDINARY COURSE OF BUSINESS OF CURRENT ACCOUNT AND DEPOSITS OF A SUM AT INTEREST AT A FIXED DEPOSIT IN A BANK. THE AMOUNT GIVEN TO MAHILA HAAT WAS NEITHER FOR THE PURPOSE OF INVESTMENT NOR FOR D EPOSIT, MORE PARTICULARLY IN THE FACTUAL BACKGROUND AS HIGHLIGHTED ABOVE. THE T RANSACTION WITH WHICH THE PRESENT DISPUTE IS LINKED CANNOT BE TREATED AS AN I NVESTMENT OR DEPOSIT AS HAS BEEN FACTUALLY FOUND BY THE TRIBUNAL. THE CONCLUSI ON BEING ESSENTIALLY FACTUAL, NO QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL. ACCORDINGLY, THE PETITION IS DISMISSED. 28. THE HONBLE 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 TR ANSACTION WHICH HAS TO BE CONSIDERED FOR THE PURPOSE OF TAXATION. IN THIS CASE, THE INVESTMENT IN THE SHARES OF COOPE RATIVE BANK WAS A PRE CONDITION FOR RAISING LOANS AND IT WAS THEREFORE NO T 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 O F THE TRUST. THERE IS NO DISPUTE ABOUT THE FACTS THAT LOANS TAKEN FROM THE S AID TWO COOPERATIVE BANKS WERE NOT COMPLETELY REPAID IN THE ASSESSMENT YEAR 2 008-09 AND, THEREFORE, THE ASSESSEE WOULD BE REQUIRED TO HOLD SHARES TO CONTIN UE 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 R ESEARCH ITA NO.3065 AND 6164 DELHI 2012 ASSESSMENT YEARS 2008-09 AND 2009-1 0 HELD AS FOLLOWS: THE EXPRESSION INVESTMENT IMPLIES TO LAY OUT MON EY IN BUSINESS WITH A VIEW TO OBTAIN INCOME ON PROFIT. THE TERM DEPOSIT INDICATES THE TRANSACTION AS DEPOSIT OF MONEY FOR EMPLOYMENT IN BUSINESS, DEP OSIT OF TITLE DEEDS SIMILAR DOCUMENT AS SECURITY FOR LOAN, DEPOSIT OF MONEY IN A BANK IN THE ORDINARY COURSE OF BUSINESS OF CURRENT ACCOUNT AND TO DEPOSI T A SUM OF INTEREST AT A ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 37 FIXED DEPOSIT IN A BANK. THUS, BOTH INVESTMENT A ND DEPOSIT REQUIRE A POSITIVE ACT ON THE PART OF THE ASSESSEE WITH AN IN TENTION TO EARN INCOME/INTEREST. 30. THE MADRAS `C BENCH OF THE TRIBUNAL IN ITA NO. 1445/MADRAS/2012 IN THE CASE OF M/S. SETHU VALLIAMMAL EDUCATIONAL TR UST (SUPRA) ORDER DATED 10.1.2013 AT PARA 8 AND 9 HELD AS FOLLOWS: 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT ASSESSEE HAD, DURING THE RELEVANT PREV IOUS YEAR, SUBSCRIBED TO TWO CHITS, ONE CONDUCTED BY M/S TERN CREDITS & CHIT S PRIVATE LIMITED AND THE OTHER BY M/S K.R. PALANIAPPAN (CHIT). LEARNED D.R. HAS ALSO NOT DISPUTED THE AVERMENT THAT BOTH THESE WERE REGISTERED CHIT FUNDS , RUNNING CHITS. ASSESSEE HAD PLACED MONEY WITH THESE CHIT COMPANIES BY WAY O F SUBSCRIPTIONS. THE 9 I.T.A. NO. 1445/MDS/12 AMOUNTS WERE PAID ON A MONTH LY BASIS TO THE TWO CHIT COMPANIES. THIS IS CLEAR FROM PAPER-BOOK PAGES 14 T O 17, WHICH ARE COPIES OF RELEVANT LEDGER FOLIOS IN THE BOOKS OF THE ASSESSEE . THE TOTAL AMOUNT PLACED BY THE ASSESSEE, DURING THE RELEVANT PREVIOUS YEAR, WI TH M/S TERN CREDITS & CHITS PRIVATE LIMITED WAS RS.2,08,456/- AND WITH M/S K.R. PALANIAPPAN (CHIT) WAS RS.96,230/-. THE ANNUAL INCOME OF THE TRUST CAME TO RS.7,35,19,954/- AGAINST WHICH, UTILIZATION FOR CHARITABLE PURPOSE CAME TO R S. 6,98,07,198/-, WHICH WAS WELL ABOVE THE LIMIT OF 85% PRESCRIBED UNDER SECTIO N 11(1)(A) OF THE ACT. AS PER THE ASSESSEE, SUBSCRIPTIONS PAID TO CHIT FUNDS WERE NOT DEPOSITS NOR INVESTMENTS AND IT COULD NOT HAVE BEEN A REASON FOR DENYING IT THE EXEMPTION CLAIMED UNDER SECTION 11 OF THE ACT. SUBSCRIPTION P AID BY A SUBSCRIBER OF A CHIT TO A CHIT COMPANY ACTING AS THE FOREMAN OF THE CHIT, IN OUR OPINION, CANNOT BE CONSIDERED AS AN INVESTMENT. SUBSCRIBING TO A CHIT FUND IS NOT WITH AN INTENTION TO EARN INTEREST OR DIVIDEND. THE ONLY INTENTION IS TO PRIZE THE CHITS EITHER BY COMPETITIVE BIDDING OR WHEN LOTS AR E DRAWN. IF THERE WAS NO BIDDING DONE IN A GIVEN MONTH, THERE WILL BE NO INC OME 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. 14 45/MDS/12 CREATED BY THE SUBSCRIBERS, AND THEIR TURN FOR GETTING SUCH LO AN IS DECIDED EITHER BY AUCTION OR BY DRAWING LOTS. THE NATURE OF CHIT AS A FORESAID HAS BEEN VIVIDLY DESCRIBED IN THE JUDGMENT OF KERALA HIGH COURT IN T HE CASE OF KOTTAYAM CO- OPERATIVE BANK LTD. (SUPRA). 9. AMRITSAR BENCH OF THIS TRIBUNAL IN THE CASE OF O NKAR 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 MONE Y EVERY MONTH FOR THE BENEFIT OF ONE OF THEM. CHIT FUNDS ACT, 1982 REQUIR ES THE CONCERN RUNNING A CHIT TO A SUBSCRIBER OF THE CHIT ALSO. WE CANNOT SA Y 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 DEPOSIT IN THE CONCERN RUNNING THE CHIT FUND. POOLING OF MO NEY BY A GROUP OF PERSONS FOR THE BENEFIT OF ONE OF THEM, THROUGH CHITS, CANN OT BE EQUATED WITH INVESTMENTS OR DEPOSITS. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 38 THEREAFTER IT HELD AS FOLLOWS: IT IS CLEAR FROM THE ABOVE CONSEQUENCE THAT THE INT ENTION OF LEGISLATURE IS TO REGULATE THE MANNER OF INVESTMENT OF THE MONEY LEFT WITH THE ASSESSEE TRUST AFTER UTILIZATION FOR CHARITABLE PUR POSE. 11. THEREFORE, IN OUR OPINION, THE LOWER AUTHORITIE S FELL IN ERROR IN CONCLUDING THAT SUCH SUBSCRIPTIONS WERE INVESTMENTS WHICH VIOL ATED THE MODES SPECIFIED UNDER SECTION 11(5) OF THE ACT. THE QUESTION OF DEN IAL OF EXEMPTION UNDER SECTION 11 WOULD ARISE ONLY IF INVESTMENTS WERE THE RE. WE ARE, THEREFORE, OF THE OPINION THAT ASSESSEE COULD NOT HAVE BEEN DENIE D EXEMPTION CLAIMED BY IT UNDER SECTION 11OF THE ACT, FOR A REASON THAT IT HA D SUBSCRIBED TO THE CHIT FUNDS. THERE IS NO CASE FOR THE REVENUE THAT ANY OF THE TRUSTEES, MANAGERS, CONTRIBUTORS OF RELATIVES OF SUCH PERSONS WERE HAVI NG INTEREST IN THE TWO CHIT COMPANIES. WE ARE, THEREFORE, OF THE OPINION THAT A SSESSEE WAS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT AND ITS CLAIM WAS DENIED UNJUSTLY. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE A.O. TO GRANT THE ASSESSEE ITS CLAIM OF EXEMPTION UNDER SEC TION 11 OF THE ACT FOR THE IMPUGNED ASSESSMENT YEAR. 31. THE KOLKATA HIGH COURT IN THE CASE OF CIT VS. B IRLA CHARITY TRUST (1988) 170 ITR 150, GUJARAT HIGH COURT IN CIT VS. I NSANIYAT TRUST (1988) 173 ITR 248 AND THE BOMBAY HIGH COURT IN TRUSTEES O F MANGALDAS N. VERMA CHARITABLE TRUST VS. CIT 203 ITR 322 HAVE TAKEN A V IEW THAT THE TERM FUNDS MEANS MONEY OR CASH AND THE TERM INVEST CONNOTES A POSITIVE ACT ON THE PART OF THE TRUST WHEREBY THE FUNDS OF THE TRUST ARE LAID O UT OR COMMITTED IN ANY PARTICULAR PROPERTY OR BUSINESS OR TRANSACTION WITH A VIEW OF EARNING A PROFIT OR FINANCIAL ADDITION OR RETURN. THE COURTS THEREFORE HELD THAT SECTION 13(2)(H) DID NOT APPLY TO ASSETS RECEIVED AS A DONATION SINC E NO FUNDS WERE INVESTED. IN OUR VIEW THIS PROPOSITION, THOUGH G IVEN IN A CONTEXT OF SECTION 13(2)(H) WOULD EQUALLY APPLY TO SECTION 13(1)(D) OF THE ACT AS THE LANGUAGE AND PURPOSE OF THE SECTIONS ARE THE SAME. 32. WE NOW CONSIDER THE FACTS OF THIS CASE. A PERU SAL OF THE ORDER OF THE FIRST APPELLATE AUTHORITY REVEALS THAT THERE IS NO DISPUTE ON THE LEGAL PRINCIPLE THAT, IF THE CHIT FUND CONTRIBUTION IN QUESTION IS NOT MADE AS AN INVESTMENT, THEN THE PROVISIONS OF SECTION 13(1)(D) ARE NOT ATT RACTED. 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) . HONBLE A.P. HIGH COURT IN THAT CASE WAS CONSIDERING, IN A WRIT PETITION, A CASE WHERE EXEMP TION WAS DENIED U/S 10(23C)(VI) OF THE ACT. THE ARGUMENT OF THE LD. CO UNSEL IN THIS CASE ARE AT PARA 4. THESE ARE EXTRACTED FOR READY REFERENCE: THE SURPLUS INCOME, IF ANY, AND ALL THEIR FUNDS ST OOD 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 A PPROVAL WAS SOUGHT; THE LEGAL INFIRMITY, ON THE BASIS OF WHICH EXEMPTION WA S DENIED TO THE SOCIETY IN THE PAST ASSESSMENT YEARS, WAS BECAUSE OF ITS CONTR IBUTION TO A CHIT FUND ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 39 SCHEME WHICH WAS CONSIDERED BY THE ASSESSING OFFICE R AS A CONTRAVENTION OF SECTION 13(1)(D) OF THE ACT; THE SAID INFIRMITY DID NOT EXIST IN THE ASSESSMENT YEAR 2008-09 INASMUCH AS THE INSTALLMENT HAD BEEN F ULLY PAID IN THE EARLIER YEAR ITSELF; IN THE FINANCIAL YEAR, RELEVANT TO THE ASSESSMENT YEAR 2008-09, ALL THE PETITIONERS FUNDS STOOD INVESTED IN THE FORMS APPROVED UNDER SECTION 11(5) OF THE ACT. 33. THE HONBLE HIGH COURT AT PARA 8 & 9 HELD AS FO LLOWS: 8. THE THIRD PROVISO TO SECTION 10(23C) OF THE ACT REQUIRES THE EDUCATIONAL INSTITUTION, REFERRED TO IN SUB-CLAUSE (VI), NOT TO INVEST OR DEPOSIT ITS FUNDS, FOR ANY PERIOD DURING THE PREVIOUS YEAR, OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SECTION 11(5) OF THE ACT. SECTION 11(5) PRESCRIBES THE FORMS AND MODES OF INVESTING O R DEPOSITING MONEY AS THOSE SPECIFIED IN CLAUSES (I) TO (XII) THEREUNDER. INVESTMENT/DEPOSIT IN A CHIT FUND IS NOT ONE OF THE MODES OF INVESTMENT OR DEPOSIT OF MONEY REFERRED TO IN CLAUSES (I) TO (XII) OF SECTION 11(5) OF THE ACT. A S SECTION 10(23C)(VI) OF THE ACT REQUIRES THE INCOME RECEIVED BY ANY PERSON, ON BEHA LF OF THE EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSE S AND NOT FOR PROFIT, TO BE EXCLUDED WHILE COMPUTING THE TOTAL INCOME OF THE PR EVIOUS YEAR OF SUCH A PERSON, THE THIRD PROVISO THERETO STIPULATES THAT T HE INVESTMENT OR DEPOSIT OF FUNDS OF THE EDUCATIONAL INSTITUTION, OTHERWISE THA N IN ANY ONE OF THE FORMS OR MODES SPECIFIED IN SECTION 11(5), FOR ANY PERIOD DU RING THE PREVIOUS YEAR, WOULD RESULT IN DENIAL OF THE BENEFIT OF EXCLUSION OF SUCH INCOME FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE SAID PERSON. EVE N IN CASES WHERE APPROVAL WAS GRANTED EARLIER UNDER SECTION 10(23Q(VI) OF THE ACT, FAILURE OF THE SOCIETY (EDUCATIONAL AGENCY) TO INVEST IN THE MODES AND FORMS SPECIFIED IN SECTION 11(5) OF THE ACT WOULD DISENTITLE THEM FROM CLAIMING THE BENEFIT OF EXCLUSION OF THE INCOME, RECEIVED ON BEHALF OF AN E DUCATIONAL INSTITUTION, FROM THEIR TOTAL INCOME FOR THE PREVIOUS YEAR. IN C ASES WHERE INITIAL APPROVAL, OR EXTENSION OF THE APPROVAL GRANTED EARLIER, IS SOUGH T, THE PRESCRIBED AUTHORITY WOULD BE ENTITLED TO EXAMINE THE ANNUAL ACCOUNTS OF THE APPLICANT-SOCIETY FOR THE PREVIOUS THREE YEARS TO ASCERTAIN WHETHER INVESTMEN T/DEPOSITS MADE IN ANY OF THE PREVIOUS THREE YEARS ARE IN THE FORMS AND MODES OTH ER THAN THOSE SPECIFIED IN SECTION 1.1(5) OF THE ACT. IT IS ONLY IF THE PRESCR IBED AUTHORITY IS SATISFIED THAT THE APPLICANT HAS APPLIED ITS INCOME EXCLUSIVELY FOR TH E PURPOSE OF EDUCATION, AND HAS ADHERED TO THE MODES SPECIFIED IN SECTION 11(5) OF THE ACT, THAT HE WOULD GRANT APPROVAL, OR RENEW THE APPROVAL GRANTED EARLI ER, 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 GR ANT OF EXEMPTION, WOULD RENDER THE REQUIREMENT OF FURNISHING THE AUDITED AN NUAL ACCOUNTS FOR THE PREVIOUS THREE YEARS, AS STIPULATED IN FORM 56D, WH OLLY 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. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 40 34. ON PERUSAL OF THE ABOVE JUDGMENT, IT IS CLEAR T HAT, 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 SCHEM E OF THE CHIT FUND ACT, CAN BE CONSIDERED AS AN INVESTMENT OR NOT, OR WHETHER SUCH CONTRIBUTION WAS A DEPOSIT OR NOT, WAS NOT THE ISSUE BEFORE THE HONBL E HIGH COURT. THE ISSUE AS TO WHETHER THE CONTRIBUTION TO THE CHIT FUND IS AN INVESTMENT/DEPOSIT WAS NOT CONTESTED BY THE PARTIES. HENCE, THIS JUDGEMENT OF THE JURISDICTIONAL HIGH COURT CANNOT BE APPLIED TO THE CASE ON HAND WHERE T HE ISSUE IS WHETHER A CONTRIBUTION TO A CHIT BY AN INDIVIDUAL SUBSCRIBER CAN BE CONSIDERED AN INVESTMENT OR A DEPOSIT AS CONTEMPLATED U/S 13(1)(D ) R.W.S. SEC 11(5) OF THE ACT. THE VARIOUS JUDGMENTS OF THE HONBLE SUPREME C OURT AND THE HIGH COURTS AS WELL AS THE TRIBUNAL CLEARLY LAY DOWN THAT CONTR IBUTION TO A CHIT FUND BY AN INDIVIDUAL SUBSCRIBER IS GOVERNED BY THE PRINCIPAL OF MUTUALITY AND HENCE IT IS NEITHER AN INVESTMENT NOR A DEPOSIT. 35. EVEN OTHERWISE, IN THE CASE OF THE ASSESSEE, TH E UNDISPUTED FACT IS THAT ASSESSEE REQUIRES MONEY FOR ITS EXPANSION. THIS FA CT IS NOT DISPUTED BY THE LD. CIT(DR). IT IS ALSO CLEAR THAT THE ASSESSEE SOCIET IES HAVE TAKEN HUGE LOANS FROM VARIOUS BANKS, FOR UNDERTAKING EXPANSION AND T O CREATE INFRASTRUCTURE. THESE LOANS WERE TAKEN BY THE SOCIETIES AS THEY DID NOT HAVE SURPLUS FUNDS TO UNDERTAKE EXPANSION AND CREATE INFRASTRUCTURE. ON THE BASIS OF THESE FACTS, WE COME TO THE CONCLUSION THAT THE CONTRIBUTION MADE B Y THE ASSESSEES TO A CHIT, IS NOT A POSITIVE ACT TO LAY OUT MONEY FOR BUSINESS, W ITH A VIEW TO OBTAIN AN INCOME OR PROFIT. IT IS NOT AN INVESTMENT, AS THE AMOUNT LAID OUT IS NOT A POSITIVE ACT ON THE PART OF THE ASSESSEES TO EARN A NY RETURNS, PROFIT OR INCOME. THE MONEY HAS NOT BEEN LAID OUT IN SUCH A MANNER AS TO ACQUIRE SOME SPECIES OF PROPERTY WHICH WOULD YIELD INCOME FOR THE ASSESS EE. 36. IN THIS CASE, CONTRIBUTION TO THE CHIT FUND WAS MADE TO ENABLE THE ASSESSEE SOCIETY TO RAISE FUNDS FOR EXPANSION. THI S IS CLEAR FROM FUNDS FLOW STATEMENT AND THE PROJECTED INVESTMENT REQUIRED BY THE ASSESSEE. WHEN THE ASSESSEE IS PAYING HUGE AMOUNT OF INTEREST TO VARIO US BANKS, IT IS WRONG TO CONCLUDE THAT ASSESSEE HAS WITH AN INTENTION TO EAR N PROFIT OR INCOME MADE A CONTRIBUTION TO THE CHIT FUND. 37. THE ALLEGATION OF REVENUE THAT THE ASSESSEE HAS NOT WITHDRAWN THE CHIT AMOUNT HAS BEEN ANSWERED BY THE ASSESSEE, BY POINTI NG OUT THAT, EVERY MONTH THE WINNER OF THE CHIT IS DETERMINED BY DRAW OF LOT S AND ASSESSEE SOCIETY WAS NOT LUCKY TO WIN THE DRAW ON EACH OF THE OCCASION. THE ALLEGATION THAT THE ASSESSEE HAS SURPLUS FUND, KEPT AS DEPOSITS, IS ALS O 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, F OR ALL THESE REASONS, WE UPHOLD THE CONTENTION OF THE ASSESSEE THAT THE CONT RIBUTION TO CHIT, IN THE CASES ON HAND, IS NOT AN INVESTMENT NOR A DEPOSIT AND HEN CE 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 1 1(5), THE WORDING IS FORMS ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 41 AND MODES OF INVESTING AND DEPOSITING THE MONEY REF ERRED 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 SOCIE TY, THERE CANNOT BE SAID TO BE ANY FUNDS REMAINING OUT OF THE FUNDS RECEIVED BY WAY OF INCOME. A PERSON CAN INVEST ONLY THE MONEY WHICH IS IN HIS HANDS. I F THE ENTIRE MONEY IN HAND IS ALREADY SPENT FOR A PARTICULAR PURPOSE THEN THE QUESTION OF SPENDING THE SAME AMOUNT FOR ANOTHER PURPOSE AS WELL DOES NOT AR ISE. THUS THE INTERPRETATION OF THE TERM ANY FUNDS BY THE HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS. SRI SRIRAM FOUNDATION 250 ITR 55, T HOUGH MADE IN THE CONTEXT OF SECTION 13(2)(H), IS ON ALL FOURS APPLIC ABLE, WHILE INTERPRETING SECTION 13(1)(D) OF THE ACT. EVEN THE CBDT CIRCUL AR NO.335 DT.13.4.1982 EXPLAINS THE SAME POSITION. THE EXAMPLE GIVEN THER EIN CLEARLY EXPLAINS THAT IN A CASE WHERE THE TRUST DERIVES INCOME OF RS.40,000 IN A YEAR, AS PER S.11(1)(A) IT HAS TO SPEND AT LEAST RS.30,000 ON CHARITABLE PU RPOSE AND THE BALANCE OF RS.10,000 WILL HAVE TO BE INVESTED IN THE FORMS OR MODES PRESCRIBED U/S 13(5)(NOW S.11(5)). THEREFORE, IN A CASE WHERE THE ENTIRE INCOME OF RS.40,000 IS SPENT FOR CHARITABLE PURPOSES EXEMPTIO N U/S 11(1)(A) HAS TO BE GRANTED AND THERE IS NO NEED TO FURTHER EXAMINE WHE THER ANY INVESTMENTS WERE MADE IN VIOLATION OF S.11(5) OF THE ACT IN AS MUCH AS THE TRUST IS LEFT WITH NO MORE FUNDS OUT OF THE INCOME OF RS.40,000 RECEIVED. IN THE CASE OF BOTH THE ASSESSEES, AS PER THE CHARTS SUBMITTED BY THE ASSES SEES IT IS EVIDENT THAT THEY HAVE INCURRED DEFICIT IN EVERY YEAR AND THUS ENTIRE INCOME OF EACH ASSESSMENT YEAR WAS FULLY SPENT TOWARDS THE CHARITABLE OBJECTS . 40. AS WE HAVE HELD THAT CONTRIBUTION TO CHIT FUND IN THIS CASE, IS NOT AN INVESTMENT, AND MUCH LESS AN INVESTMENT WITH SOMEON E ELSE, AND FURTHER THAT THE PROVISIONS OF S.11(1)(A) HAVE BEEN COMPLIED BY INVESTING THE ENTIRE INCOME OF THE YEAR TOWARDS CHARITABLE PURPOSES, WE CONCLUDE THAT THERE IS NO VIOLATION OF SECTION 13(1)(D) R.W.S. 11(5) OF THE A CT. 41. AS WE HAVE UPHELD THE CONTENTION OF THE ASSESSE E, IN THIS ASPECT, WE DO NOT EXPRESS ANY OPINION ON THE OTHER ARGUMENTS RAIS ED BY BOTH PARTIES, AS IT WOULD BE AN ACADEMIC EXERCISE. 42. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEES ARE ALLOWED. 40. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE HOLD THAT THE ASSESSEE HAS NOT VIOLATED SECTION 11(5) R.W.S. SECTION 13 OF THE ACT. HENCE, THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 11 OF THE ACT. THE AO IS DIRECTED ACCORDINGLY. ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 42 41. THE OTHER GROUNDS RAISED BY THE ASSESSEE NEED N OT BE ADJUDICATED AS THEY RELATE TO DISALLOWANCES U/S 40(A)(IA), 40(A)(2 ) AND 40(A)(3) OF THE ACT AND DISALLOWANCE OF EXPENSES. AS WE HAVE HELD THAT THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 11 OF THE ACT, THESE DISALLOWANCES HAVE NO IMPACT. 42. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.290/VIZAG/2012 IS ALLOWED. 43. ITA NO.270/VIZAG/2012 IS THE REVENUES APPEAL F OR THE ASSESSMENT YEAR 2007-08 WITH THE FOLLOWING GROUNDS: 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN PASSING THE ORDER. 2. THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RE-EXAMINE THE MATTER WITH REGARD TO DISALLOWANCES MADE U/S 40(A)( IA) OF THE ACT BY RESTORING THE MATTER BACK TO THE ASSESSING OFFICER, DESPITE SUCH POWER OF SETTING ASIDE/RESTORING BACK IS NOT VESTED WITH THE CIT(A). 3. THE CIT(A) ERRED IN DELETING THE ADDITION REPRESENT ING THE DISALLOWANCE 10% OF EXPENDITURE MADE BY THE ASSESSING OFFICER, W ITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO P RODUCE NECESSARY DOCUMENTARY EVIDENCES FOR CLAIMING SUCH EXPENDITURE S. 4. THE CIT(A) OUGHT TO HAVE CONDUCTED INDEPENDENT EXAM INATION OF THE ISSUES BEFORE RENDERING A DECISION. 5. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF H EARING. 44. SIMILAR TO THE VIEW TAKEN BY US WHILE DISPOSIN G OF THE REVENUE APPEAL NO.268/VIZAG/2012 FOR THE ASSESSMENT YEAR 2006-07 W E HOLD THAT THE LD. CIT(A) HAS NO POWER TO SET ASIDE CERTAIN ISSUES TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. HOWEVER, AS OBSERV ED BY US IN ITA NO.268/VIZAG/2012, THE MATTERS SET ASIDE TO THE ASS ESSING OFFICER BY THE LD CIT(A) DO NOT SURVIVE AS WE HAVE TAKEN THE VIEW THA T THE APPELLANT IS ENTITLED TO EXEMPTION U/S 11 OF THE ACT. THEREFORE, THIS GR OUND OF APPEAL OF THE REVENUE IS TREATED AS ALLOWED ONLY FOR STATISTICAL PURPOSES. AS REGARDS THE OTHER GROUNDS RAISED, WE ARE OF THE VIEW THAT THE S AME NEED NOT BE ITA NOS.265 TO 270 AND 289&290/VIZAG/2012 & CO NOS.24 TO 27/VIZAG/2012 SIDDHARTHA EDUCATIONAL SOCIETY, ELURU 43 ADJUDICATED AS WE HAVE HELD THAT THE ASSESSEE IS EN TITLED TO EXEMPTION U/S 11 OF THE ACT. 45. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.270/VIZAG/2012 IS ALLOWED IN PART FOR STATISTICA L PURPOSES. PRONOUNCED IN THE OPEN COURT ON 12 TH JANUARY15 SD/- SD/- (D. MANMOHAN) (J. SUDHAKAR REDDY) VICE PRESIDENT ACCOUNTANT MEMBER VG/SPS VISAKHAPATNAM, DATED 12 TH JANUARY, 2015 COPY TO 1 ITO WARD-2, ELURU 2 SIDDHARTHA EDUCATIONAL SOCIETY, D.NO.2-96, VIDYAK OKILA, VATLURU, ELURU- 534007. 3 THE CIT, VISAKHAPATNAM 4 THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM