ITO (OSD), CHENNAI V. Sethu Valliammal Educational Trust, CHENNAI

ITA 2250/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96318 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 08-09-2014
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Section: 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2250/MDS./2014 ( !' #' / ASSESSMENT YEAR :2010-11) INCOME TAX OFFICER (OSD), EXEMTIONS-III,AYAKAR BHAVAN, ANNEXE BUILDING, CHENNAI 600 024. VS. M/S.SETHU VALLIAMMAL EDUCAIONAL TRUST, NO.59,VALLIAMMAL STREET, RED HILLS MAIN ROAD, AMBATTUR, CHENNAI 600 053. PAN AAATS 0126 K ( / APPELLANT ) ( / RESPONDENT ) $% & ' / APPELLANT BY : DR.B.NISCHAL, JCIT,D.R ()$% & ' / RESPONDENT BY : MR.G.BASKAR,ADVOCATE * + & ,- / DATE OF HEARING : 21.08.2015 .# & ,- /DATE OF PRONOUNCEMENT : 11.11.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-VII, CHEN NAI DATED ITA NO.2250 /MDS/2014 2 16.05.2014 IN ITA NO.230/12-13 PASSED UNDER SEC.14 3(3) READ WITH SECTION SEC. 250 OF THE ACT. 2. THE REVENUE HAS RAISED SEVEN ELABORATE GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT:- I) THE LD. CIT (A) ERRED IN HOLDING THAT THE CHIT CONTRIBUTION TO M/S.TERN CREDITS AND CHITS P. LTD., TO THE EXTENT O F ` 2.87 LAKHS CANNOT BE TREATED AS AN INVESTMENT AND THE ASSESSEE CANNOT BE HELD TO HAVE VIOLATED THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A TRUST REGISTERED U/S.12AA OF THE ACT, FILED ITS RETURN OF INCOME ON 27.03.2012 ADMITTING TOTAL INCOME AS ` 11,26,05,227/- AND CLAIMED EXEMPTION U/S.11 OF THE ACT. SUBSEQUENTLY, THE CAS E WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT U/S.143(3) WAS COMP LETED ON 31.01.2013 WHEREIN THE LD. ASSESSING OFFICER DISALL OWED THE INVESTMENTS MADE IN CHIT FUNDS WITH M/S.TERN CREDIT S & CHITS (P) LTD., BY HOLDING IT TO BE IN VIOLATION OF SEC.13(1)(D) OF THE ACT AND ALSO FOR THAT REASON DENIED EXEMPTION U/S.11 OF THE ACT FOR THE A.Y.2010-11. ITA NO.2250 /MDS/2014 3 THEREAFTER THE LD. A.O BROUGHT THE EXCESS OF INCOME OVER EXPENDITURE OF THE ASSESSEE TO TAX BY TREATING THE ASSESSEE AS AOP. 4. ON APPEAL BY THE ASSESSEE, LD.CIT (A) DECIDED T HE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASES FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO.1135/MDS./2013 VIDE ORDER D ATED 29 TH OCTOBER, 2013. 5. BEFORE US, THE LD. D.R ARGUED IN SUPPORT OF THE ORDER OF THE LD. ASSESSING OFFICER. THE LD. A.R. ON THE OTHER HAND, RELIED ON THE DECISION OF THE LD. CIT(A) & THE DECISION OF TRIBUN AL IN ASSESSEES OWN CASE CITED SUPRA AND PRAYED THAT THE ORDER OF T HE LD. CIT(A) MAY BE UPHELD. 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. ON THE ISSUE THE LD . CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE TRIBUNAL IN THE ASSESS EES OWN CASE CITED SUPRA WHEREIN IT WAS HELD THAT SUBSCRIPTIONS TO THE CHIT FUNDS WERE NOT ITA NO.2250 /MDS/2014 4 IN THE NATURE OF INVESTMENTS BECAUSE THE ASSESSEE H AD UTILIZED THE CHIT AMOUNT FOR ITS DAY-TODAY ACTIVITIES AND THEREF ORE IT WAS IN THE NATURE OF WORKING CAPITAL FINANCE AND HENCE CANNOT BE TREATED AS INVESTMENT. THE GIST OF THE ORDER IS REPRODUCED HER EIN BELOW FOR REFERENCE:- 5. AS RIGHTLY POINTED OUT BY THE COMMISSIONER OF INCOME TAX (APPEALS), THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN ASSESSEE' S OWN CASE FOR ASSESSMENT YEAR 2008-09 IN I.T.A. NO. 1445/MDS/2012 DATED 10.1.2013 AND HELD THAT SUBSCRIPTIONS TO THE CHIT FUNDS WERE NOT IN THE NATURE OF INVESTMENTS AND THEREFORE, DENIAL OF EXEMPTION UNDE R SECTION 11 WAS NOT JUSTIFIED. THE CIT(APPEALS) HAS RIGHTFULLY FOLLOWE D THE SAID ORDER OF THE TRIBUNAL, WHICH IS BINDING ON HIM. THE DECISION OF HONBLE HIGH COURT OF ORISSA IN RABINDRANATH EDUCATIONAL TRUST V. UNION O F INDIA (191TAXMAN 379) RELIED ON BY THE REVENUE, WAS IN FACT CONSIDER ED BY THE TRIBUNAL IN ITS ORDER FOR ASSESSMENT YEAR 2008-09 AND HAS HELD THAT THE DECISION WAS NOT APPLICABLE TO THE ISSUE IN HAND. THE TRIBUNAL HAS RELIED ON THE JUDGMENT OF HONBLE KERALA HIGH COURT RENDERED IN T HE CASE OF CIT V. KOTTAYAM CO-OPERATIVE BANK LTD. (96 ITR 181), WHERE IN THE COURT HELD THAT THE DOMINANT MOTIVE WHICH PROMPTED PEOPLE TO J OIN CHIT FUND SCHEMES IS TO AVAIL THEMSELVES OF THE FACILITY OF BIDDING T HE KURIS WHEN THEY ARE IN URGENT NEED OF FINANCE. THE COURT HELD THAT CHIT A MOUNT RECEIVED ON PRIZING COULD ONLY BE TREATED AS A LOAN WITH THE FA CILITY OF REPAYING IT IN MONTHLY INSTALLMENTS. THE TRIBUNAL ALSO RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. NACHIMUTHU INDUSTRIAL ASSOCIATION (138 ITR 585), TO COME TO THIS CONCLUSION. ITA NO.2250 /MDS/2014 5 6. IT IS, THEREFORE, VERY CLEAR THAT SUBSCRIBING TO A CHIT FUND IS NOT AN INVESTMENT. AS IT IS NOT AN INVESTMENT, THE QUESTI ON OF APPLYING SECTION 13(1)(D) DOES NOT ARISE. THE CHIT FUND IS ONLY A M EANS OF RAISING FINANCE FOR THE ACTIVITY CARRIED ON BY AN ASSESSEE. THERE IS NO SUBSTANCE IN THE ARGUMENT THAT CHIT FUND SUBSCRIPTION IS AN INVESTME NT. 7. SUBSCRIPTION TO A CHIT FUND SCHEME IS A MODE OF RAISING FINANCE. IF AN ASSESSEE, AFTER RAISING FINANCE BY BIDDING THE CHIT FUND, INVESTED THE PRIZE AMOUNT IN A BANK DEPOSIT OR IN SIMILAR INSTITUTION OR IN SHARES, IT IS A CASE OF INVESTMENT. THERE ARE TWO SEGMENTS IN THIS CASE. THE ASSESSEE HAS RAISED FINANCE BY BIDDING THE CHIT FUND AND WINNING THE PRIZE. THIS IS THE FIRST SEGMENT. IN THE FIRST SEGMENT, ASSESSEE RAIS ES FINANCE. IF, THEREAFTER, THE SAID FINANCE IS UTILIZED IN THE ACTIVITIES CARR IED ON BY THE ASSESSEE, THERE IS NO QUESTION OF ANY INVESTMENT. IF, ON THE OTHER HAND, THE CHIT AMOUNT RECEIVED BY THE ASSESSEE IS INVESTED IN ANY PARTICULAR INSTITUTION, THEN IT BECOMES A CASE OF INVESTMENT. THEREFORE, T HE SECOND SEGMENT DOES NOT IPSO FACTO CONTRIBUTE TO ACQUISITION OF IN VESTMENT. IT DEPENDS UPON THE APPROPRIATION OF THE FUND MADE BY THE ASSE SSEE ACCORDING TO ITS BEST OF JUDGMENT. IF THE CHIT FINANCE IS USED FOR THE ACTIVITIES CARRIED ON BY IT, SUCH CHIT FINANCE TAKES THE CHARACTER OF WORKIN G CAPITAL AND IT CANNOT BE CALLED AN INVESTMENT. IF THE CHIT FUND SO RAISEN I S INVESTED ANYWHERE, THEN IT BECOMES A CASE OF INVESTMENT. SECTION 13(1)(D) WILL APPLY ONLY IN A LATER CASE. IN THE PRESENT CASE, THE ASSESSEE HAS UTILIZ ED THE CHIT AMOUNT FOR ITS DAY-TO-DAY ACTIVITIES. THEREFORE, IT IS IN THE NATURE OF WORKING CAPITAL FINANCE. IT CANNOT BE TREATED AS AN INVESTMENT. 8. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE F IND THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IS IN ACCORDAN CE WITH LAW. ITA NO.2250 /MDS/2014 6 IN THE PRESENT CASE BEFORE US, THE REVENUE HAS NOT BROUGHT OUT ANY MATERIALS TO ESTABLISH THAT THE FACTS OF THE CASE A RE NOT IDENTICAL TO THE CASE CITED HEREINABOVE. FURTHER FROM THE FACTS OF T HE CASE IT IS NOT DISPUTED THAT THE ASSESSEE HAD NOT BIDED IN THE CHI T AND OBTAINED FINANCE. HENCE CONTRIBUTION IN THE CHIT WILL NOT FA LL IN THE FIELD OF INVESTMENT TO EARN REVENUE BUT A MODE TO PROCURE FI NANCE. THEREFORE, FOLLOWING THE DECISION OF OUR PREDECESSORS, WE HERE BY HOLD THAT THE DENIAL OF EXEMPTION U/S.11 OF THE ACT TO THE ASSESS EE IS ERRONEOUS AND NOT JUSTIFIED AND WE DO NOT FIND IT NECESSARY T O INTERFERE WITH THE ORDER OF THE LD.CIT(A). 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ORDER PRONOUNCED ON 11 TH NOVEMBER, 2015 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH NOVEMBER, 2015. K S SUNDARAM. & (,/0 1 0#, /COPY TO: 1. $% /APPELLANT 2. ()$% /RESPONDENT 3. * 2, ( ) /CIT(A) 4. * 2, /CIT 5. 05 (,6! /DR 6. 7' 8+ /GF