M/s Sri Koundinya Educational Society, Visakhapatnam V. The Addl.CIT, Rajahmundry Range, Rajahmundry, Rajahmundry

ITA 162/VIZ/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3736 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAVI
• Assessee Lawyers: C SUBRAHMANYAMAR
• Keywords: Charitable institution; Question of law; Non-deduction of tax; Benefit of exemption
• Section: 43B; 12A; 12; 28; 11

Judgement Text

ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.162/VIZAG/2012 ( / ASSESSMENT YEAR: 2008-09) SRI KOUNDINYA EDUCATIONAL SOCIETY VISAKHAPATNAM VS. ADDL. CIT, RAJAHMUNDRY RANGE, RAJAHMUNDRY [PAN: AAAAK1442R ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM,AR / RESPONDENT BY : SHRI K. RAVI, DR / DATE OF HEARING : 24.05.2016 / DATE OF PRONOUNCEMENT : 17.06.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A), VISAKHAPATNAM DATED 25.1.2012 AND IT PERTAI NS TO THE ASSESSMENT YEAR 2008-09. ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A REGISTERED SOCIETY ENGAGED IN THE ACTIVITY OF IMPARTING EDUCAT ION. THE ASSESSEE SOCIETY IS REGISTERED U/S 12A OF THE INCOME TAX ACT , 1961 (HEREINAFTER CALLED AS 'THE ACT'). THE SOCIETY ALSO HAD APPROVA L U/S 10(23C)(VI) OF THE ACT VIDE ORDER DATED 12.3.2008. THE ASSESSEE HAS F ILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 28.11.200 8 DECLARING NIL TOTAL INCOME CLAIMING EXEMPTION U/S 10(23C) OF THE ACT. SUBSEQUENTLY, THE CHIEF COMMISSIONER OF INCOME TAX, VISAKHAPATNAM VIDE PROCEEDINGS DATED 10.12.2010 HAS WITHDRAWN THE APPROVAL GRANTED U/S 10(23C)(VI) OF THE ACT. THEREAFTER, THE CASE HAS BEEN SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS PUT UP ALTERNATE CLAIM OF EXEMPTION U/S 11 OF THE ACT, AS ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 10(23C) OF THE ACT. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE A.O. AFTER CONSIDERING THE PLEA OF THE ASSESSEE HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT, AS IT CANNOT CLAIM EXEMPTION U/S 11 OF THE ACT AS AN ALTE RNATE REMEDY WHEN EXEMPTION PROVIDED U/S 10(23C)(VI) OF THE ACT IS RE JECTED. THE A.O. FURTHER HELD THAT EXEMPTION GRANTED U/S 10(23C)(VI) OF THE ACT IS WITHDRAWN FOR THE REASON THAT THE ASSESSEE SOCIETY IS SOLELY EXISTED FOR PROFIT MOTIVE AND ALSO THE SOCIETY HAS DIVERTED ITS FUNDS TO OTHER SOCIETIES OR GROUP CONCERNS HAVING CONTROLLING INTE REST BY THE MANAGING ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 3 COMMITTEE OF THE SOCIETY. THE A.O. FURTHER HELD TH AT ASSESSEE DERIVED INCOME IN THE FORM OF RENT BY PROVIDING ITS HOSTEL TO PETROLEUM UNIVERSITY STUDENTS AND ALSO DERIVING RENTAL INCOME BY PROVIDI NG ITS TERRACE TO TELECOM OPERATORS FOR INSTALLATION OF TELECOM TOWER S. IT WAS FURTHER OBSERVED THAT THERE IS A CLEAR DEVIATION FROM THE O BJECTS OF THE SOCIETY, THEREFORE, THE INCOME DERIVED BY THE SOCIETY BY LET TING OUT ITS PREMISES ON RENTAL BASIS CANNOT BE CONSIDERED AS INCOME DERI VED BY CARRYING OUT THE ACTIVITY OF IMPARTING EDUCATION. THE A.O. FURTH ER OBSERVED THAT ESTABLISHING EDUCATIONAL INSTITUTION CAN BE REGARDE D AS AN ACTIVITY OF CHARITY, BUT SUCH ACTIVITY CANNOT BE HELD AS INCOME DERIVED FROM PROPERTY HELD UNDER TRUST FOR CLAIMING EXEMPTION U/ S 11 OF THE ACT. THE A.O. FURTHER OBSERVED THAT A BUSINESS ACTIVITY CARR IED ON WHICH IS NOT DONE WITH A VIEW TO FURTHERING THE OBJECTS OF THE S OCIETY LIKE THE ACTIVITY OF ENTERING INTO RENT AGREEMENTS WITH PETROLEUM UNI VERSITY AND TELECOM NETWORKS FOR DERIVING RENTAL INCOME IS NOT A CHARIT ABLE ACTIVITY. THOUGH THE ASSESSEE CONTENDED THAT THE INCOME DERIVED FROM SUCH RENTALS IS USED ONLY FOR FURTHERING OF SOCIETYS OBJECTIVES, T HE SAID EXPLANATION IS HELD TO BE NOT CONVINCING AS DERIVING OF SUCH RENTA L INCOME IS NOT IN LINE WITH THE MAIN OBJECTIVES OF THE SOCIETY. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 11 O F THE ACT IN VIEW OF THE VIOLATIONS OF SECTION 13(1)(D) OF THE ACT AS PO INTED OUT BY THE CHIEF ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 4 COMMISSIONER OF INCOME TAX, IN HIS ORDER OF WITHDRA WAL OF EXEMPTION U/S 10(23C) OF THE ACT. THE A.O. FURTHER OBSERVED THAT THE SOCIETY HAS ADVANCED LOANS TO SISTER CONCERNS LIKE MOTHER TERES A EDUCATIONAL SOCIETY AND SRI CHAITANYA EDUCATIONAL SOCIETY IN A SYSTEMAT IC MANNER, THOUGH INTEREST IS CHARGED ON THESE LOANS THE WAY IN WHICH THE SOCIETY HAS ARRANGED A CYCLIC FLOW OF FUNDS AMONG GROUP ORGANIZ ATIONS, WHEREIN THE AUTHOR OF THE ASSESSEE SOCIETY IS HAVING SUBSTANTIA L INTEREST PROVE THAT THE ASSESSEE HAS DIVERTED THE FUNDS TO PERSONS PROH IBITED U/S 13(1)(C) OF THE ACT. WITH THESE OBSERVATIONS, THE A.O. HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING EXEMPTION U/S 11 OF THE A CT AND HENCE DENIED THE EXEMPTION AND BROUGHT TO TAX EXCESS OF INCOME O VER EXPENDITURE OF ` 97,32,851/-. SIMILARLY, THE A.O. OBSERVED THAT TH E ASSESSEE SOCIETY IS HELD TO BE NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT, THE PROVISIONS OF CHAPTER IVD ARE APPLICABLE AND ACCORDINGLY, DISALLO WED THE EXPENDITURE INCURRED UNDER THE HEAD ADVERTISEMENT EXPENSES AND INTEREST ON LOANS FOR NON-DEDUCTION OF TAX AT SOURCE UNDER THE PROVIS IONS OF SEC. 40(A)(IA) THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE CONTENDED THAT THE A.O. WAS ERRED IN NOT CONSIDERING THE CLAI M OF EXEMPTION U/S 11 ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 5 OF THE ACT, THOUGH ASSESSEE HAS VALID REGISTRATION U/S 12A OF THE ACT. THE ASSESSEE FURTHER CONTENDED THAT AS LONG AS ANY PROVISION OF THE ACT IS IN EXISTENCE, IT IS CONTINUES TO BE IN FORCE. A PERSON IS ENTITLED TO CLAIM EXEMPTION OR DEDUCTION ALTERNATIVELY UNDER GE NERAL PROVISIONS ACCORDING TO THE CIRCUMSTANCES OF THE CASE. TO SUP PORT HIS ARGUMENTS RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT VS. BAR COUNCIL OF MAHARASHTRA (1981) 130 ITR 28 AND AL SO THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. SARASWAT POOR STUDENTS FUNDS (1984) 150 ITR 143 AND SUBMITTED THA T WHEN ASSESSEE IS REGISTERED UNDER THE PROVISIONS OF SECTION 10(23 C)(VI) AND SECTION 12A OF THE ACT, THE ASSESSEE CAN CLAIM BENEFIT OF EXEMP TION UNDER ANY OF THE PROVISIONS OF THE ACT. SIMILARLY, AS REGARDS THE DI SALLOWANCE OF EXPENDITURE U/S 40(A)(IA) OF THE ACT IS CONCERNED, THE ASSESSEE SUBMITTED THAT THE SOCIETY IS SOLELY EXISTED FOR ED UCATION PURPOSE AND HENCE, THE INCOME OF THE SOCIETY IS ELIGIBLE FOR EX EMPTION U/S 11 OF THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT ITS INCOM E IS ASSESSABLE AS PER CHAPTER III OF THE ACT AND ACCORDINGLY, THE INCOME OF THE SOCIETY SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURC ES, BUT NOT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. WHE N INCOME OF THE SOCIETY IS ASSESSED UNDER THE HEAD INCOME FROM OTH ER SOURCES, THE DISALLOWANCE PROVIDED UNDER CHAPTER IVD OF THE ACT, FOR NON-DEDUCTION ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 6 OF THE TDS PROVISIONS ARE NOT APPLICABLE, THEREFORE , THE A.O. WAS NOT CORRECT IN DISALLOWING THE EXPENDITURE FOR NON-COMP LIANCE OF TDS PROVISIONS OF THE ACT. 4. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS FU RNISHED BY THE ASSESSEE, HELD THAT IN VIEW OF THE OVERWHELMING JUD ICIAL OPINIONS, I AM UNABLE TO CONCUR WITH THE VIEWS OF THE A.O. THAT PR OVISIONS OF SECTION 10(23C) AND 11 OF THE ACT ARE MUTUALLY EXCLUSIVE AN D ONCE EXEMPTION IS DENIED U/S 10(23C) OF THE ACT, ASSESSEE AUTOMATICAL LY BECOMES INELIGIBLE TO CLAIM EXEMPTION U/S 11 OF THE ACT. THE CIT(A) F URTHER HELD THAT IN PRINCIPLE THE ASSESSEE CAN CLAIM EXEMPTION U/S 11 O F THE ACT AS AN ALTERNATE TO EXEMPTION U/S 10(23C) OF THE ACT. HOW EVER, FURTHER HELD THAT IN VIEW OF THE SPECIFIC VIOLATIONS POINTED OUT BY THE CHIEF COMMISSIONER OF INCOME TAX, VISAKHAPATNAM WHILE WIT HDRAWING THE EXEMPTION GRANTED U/S 10(23C) OF THE ACT, THE ASSES SEE IS NOT ELIGIBLE TO CLAIM EXEMPTION U/S 11 OF THE ACT. THE CIT(A) FURT HER HELD THAT THE ASSESSEE SOCIETY HAS DIVERTED ITS FUNDS TO CONFER B ENEFIT ON THE RELATED PERSONS/INTERESTED PERSONS. THE SOCIETY HAS GIVEN L OANS AND ADVANCE TO ANOTHER SOCIETY IN WHICH THE FOUNDER MEMBERS OF THE ASSESSEE SOCIETY ARE HAVING SUBSTANTIAL INTEREST. THE CIT(A) FURTHE R OBSERVED THAT THE SOCIETY BY ADVANCING LOANS TO ITS SISTER CONCERNS H AS VIOLATED THE ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 7 PROVISIONS OF SECTION 11(5) OF THE ACT. IN ADDITIO N TO SUCH VIOLATIONS, IT WAS FURTHER OBSERVED THAT THE SOCIETY IS MAINTAININ G LUXURY CARS LIKE BMW AND VOLKS WAGON, WHEN THE LOG BOOKS OF THESE VEH ICLES WERE ASKED TO BE FURNISHED, WITH AN INTENTION TO VERIFY THE UTILIZATION OF THESE VEHICLES FOR THE ACTIVITIES OF SOCIETY, THE ASSESSE E ADMITTED THAT NO LOG BOOKS ARE MAINTAINED. THUS, THE SOCIETY WAS NOT ABL E TO SHOW THE PURPOSE OF MAINTAINING AND SPENDING ON THESE LUXURY VEHICLES. 5. THE CIT(A) FURTHER OBSERVED THAT IN ADDITION TO THE ABOVE, THE ASSESSEE SOCIETY IS LETTING OUT ITS PROPERTY TO THE TELECOM COMPANIES AND IS MAINTAINING HOSTELS ON COMMERCIAL LINES FOR THE PURPOSE OF ACCOMMODATING OTHER COLLEGE STUDENTS WHICH SHOWS TH AT THE SOCIETY PROPERTIES ARE BEING USED ON COMMERCIAL LINES. THE SE ACTIVITIES CLEARLY SHOWS THAT THE ASSESSEE SOCIETY IS RUNNING TOTALLY ON COMMERCIAL LINES AND ITS CLAIM THAT ITS ACTIVITIES ARE OF CHARITABLE NATURE IS WITHOUT ANY MERITS. WITH THESE OBSERVATIONS UPHELD THE ACTION OF A.O. IN REJECTING THE EXEMPTION U/S 11 OF THE ACT. AS REGARDS THE DIS ALLOWANCE OF ADVERTISEMENT EXPENDITURE AND INTEREST PAID ON LOAN S UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE CIT (A) HELD THAT THE INCOME OF THE SOCIETY HAS TO BE COMPUTED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THE CIT(A) FURTHER HELD T HAT ONCE THE ASSESSEE ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 8 IS INELIGIBLE FOR CLAIMING EXEMPTION U/S 11 OF THE ACT, THEN AUTOMATICALLY ITS ACTIVITIES ARE COMING UNDER THE NORMAL BUSINESS PROVISIONS. THEREFORE, THE A.O. WAS RIGHT IN DISALLOWING THE EX PENDITURE U/S 40(A)(IA) OF THE ACT FOR NON-COMPLIANCE OF TDS PROV ISIONS. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) WAS ERRED IN HOLDING THAT THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING EXEMPTION U/S 11 OF THE ACT. THE A.R. FURTHER SUBMITTED THAT THE AMOUNT ADVANCED TO SISTER CONCERNS ARE NOT IN VIOLATION OF THE PROV ISIONS OF SECTION 13(1)(D) OF THE ACT, AS THE ASSESSEE SOCIETY HAS CH ARGED INTEREST ON ABOVE LOANS GIVEN TO TRUST OR SOCIETIES EXCEPT GSL SOCIETY, THEREFORE, THE LOANS GIVEN AS ABOVE ARE NORMAL BUSINESS ADVANCES A ND NOT IN VIOLATION OF SECTION 13(1)(D) OF THE ACT. THE A.R. FURTHER S UBMITTED THAT THE ASSESSEE HAS GIVEN TEMPORARY ADVANCES TO OTHER GROU P SOCIETIES HAVING SIMILAR OBJECTS AND ALSO HAVING REGISTRATION U/S 12 A OF THE ACT. THEREFORE, AS LONG AS THE OBJECTS OF THE OTHER SOCI ETIES ARE CHARITABLE IN NATURE, ADVANCING INTEREST FREE TEMPORARY LOANS BY ASSESSEE SOCIETY TO ANOTHER SOCIETY IS NOT VIOLATION OF SECTION 13(1)(D ) R.W.S. 11(5) OF THE ACT. THE SAID LOANS ARE NEITHER INVESTMENT NOR DEP OSIT TO COME TO THE CONCLUSION THAT THE ASSESSEE HAS VIOLATED THE PROVI SIONS OF SECTION 11(5) ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 9 OF THE ACT. TO THIS EFFECT, RELIED UPON THE DECISI ON OF HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPT ION) VS. ACME EDUCATIONAL SOCIETY REPORTED IN (2010) 326 ITR 146 AND SUBMITTED THAT ADVANCING INTEREST FREE TEMPORARY LOANS BY ASSESSEE SOCIETY TO ANOTHER SOCIETY HAVING SIMILAR OBJECTS IS NOT AN INVESTMENT OR A DEPOSIT AND HENCE THERE IS NO VIOLATION OF PROVISIONS OF SECTIO N 13(1)(D) OF THE ACT. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS AD VANCED LOANS TO SISTER CONCERNS OUT OF THE UNSECURED LOANS BORROWED FROM THE FOUNDER MEMBERS OF THE SOCIETY, THEREFORE, THE A.O. WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE ASSESSEE SOCIETY HAS DIVERT ED ITS FUNDS TO THE SISTER CONCERNS IN VIOLATION OF THE PROVISIONS OF S ECTION 13(1)(D) OF THE ACT. 7. THE A.R. FURTHER SUBMITTED THAT AS REGARDS THE O BSERVATIONS OF THE CHIEF COMMISSIONER OF INCOME TAX, VISAKHAPATNAM WHI LE WITHDRAWING THE EXEMPTION GRANTED U/S 10(23C) OF THE ACT, THE C HIEF COMMISSIONER HAS MADE A GENERAL OBSERVATION WITH REGARD TO THE V IOLATIONS REFERRED TO IN SECTION 13(1)(C) OF THE ACT WITHOUT ANY SPECIFIC VIOLATIONS FOR THE YEAR UNDER CONSIDERATION. THE A.O. CANNOT DENY EXEMPTION U/S 13(1)(C) OF THE ACT, WITHOUT POINTING OUT ANY SPECIFIC VIOLATIO NS REFERRED TO IN SECTION 11 OF THE ACT FOR THE RELEVANT YEAR UNDER CONSIDERA TION. THE A.O. CANNOT ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 10 BORROW THE VIOLATIONS HAPPENED IN THE PAST TO DENY THE BENEFIT OF EXEMPTION FOR THE CURRENT YEAR UNDER CONSIDERATION. THE A.R. FURTHER ARGUED THAT THE A.O. WAS NOT CORRECT IN HOLDING THA T THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT, DIVERTING THE FUNDS TO ITS SISTER CONCERNS, AS THE ASSESSEE HAS UTILIZE D 85% OF GROSS RECEIPTS FROM THE PROPERTY HELD UNDER TRUST AND THE LOAN IS GIVEN OUT OF 15% SURPLUS WHICH CAN BE UTILIZED IN ACCORDANCE WITH TH E OBJECTS. EVEN ASSUMING FOR A MOMENT THAT THE ASSESSEE HAS GIVEN L OANS TO SISTER CONCERNS, THE LOANS HAVE BEEN GIVEN OUT OF THE 15% SURPLUS AVAILABLE WITH THE ASSESSEE, THEREFORE, THE A.O. WAS TOTALLY INCORRECT IN HOLDING THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SE CTION 13(1)(D) OF THE ACT. AS REGARDS THE CIT OBSERVATIONS WITH REGARD T O THE ADVANCE GIVEN TO SHRI P.V. KRISHNAM RAJU AND P. JANARDHAN RAJU, T HE SOCIETY HAS GIVEN ADVANCES TO THESE INDIVIDUALS FOR THE PURPOSE OF LA ND, THAT TOO IN THE EARLIER PERIOD. THEREFORE, THE A.O. WAS INCORRECT IN HOLDING THAT THE ASSESSEE HAS DIVERTED THE FUNDS TO THE PERSONS SPEC IFIED U/S 13(1)(D) OF THE ACT. THE A.R. FURTHER ARGUED THAT THE CIT(A) O BSERVED THAT THE ASSESSEE SOCIETY IS MAINTAINING TWO VEHICLES FOR WH ICH LOG BOOKS WERE NOT MAINTAINED, THEREFORE, THE ASSESSEE IS NOT ELIG IBLE FOR CLAIMING EXEMPTION U/S 11 OF THE ACT. THE SOCIETY IS MAINTA INING VEHICLES FOR THE PURPOSE OF ACTIVITIES OF THE SOCIETY TO PROVIDE THE SE VEHICLES WHEN ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 11 OFFICIALS/DIGNITARIES VISIT THE COLLEGES AND FOR SU CH OTHER ACTIVITIES OF THE SOCIETY. WHEN THE VEHICLES ARE EXCLUSIVELY USED FO R SOCIETYS ACTIVITIES, THE A.O. WAS NOT CORRECT IN HOLDING THAT MEMBERS OF THE SOCIETY HAS BENEFITTED FROM THE FUNDS OF THE SOCIETY WITHOUT RE FERRING TO ANY OF THE FACT THAT THE PERSON SPECIFIED U/S 13(1)(C) OF THE ACT ARE USING THE VEHICLES FOR THEIR PERSONAL PURPOSES. 8. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER OF THE CIT(A). THE D.R. FURTHER SUBMITTED THAT THE CH IEF COMMISSIONER OF INCOME TAX, VISAKHAPATNAM HAS OBSERVED THAT THE ASS ESSEE SOCIETY HAS VIOLATED THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT BY ADVANCING INTEREST FREE LOANS TO OTHER GROUP SOCIETIES. THE D .R. FURTHER ARGUED THAT THE ACTIVITIES OF THE SOCIETY ARE NOT GENUINE. THE ASSESSEE SOCIETY OWNS LUXURY VEHICLES LIKE BMW AND VOLKS WAGON, HOWEVER FAI LED TO PROVE THE SATISFACTION OF THE A.O. THAT THE USE OF SUCH VEHIC LES FOR THE ACTIVITY OF THE SOCIETY. THE D.R. FURTHER SUBMITTED THAT THE AS SESSEE IS LETTING OUT ITS PROPERTY TO THE TELECOM COMPANIES AND ALSO MAIN TAINING HOSTELS ON COMMERCIAL LINES FOR THE PURPOSE OF ACCOMMODATING O THER COLLEGE STUDENTS WHICH SHOWS THAT THE SOCIETY PROPERTIES AR E BEING USED ON COMMERCIAL LINES. WHEN THE SOCIETY IS RUNNING WITH A PROFIT MOTIVE, THE ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 12 A.O. HAS RIGHTLY DENIED THE BENEFIT OF EXEMPTION U/ S 11 OF THE ACT AND HIS ORDER SHOULD BE UPHELD. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT AND ALSO REGIS TERED UNDER THE PROVISIONS OF SECTION 12A AND 10(23C)(VI) OF THE AC T. THE CHIEF COMMISSIONER OF INCOME TAX, VISAKHAPATNAM HAS CANCE LLED THE REGISTRATION GRANTED U/S 10(23C) OF THE ACT, WITH T HE OBSERVATION THAT THE SOCIETY IS EXISTED FOR PROFIT MOTIVE. THE CIT FURTHER OBSERVED THAT THE SOCIETY HAS DIVERTED ITS FUNDS TO OTHER SISTER CONCERNS, WHEREIN THE FOUNDER MEMBERS OF THE SOCIETY ARE HAVING SUBSTANTI AL INTEREST. FROM THE FINDINGS OF THE CHIEF COMMISSIONER OF INCOME TA X, VISAKHAPATNAM, THE A.O. WAS OF THE OPINION THAT THE ASSESSEE IS EX ISTED FOR PROFIT MOTIVE AND ALSO THE ACTIVITIES OF THE ASSESSEE ARE NOT GEN UINE. THE A.O. FURTHER WAS OF THE OPINION THAT THE ACTIVITIES CARRIED OUT BY THE ASSESSEE ARE NOT IN ACCORDANCE WITH MAIN OBJECTS OF THE SOCIETY. TH E SOCIETY IS EXISTED FOR IMPARTING EDUCATION, HOWEVER INVOLVED IN THE AC TIVITIES OF LETTING OUT ITS PROPERTIES AND ALSO RUNNING HOSTELS ON COMMERCI AL LINES. THEREFORE, WAS OF THE OPINION THAT THE SOCIETY IS NOT ELIGIBLE FOR EXEMPTION U/S 11 OF ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 13 THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS ADVANCED LOANS TO OTHER SOCIETIES HAVING SIMILAR OBJECTS AND CHARG ED INTEREST ON SUCH LOANS. THE ASSESSEE FURTHER CONTENDED THAT ADVANCIN G LOANS TO OTHER SOCIETIES HAVING SIMILAR OBJECTS AND ALSO REGISTERE D UNDER THE PROVISIONS OF SECTION 12A OF THE ACT IS NOT A VIOLATION AS REF ERRED UNDER THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT. 10. THE A.O. DENIED THE BENEFIT OF EXEMPTION FOR TH E SOLE REASON THAT THE ASSESSEE SOCIETY HAS DIVERTED ITS FUNDS TO OTHE R SOCIETIES AND VIOLATED THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT. ACCORDING TO THE A.O., ADVANCEMENT OF LOANS TO OTHER SOCIETIES WHETH ER OR NOT REGISTERED UNDER THE PROVISIONS OF SECTION 12A OF THE ACT IS A VIOLATION OF SECTION 13(1)(D) OF THE ACT, CONSEQUENTLY THE SOCIETY IS NO T ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. THE QUESTION BEFORE U S IS WHETHER LOANS ADVANCED TO OTHER SOCIETIES UNDER THE SAME MANAGEME NT HAVING SIMILAR OBJECTS AND ALSO REGISTERED UNDER THE PROVISIONS OF SECTION 12A OF THE ACT IS A VIOLATIVE OF SECTION 13(1)(D) OF THE ACT, WHICH RENDER THE ASSESSEE INELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT . THE HONBLE DELHI HIGH COURT, IN THE CASE OF DIRECTOR OF INCOME TAX ( EXEMPTION) VS. ACME EDUCATIONAL SOCIETY (SUPRA), HELD THAT ADVANCING IN TEREST FREE TEMPORARY LOAN BY ASSESSEE SOCIETY TO ANOTHER SOCIETY HAVING SIMILAR OBJECTS IS NOT ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 14 AN INVESTMENT OR A DEPOSIT, HENCE THERE IS NO VIOLA TION OF THE PROVISIONS OF SECTION 13(1)(D) R.W.S. 11(5) OF THE ACT TO REND ER WITHDRAWAL OF EXEMPTION U/S 11 OF THE ACT. IN THE PRESENT CASE O N HAND, ON PERUSAL OF THE DOCUMENTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS ADVANCED LOANS TO OTHER SOCIETIES UNDER THE SAME MA NAGEMENT HAVING SIMILAR OBJECTS AND ALSO REGISTERED UNDER THE PROVI SIONS OF SECTION 12A OF THE ACT AND CHARGED INTEREST. THE ASSESSEE ALSO PR OVED THAT IT HAS ADVANCED LOANS OUT OF THE FUNDS BORROWED FROM FOUND ER MEMBERS OF THE SOCIETY. WHEN THE LOANS ARE GIVEN OUT OF THE FUNDS BORROWED FROM THE SOCIETY, THE A.O. WAS NOT CORRECT IN HOLDING THAT T HE ASSESSEE HAS DIVERTED THE FUNDS IN VIOLATION OF THE PROVISIONS O F SECTION 13(1)(D) OF THE ACT. THEREFORE, WE ARE OF THE VIEW THAT ADVANC ING LOANS TO OTHER SOCIETIES HAVING SIMILAR OBJECT WHETHER OR NOT REGI STERED U/S 12A OF THE ACT, IS NOT A VIOLATION OF THE PROVISION OF SECTION 13(1)(D) OF THE ACT. 11. COMING TO THE OTHER OBSERVATIONS OF THE ASSESSI NG OFFICER. THE A.O. OBSERVED THAT THE SOCIETYS ACTIVITIES ARE NOT IN ACCORDANCE WITH THE OBJECTS OF THE SOCIETY. THE SOCIETY IS EXISTED FOR THE PURPOSE OF IMPARTING EDUCATION, HOWEVER, INVOLVED IN THE ACTIVITY OF LET OUT OF PROPERTIES ON COMMERCIAL LINES TO TELECOM COMPANIES AND ALSO RUNN ING HOSTELS ON COMMERCIAL LINES. THE A.O. FURTHER OBSERVED THAT T HE ASSESSEE SOCIETY IS ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 15 MAINTAINING LUXURY CARS LIKE BMW AND VOLKS WAGON, HO WEVER FAILED TO PROVE THE PURPOSE OF MAINTAINING LUXURY CARS FOR TH E OBJECTS OF THE SOCIETY. WE DO NOT SEE ANY MERITS IN THE FINDINGS O F THE A.O. FOR THE REASON THAT THE A.O. HAS BORROWED THE FINDINGS OF T HE CHIEF COMMISSIONER OF INCOME TAX, VISAKHAPATNAM WHILE WIT HDRAWING THE EXEMPTION GRANTED U/S 10(23C)(VI) OF THE ACT. WE F URTHER OBSERVED THAT THE A.O. HAS NOT MADE OUT ANY SPECIFIC OBSERVATIONS WITH REGARD TO THE GENUINENESS OF THE ACTIVITIES OF THE SOCIETY FOR TH E PERIOD UNDER CONSIDERATION. THE ASSESSMENT OF ANY TRUST/SOCIETY CLAIMING EXEMPTION UNDER SEC. 11 IS TO BE EXAMINED IN EACH YEAR, SO AS TO COME TO THE CONCLUSION THAT THE ENTITY HAS COMMITTED ANY VIOLAT IONS REFERRED TO IN ANY OF THE PROVISIONS OF SEC. 13 OF THE ACT TO DENY THE EXEMPTION. THEREFORE, WE ARE OF THE OPINION THAT WITHOUT POINT ING OUT ANY SPECIFIC VIOLATIONS REFERRED TO IN SECTION 13 OF THE ACT, TH E A.O. WAS NOT CORRECT IN HOLDING THAT THE ASSESSEE OBJECTS ARE NOT CHARITABL E IN NATURE AND THE ACTIVITY CARRIED OUT BY THE ASSESSEE ARE NOT IN ACC ORDANCE WITH MAIN OBJECTS OF THE SOCIETY. IN OUR CONSIDERED OPINION, THE A.O. CANNOT BORROW THE FINDINGS OF THE CHIEF COMMISSIONER OF IN COME TAX IN THE ORDER CANCELLING THE REGISTRATION U/S 10(23C) OF TH E ACT TO DENY THE BENEFIT OF EXEMPTION U/S 11 OF THE ACT, UNLESS HE H AD SPECIFICALLY POINTS OUT THE ACTIVITIES CARRIED OUT BY THE ASSESSEE ARE NOT IN ACCORDANCE WITH ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 16 THE OBJECTS OF THE TRUST. AS FAR AS THE OBSERVATIO N OF A.O. WITH REGARD TO LETTING OUT OF PROPERTIES ON COMMERCIAL LINES IS CO NCERNED, WE NOTICED THAT THE ASSESSEE HAS LET OUT ITS PLACE TO TELECOM COMPANIES FOR ERECTION OF TELECOM TOWER AND USED THE PROCEEDS FOR THE OBJE CTS OF THE SOCIETY. SIMILARLY, THE ASSESSEE SOCIETY HAS MAINTAINING A H OSTEL FOR THE BENEFIT OF THE STUDENTS. MAINTAINING HOSTELS FOR THE BENEFIT O F THE STUDENTS AND LETTING OUT PROPERTIES CANNOT BE CONSIDERED HAS ING ENUINE ACTIVITY TO DENY THE BENEFIT OF EXEMPTION U/S 11 OF THE ACT. I N THE PRESENT CASE ON HAND, ON PERUSAL OF THE FACTS, WE NOTICED THAT THE A.O. WITHOUT POINTING OUT ANY SPECIFIC VIOLATIONS REFERRED TO IN SECTION 13(1)(C) OR 13(1)(D) OF THE ACT, SIMPLY REJECTED BENEFIT OF EXEMPTION. 12. IT IS PERTINENT TO DISCUSS HERE THE CASE LAWS R ELIED UPON BY THE ASSESSEE. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE HIGH COURT OF DELHI, IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMP TION) VS. ACME EDUCATION SOCIETY (2010) 326 ITR 146. THE HONBLE DELHI HIGH COURT, UNDER SIMILAR CIRCUMSTANCES HELD THAT ADVANCING INT EREST FREE TEMPORARY LOAN BY ASSESSEE SOCIETY TO ANOTHER SOCIETY HAVING SIMILAR OBJECTS IS NOT AN INVESTMENT OR A DEPOSIT, HENCE THERE WAS NO VIOL ATION OF PROVISIONS OF SECTION 13(1)(D) OF THE ACT. THE RELEVANT PORTION O F THE ORDER IS REPRODUCED HEREUNDER: ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 17 ADVANCING OF INTEREST-FREE TEMPORARY LOAN BY ASSES SEE SOCIETY TO ANOTHER SOCIETY HAVING SIMILAR OBJECTS IS NOT AN INVESTMEN T OR A DEPOSIT, HENCE THERE WAS NO VIOLATION OF PROVISION S. 13(1)(D) R.W .S. 11(5) TO RENDER WITHDRAWAL OF EXEMPTION UNDER S.11. 13. THE ASSESSEE RELIED UPON THE DECISION OF HIGH C OURT OF DELHI, IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTION) VS. ALARIPPU (2000) 244 ITR 358. THE HONBLE DELHI HIGH COURT, UNDER SIMIL AR CIRCUMSTANCES HELD THAT ADVANCING TEMPORARY LOAN TO ANOTHER SIMIL AR SOCIETY WAS NEITHER AN INVESTMENT NOR DEPOSIT. THE RELEVANT PO RTION OF THE ORDER IS REPRODUCED HEREUNDER: THE EXPRESSIONS USED IN BOTH THE PROVISIONS I.E. SS . 11(5) AND 13(1)(D) ARE 'INVESTMENT' AND DEPOSIT. FORMER E XPRESSION MEANS TO LAY OUT MONEY IN BUSINESS WITH A VIEW TO OBTAIN INCOME ON PROFIT. DEPOSIT, ON THE OTHER HAND, MEANS THAT WHICH IS PLA CED ANYWHERE, AS IN ANY ONE'S HANDS FOR SAFE-KEEPING, SOMETHING E NTRUSTED TO THE CARE OF ANOTHER. THESE TWO EXPRESSIONS HAVE BEEN US ED IN COGNATE SENSE AND HAVE TO BE UNDERSTOOD AS SUCH. IN ORDER T O CONSTITUTE AN INVESTMENT THE AMOUNT LAID DOWN SHOULD BE CAPABLE O F AND RESULT IN ANY INCOME, RETURN OR PROFIT TO THE INVESTOR AND IN EVERY CASE OF INVESTMENT THE INTENTION AND POSITIVE ACT ON THE PA RT OF THE INVESTOR SHOULD BE TO EARN SUCH INCOME, RETURNS, PROFIT. IN ORDER TO CONSTITUTE AN INVESTMENT THE MONIES SHALL BE LAID OUT IN SUCH A MANNER AS TO ACQUIRE SOME SPECIES OF PROPERTY WHICH WOULD BRING IN AN INCOME TO THE INVESTOR. LOAN, ON THE OTHER HAND, IS GRANTING TEMPORARY USE OF MONEY, OR TEMPORARY ACCOMMODATION. THE WORDS 'INVES TMENT' 'DEPOSIT' AND 'LOAN' ARE CERTAINLY DIFFERENT. THE W ORD 'DEPOSIT' DOES NOT COVER TRANSACTION OF LOAN WHICH CAN BE MORE APP ROPRIATELY DESCRIBED AS DIRECT BAILMENT. THE ESSENCE OF DEPOSI T IS THAT THERE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WH OM OR ON WHOSE BEHALF HAS BEEN MADE ON FULFILMENT OF CERTAIN CONDI TIONS. IN THE COMMERCIAL SENSE THE TERM IS USED TO INDICATE THE A FORESAID TRANSACTION AS DEPOSIT OF MONEY FOR EMPLOYMENT IN B USINESS, DEPOSITS FOR VALUE TO INITIATE SECURITY FOR, DEPOSI T 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 A SUM AT INTEREST AT A FIXED DEPOSIT IN A BANK. AMO UNT GIVEN TO M WAS NEITHER FOR THE PURPOSE OF INVESTMENT NOR FOR DEPOS IT MORE PARTICULARLY IN THE FACTUAL BACKGROUND. THE TRANSACTION WITH WHI CH THE PRESENT ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 18 DISPUTE IS LINKED CANNOT BE TREATED AS INVESTMENT O R DEPOSIT AS HAS BEEN FACTUALLY FOUND BY THE TRIBUNAL. THE CONCLUSIO N BEING ESSENTIALLY FACTUAL, NO QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL. 14. THE ASSESSEE RELIED UPON THE DECISION OF HONBL E HIGH COURT OF ALLAHABAD, IN THE CASE OF CIT VS. M/S. KANPUR SUBHA SH SHIKSHA SAMITI IN (2013) TAX PUB (DT) 2655 (ALL HC). THE HONBLE HIGH COURT, WHILE DECIDING THE ISSUE HELD THAT WHEN LOAN GIVEN FROM O UT OF 15% OF INCOME, SECTION 13(1)(D) OF THE ACT CANNOT BE APPLI ED. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: IN THE PRESENT CASE WE FIND THAT EXCESS OF INCOME O VER EXPENDITURE IN THE RELEVANT YEAR WAS LESS THAN 15% OF THE GROSS RECEIPTS. THE LOAN WAS NOT GIVEN IN THE PERIOD RELEVANT TO AS SESSMENT YEAR. IT WAS GIVEN BETWEEN 20 TH FEB. TO 24 TH FEB. 2003 AND WAS REPAID IN THE YEAR 2009 AND FURTHER THE AMOUNT WAS GIVEN BY WAY OF LOA N TO A SOCIETY, WHICH WAS LATER ON REGISTERED UNDER SECTION 12A W.E.F. 1. 4.2004 TO 25.5.2005, WITH THE SAME OBJECTS AND PURPOSE AS THAT OF THE AS SESSEE. 15. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO FOLLOWING THE JUDICIAL PRECEDENTS, WE ARE OF THE OP INION THAT THE A.O. WAS ERRED IN DENYING EXEMPTION U/S 11 OF THE ACT. T HE CIT(A) WITHOUT APPRECIATING THE FACTS HAS CONFIRMED THE ORDER PASS ED BY THE A.O. THEREFORE, WE SET ASIDE THE ORDER PASSED BY THE CIT (A) AND DIRECT THE A.O. TO ALLOW THE EXEMPTION U/S 11 OF THE ACT. ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 19 16. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF EXPENDITURE UNDER THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT. THE A.O. DISALLOWED ADVERTISEMENT EXPENDITURE AND INTER EST PAID ON LOANS UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE AC T, FOR THE REASON THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON SUCH PAYMENTS. THE A.O. FURTHER WAS OF THE OPINION THAT ONCE ASSESSEE LOOSES BENEFI T OF EXEMPTION U/S 11 OF THE ACT, THEN THE INCOME OF THE ASSESSEE SHOU LD BE COMPUTED UNDER THE NORMAL PROVISIONS OF BUSINESS OR PROFESSI ON, ACCORDINGLY, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPL ICABLE. IT IS THE CONTENTION OF THE ASSESSEE THAT THE INCOME OF THE S OCIETY HAS TO BE COMPUTED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) FOR NON-DEDUCTION OF T DS IS NOT APPLICABLE, WHEN INCOME IS COMPUTED UNDER THE HEAD INCOME FROM OTHER SOURCES. 17. THE A.O. COMPUTED INCOME UNDER NORMAL PROVISION S OF PROFITS & GAINS OF BUSINESS OR PROFESSION. THE A.O. GAVE HIS OWN REASONS FOR NOT APPLYING THE PROVISIONS OF SECTION 11 OF THE ACT. O N PERUSAL OF THE REASONS GIVEN BY THE A.O. FOR DENYING THE EXEMPTION , WE NOTICED THAT A.O. HAS DENIED THE BENEFIT OF EXEMPTION FOR THE RE ASON THAT THE ACTIVITIES OF THE ASSESSEE ARE NOT IN ACCORDANCE WI TH THE OBJECTS OF THE SOCIETY. THE A.O. FURTHER OBSERVED THAT THE SOCIETY HAS DIVERTED ITS FUNDS ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 20 TO OTHER SOCIETIES IN VIOLATION OF THE PROVISIONS O F SECTION 13(1)(D) OF THE ACT. BUT, IN THE PRECEDING PARAGRAPH, WE HOLD THAT THE ASSESSEE IS SOLELY EXISTED FOR CHARITABLE PURPOSE AND INCOME OF THE AS SESSEE IS ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. HAVING SAID THAT LET U S EXAMINE WHETHER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPLICABLE WHEN INCOME IS COMPUTED U/S 11, 12 & 13 OF THE ACT. CHAPTER II I DEALS WITH INCOME, WHICH DO NOT FORM PART OF TOTAL INCOME. SECTION 11 , 12 & 13 DEALS WITH INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIO US PURPOSES AND THE MODE OF COMPUTATION OF INCOME SUBJECT TO CERTAIN CO NDITIONS. ACCORDINGLY, INCOME OF ANY CHARITABLE TRUST OR SOCI ETY IS EXEMPT FROM TAX IF SUCH CONDITIONS ARE FULFILLED. SECTION 40(A)(IA ) OF THE ACT FALLS UNDER CHAPTER IVD WHICH DEALS WITH COMPUTATION OF PROFITS & GAINS FROM BUSINESS OR PROFESSION. THE PROFITS & GAINS FROM B USINESS OR PROFESSION IS COMPUTED U/S 28 OF THE ACT. SECTION 29 OF THE A CT PROVIDES FOR MANNER OF COMPUTATION OF INCOME UNDER THE HEAD PROF ITS & GAINS OF BUSINESS OR PROFESSION, WHICH STATES THAT THE INCOM E REFERRED TO IN SECTION 28 OF THE ACT SHALL BE COMPUTED IN ACCORDAN CE WITH PROVISIONS OF SECTION 28 TO 43D OF THE ACT. THEREFORE, THE PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT IS RELEVANT IF INCOME IS COMPU TED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. IN TH E PRESENT CASE ON HAND, WE HELD THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT BY ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 21 VIRTUE OF REGISTRATION U/S 12A OF THE ACT. THE INCO ME OF ANY SOCIETY ENJOYING BENEFIT OF EXEMPTION U/S 11 OF THE ACT IS EXEMPT FROM TAX SUBJECT TO CERTAIN CONDITIONS. IF SUCH CONDITIONS ARE FULFILLED, ANY INCOME OF SUCH SOCIETY IS EXEMPT FROM TAX. THE CONCEPT OF COMPUTATION OF INCOME U/S 11 OF THE ACT IS REAL INCOME CONCEPT WHI CH IS COMPUTED ON THE PRINCIPLES OF REAL INCOME GENERATED FROM PROPER TY HELD UNDER TRUST AND NOT NOTIONAL INCOME LIKE UNDER OTHER PROVISIONS OF THE ACT. SECTION 11(1)(A) OF THE ACT PROVIDES FOR APPLICATION OF INC OME FOR CHARITABLE PURPOSE. THE QUESTION OF APPLICATION OF INCOME ARI SES ONLY WHEN INCOME IS AVAILABLE FOR APPLICATION. IF ANY EXPENDITURE I S DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, IT LEADS TO A SITUATION WHERE ASSESSEE INCOME AVAILABLE FOR APPLICATION IS ENHANCED WITHOUT BEING ANY REAL INCOME FOR APPLICATION FOR CHARITABL E PURPOSE, WHICH LEADS TO AN ABSURD SITUATION WHERE THE TRUST/SOCIETY ENJO YING EXEMPTION U/S 11 OF THE ACT HAVE TO PAY TAXES. THEREFORE, WE ARE OF THE OPINION THAT WHEN INCOME IS COMPUTED U/S 11 OF THE ACT, THE PROV ISIONS OF SECTION 40(A)(IA) OF THE ACT IS NOT APPLICABLE. 18. THE ASSESSEE RELIED UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF MAHATMA GANDHI SEVA MANDIR VS. DY. DIT (EXEMPTION) (2012) 52 SOT 26. THE COORDINATE BENCH OF THIS TRI BUNAL, UNDER SIMILAR ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 22 CIRCUMSTANCES HELD THAT PROVISIONS OF SECTION 40(A) (IA) OF THE ACT ARE NOT APPLICABLE WHEN INCOME IS COMPUTED UNDER THE PROVIS IONS OF SECTION 11 OF THE ACT. THE RELEVANT PORTION OF THE ORDER IS R EPRODUCED HEREUNDER: SECTION 40 IS APPLICABLE ONLY WHEN DEDUCTIONS UNDE R SECTIONS 30 TO 38 ARE BEING MADE IN COMPUTING THE INCOME CHARGEABLE U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SECTION 28. THE EXCEPTION IN SECTION 40 IS CARVED OUT, ONLY FOR THE PURPOSE OF SECTION 28 AND NOT FOR COMPUTING THE EXEMPTION OF INCOME OF A CHARITABLE TRUST UNDER SECTION 11. THE DISALLOWANCE MADE UNDER SECT ION 40(A) WILL ONLY GO TO ENHANCE THE BUSINESS PROFIT OF AN ASSESSEE WH OSE INCOME IS ASSESSABLE UNDER SECTION 28 AND NOT OTHERWISE. HEN CE, PROVISIONS OF SECTION 40(A) ARE NOT APPLICABLE IN CASE OF CHARITA BLE TRUST OR INSTITUTION WHERE INCOME AND EXPENDITURE IS COMPUTED IN TERMS O F SECTION 11. 19. THE ASSESSEE RELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM BENCH IN THE CASE OF ITO VS. MOTHER TERESA EDUCATIO NAL SOCIETY (2016) 158 ITD 473. THE COORDINATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT WHEN THE INCOME IS COMPUTED UNDER THE PROVISIONS OF SECTION 11 OF THE ACT, DISALLOWANCE U /S 40(A)(IA) OF THE ACT IS NOT APPLICABLE. 8. HAVING SAID THAT LET US EXAMINE, WHETHER THE PR OVISIONS OF SEC. 40(A)(IA) AND 43B ARE APPLICABLE, WHEN INCOME IS CO MPUTED UNDER SEC. 11, 12 & 13 OF THE ACT. CHAPTER III DEALS WITH INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME. SCE. 11, 12 & 13 DEALS WITH I NCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES AND THE M ODE OF COMPUTATION OF INCOME SUBJECT TO CERTAIN CONDITIONS. ACCORDINGLY, INCOME OF ANY CHARITABLE TRUST OR SOCIETY IS EXEMPT FROM TAX, IF SUCH CONDITIONS ARE FULFILLED. SC. 40(A)(IA) AND SEC. 43B ARE FALLS UND ER CHAPTER IV D, WHICH DEALS WITH COMPUTATION OF PROFITS AND GAINS FROM BU SINESS OR PROFESSION. THE PROFITS AND GAINS FROM BUSINESS OR PROFESSION A RE COMPUTED UNDER SEC. 28. SECTION 29 PROVIDES FOR MANNER OF COMPUTAT ION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSIO N, WHICH STATES THAT THE ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 23 INCOME REFERRED TO IN SEC. 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SEC. 28 TO 43D. THEREFORE, THE PROVIS IONS OF SEC. 40(A)(IA) AND 43B ARE RELEVANT, IF INCOME IS COMPUTED UNDER T HE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN THE PRESENT CAS E ON HAND, THE INCOME OF THE ASSESSEE IS ELIGIBLE FOR EXEMPTION UNDER SEC . 11 OF THE ACT BY VIRTUE OF REGISTRATION UNDER SEC. 12A. THE INCOME OF ANY TRUST/SOCIETY, ENJOYING EXEMPTION U/S 11, IS EXEMPT FROM TAX, SUBJECT TO CE RTAIN CONDITIONS. IF, SUCH CONDITIONS ARE FULFILLED, THE WHOLE INCOME OF SUCH TRUST IS EXEMPT FROM TAX. THE CONCEPT OF COMPUTATION OF INCOME UND ER SECTION 11 IS REAL INCOME CONCEPT, WHICH IS COMPUTED ON THE PRINCIPLES OF REAL INCOME GENERATED FROM PROPERTY HELD UNDER TRUST AND NOT NO TIONAL INCOME LIKE UNDER OTHER PROVISIONS OF THE ACT. SECTION 11(1)(A ) PROVIDES FOR APPLICATION OF INCOME FOR CHARITABLE PURPOSE, THERE FORE, THE QUESTION OF APPLICATION OF INCOME ARISE ONLY WHEN INCOME IS AVA ILABLE FOR APPLICATION. IF ANY EXPENDITURE IS DISALLOWED BY INVOKING THE PRO VISIONS OF SECTION 40(A)(IA) AND 43B, IT LEADS TO A SITUATION WHERE AS SESSEE INCOME AVAILABLE FOR APPLICATION IS ENHANCED WITHOUT BEING ANY REAL INCOME FOR APPLICATION FOR CHARITABLE PURPOSE, WHICH LEADS TO AN ABSURD SI TUATION WHERE THE TRUSTS/SOCIETIES ENJOYING EXEMPTION U/S 11 HAVE TO PAY TAXES. THIS IS BECAUSE, THE ASSESSEE CLAIMING EXEMPTION U/S 11, SH ALL APPLY 85% OF INCOME FOR THE PURPOSE OF OBJECTS OF THE TRUST. TH E LEGISLATURE IN ITS WISDOM HAS KEPT SEPARATE PROVISIONS WHICH ARE INDEP ENDENT FROM ANY OTHER PROVISIONS OF THE ACT FOR COMPUTATION OF INCO ME OF TRUSTS CLAIMING EXEMPTION U/S 11 OF THE ACT. THEREFORE, WE ARE OF T HE OPINION THAT, WHEN INCOME IS COMPUTED UNDER SEC. 11 OF THE ACT, THE PR OVISIONS OF SEC. 40(A)(IA) & 43B ARE NOT APPLICABLE. HENCE, THE A.O. WAS NOT CORRECT IN DISALLOWING THE AMOUNTS BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) AND 43B FOR FAILURE TO DEDUCT TDS AND FAILURE TO REMIT THE UNPAID LIABILITIES. 20. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO APPLYING THE RATIOS OF COORDINATE BENCH OF THIS TRI BUNAL, WE ARE OF THE OPINION THAT DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS NOT APPLICABLE, WHEN INCOME IS COMPUTED UNDER THE PROVISIONS OF SECTION 11 OF THE ACT. THEREFORE, WE DIRECT THE A.O. TO DELETE THE ADDITIO NS MADE U/S 40(A)(IA) OF THE ACT. ITA NO.162/VIZAG/2012 SRI KOUNDINYA EDUCATIONAL SOCIETY, VISAKHAPATNAM 24 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17 TH JUN16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 17.06.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI KOUNDINYA EDUCATIONAL SOCIET Y, C/O C. SUBRAHMANYAM, CA, FLAT NO.102, LAKSHMI APARTMENT, F ACOR LAYOUT, WALTAIR UPLANDS, VISAKHAPATNAM 2. / THE RESPONDENT ADDL. CIT, RAJAHMUNDRY RANGE, R AJAHMUNDRY 3. + / THE CIT, VISAKHAPATNAM 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM