THE ITO, WARD - 2, Srikakulam V. M/s Sri Sivani Educational Society, Srikakulam

ITA 521/VIZ/2014

• Counselvise Citation: 52125314 RSA 2014
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 25-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR SR
• Keywords: Charitable institution; Question of law; Revenue expenditure
• Section: 12A; 32; 147; 148; 11; 15

Judgement Text

ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY , ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.521/VIZAG/2014 ASSESSMENT YEAR : 2008-09 ITO WARD - 2 SRIKAKULAM VS. M/S. SRI SIVANI EDUCATIONAL SOCIETY SRIKAKULAM (APPELLANT) (RESPONDENT) PAN NO.AATHS 6525M ASSESSEE BY: SHRI G.V.N. HARI, ADVOCATE REVENUE BY: SH. D. MANOJ KUMAR, SR. AR DATE OF HEARING : 05.03.2015 DATE OF PRONOUNCEMENT : 15.04.2015 ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER:- THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINST THE ORDER DATED 21.7.2014 PASSED BY LD. CIT(A), VISAKHAPATNAM FOR THE ASSESSMENT YEAR 2008-09. 2. AS CAN BE SEEN FROM THE GROUNDS RAISED, THE DEP ARTMENT IS BASICALLY AGGRIEVED WITH THE DECISION OF THE LD. CI T(A) IN ACCEPTING ASSESSEES CLAIM OF EXEMPTION U/S 11 OF THE INCOME- TAX ACT. 3. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A SOCIETY REGISTERED UNDER SOCIETIES REGISTRATION ACT AS WELL AS U/S 12A OF THE INCOME- TAX ACT. FOR THE ASSESSMENT YEAR UNDER CONSIDERATI ON, ASSESSEE FILED ITS RETURN OF INCOME ON 30.9.2008 DECLARING T OTAL INCOME AT RS.NIL/- AFTER CLAIMING EXCESS OF INCOME OVER EXPE NDITURE AMOUNTING TO RS.38,74,708/- AS EXEMPT U/S 11 OF THE ACT. IN COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS BEEN CONTRIBUTING TO CHITS OF MARGADARSHI CHIT FUND IN VIOLATION OF PROVISIONS CONTAINED U/S 11(5) R.W.S. 13(1)(D) O F THE ACT. ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 2 ACCORDINGLY, HE REOPENED THE ASSESSMENT U/S 147 OF THE ACT BY ISSUING A NOTICE U/S 148 OF THE ACT. DURING THE RE ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED THAT ASSESSEE HAS BEEN CONTRIBUTING TO THE MARGADARSHI CHIT FUNDS WITH CHI T VALUE OF RS.15 LAKHS AND EACH INSTALMENT OF RS.30,000/- AND TOTAL INSTALMENTS ARE 50 IN NUMBER. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CONTRIBUTED RS.1,96,500/- AND CLAIMED RS.73,500 /- AS CHIT DIVIDEND RECEIVED DURING THE YEAR. THE ASSESSING O FFICER WAS OF THE VIEW THAT AS PER SECTION 13(1)(D) OF THE ACT, A TRU ST OR INSTITUTION IS NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT, IF A NY PART OF ITS FUNDS, ARE NOT INVESTED OR DEPOSITED IN THE MODES OR FORMS SPECIFIED U/S 11(5) OF THE ACT. HE FELT THAT THE CHIT CONTRIBUTI ONS FALLS WITHIN THE AMBIT OF SECTION 13(1)(D) OF THE ACT AND ACCORDINGL Y CALLED UPON THE ASSESSEE TO EXPLAIN. IN REPLY, ASSESSEE CONTENDED THAT THE CONTRIBUTION TO THE CHIT FUND WAS NOT MADE TOWARDS INVESTMENT BUT WITH A VIEW TO OBTAIN LOAN OR ACQUIRING ASSETS FOR THE SOCIETY AND FURTHER HE RELIED UPON VARIOUS DECISIONS TO SHOW TH AT CONTRIBUTION TO CHIT FUND AS SUCH WOULD NOT PARTAKE THE NATURE OF I NVESTMENT. ASSESSEE ALSO CONTENDED THAT EVEN IF THERE IS A VIO LATION OF SECTION 13(1)(D) OF THE ACT, THE FORFEITURE OF THE EXEMPTIO N SHOULD BE RESTRICTED TO THE SAID VIOLATION AND EXEMPTION CLAI MED CANNOT BE DENIED IN TOTO. THE ASSESSING OFFICER HOWEVER WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT AS THE CONTRIBUTION TO CHIT, AMOUNTS TO INVESTMENT AND AS SUCH INVESTMENT WAS NOT IN THE PRESCRIBED MODE, THERE IS VIOLATION OF SECTION 11(5) AND 13(1)(D) OF THE ACT. THEREFORE, ASSESSEE WILL NOT BE ELIGIBLE TO EXEMPTION U/S 11 OF THE ACT. ACCORDINGLY, ASSESSIN G OFFICER COMPLETED THE ASSESSMENT DETERMINING THE TOTAL INCO ME AT RS.38,74,707/-. 4. BEING AGGRIEVED OF THE ASSESSMENT ORDER, ASSESSE E PREFERRED APPEAL BEFORE THE LD. CIT(A). LD. CIT(A) AFTER CON SIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF RELEV ANT STATUTORY PROVISION OBSERVED THAT WHILE CONSIDERING IDENTICAL ISSUE ARISING IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11, IT WAS HELD BY HIM ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 3 THAT CONTRIBUTIONS MADE BY ASSESSEE TO CHIT FUND WI LL NOT LEAD TO ANY VIOLATION OF THE PROVISIONS CONTAINED U/S 11(5) OR 13(1)(D) OF THE INCOME-TAX ACT. HE ALSO TOOK NOTE OF THE FACT THAT THE ITAT VISAKHAPATNAM BENCH WHILE CONSIDERING IDENTICAL ISS UE IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009-10 HAS A LSO HELD THAT THERE IS NO VIOLATION OF SECTION 13(1)(D) AND SECTI ON 11(5) OF THE ACT ON CONTRIBUTION TO CHIT FUND. THEREFORE, FOLLOWING THE SAME, LD. CIT(A) HELD THAT ASSESSING OFFICER WAS NOT JUSTIFIE D IN DENYING CLAIM OF EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE. 5. HAVING HEARD THE PARTIES AND PERUSED THE MATERIA LS ON RECORD, WE ARE OF THE VIEW THAT THE ISSUE RAISED IN THE PRE SENT APPEAL IS SQUARELY COVERED BY THE DECISION OF COORDINATE BENC H OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.175/VIZAG /2012 & OTHERS FOR ASSESSMENT YEAR 2009-10 & OTHERS, WHEREIN THE TRIBUNAL HELD AS UNDER: 15. THE FIRST ISSUE THAT ARISES FOR ADJUDICATION, IS WHETHER THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT ARE APPLI CABLE TO THE CASE OF THE ASSESSEES. BEFORE WE CONSIDER THIS ASPECT, WE DISCUSS THE NATURE OF CHIT BUSINESS. THERE ARE A CATERNA OF DE CISIONS OF VARIOUS COURTS INCLUDING HON'BLE SUPREME COURT ON THIS ISSU E. THE HON'BLE DELHI HIGH COURT IN THE CASE OF DELHI CHIT FUNDS AS SOCIATION VS. UOI AND ANOTHER W. P. (C) 4512/2012 AT PARA 6 & 7 OF PA GE 6OFJUDGEMENT DATED 23.4.2013 STATED AS FOLLOWS: '6. FT IS NECESSARY TO GIVE A BRIEF ACCOUNT OF THE OPERATIONS OF A CHIT FUND BUSINESS. SUPPOSING 50 PERSONS COME TOGETHER T O ORGANISE A CHIT LET US FURTHER SUPPOSE THAT EACH OF THEM UNDER TAKE TO CONTRIBUTE RS.1,000/-. THE TOTAL CHIT AMOUNT WOULD BE RS.50,000/-, LET US FURTHER SUPPOSE THAT THE FUND WOULD OPERATE FOR A PERIOD OF 50 MONTHS. THUS THE MEMBER SUBSCRIBERS AND THE NUMB ER 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, OOO/- X 50) WOULD BE A VALUABLE IN THE KITTY OF THE CHIT FU ND. THE SAID AMOUNT WOULD BE PUT TO AUCTION AND THOSE SUBSCRIBER S WHO ARE INTERESTED IN DRAWING THE MONEY EARLY BECAUSE OF TH EIR NEEDS MAY PARTICIPATE IN THE AUCTION. THE SUCCESSFUL BIDDER W HO IS NORMALLY THE PERSON WHO OFFERS THE HIGHEST DISCOUNT IS GIVEN THE CHIT AMOUNT. FOR 24 EXAMPLE IF THERE ARE THREE BIDDERS OFFERING TO T AKE THE CHIT OF RS. 50,000/- FOR RS.40,000/-, RS.37,500/- AND RS.35,000 /- RESPECTIVELY, THE CHIT WOULD BE GIVEN TO THAT SUBSCRIBER WHO IS W ILLING TO TAKE IT FOR RS.35,000/-SINCE HE HAS OFFERED A DISCOUNT OF RS. 1 5,000/-. THIS LEAVE A BALANCE OF RS.15,000/- (RS.15,000 - RS.50,0 00) IN THE KITTY. THE AMOUNT OF RS.15,000/- WHICH REPRESENTS THE DISC OUNT WHICH THE SUCCESSFUL BIDDER HAS FOREGONE BECOMES THE DIVIDEND WHICH IS TO BE DISTRIBUTED TO ALL THE SUBSCRIBERS AFTER DEDUCTING A FIXED AMOUNT ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 4 REPRESENTING THE COMMISSION PAYABLE TO THE 'FOREMAN '. A FOREMAN IS NORMALLY A PERSON WHO ORGANISES THE AUCTION AND CON DUCTS THE PROCEEDINGS. IF IN THE EXAMPLE GIVEN ABOVE, THE COM MISSION 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 BE DISTRIBUTED AMONG ALL THE 50 SUBSCRIBERS SO THAT EA CH WOULD GET RS.250/~. THIS AMOUNT OF RS.250/- CAN BE SET OFF BY THE SUBSCRIBERS AGAINST THE SECOND MONTH'S INSTALLMENT OF RS. 1, OO O/- PAYABLE BY HIM AND HE CAN GIVE ONLY RS. 750/-. THE AUCTION WOU LD BE REPEATED IN THE SUBSEQUENT MONTHS AND THE SAME PROCEDURE IS FOLLOWED. ANY SUBSCRIBER WHO DELAYS THE BIDDING OR DOES NOT BID A T ALL STANDS TO GAIN THE MAXIMUM DISCOUNT. THE CHIT IS THUS SOMEWHA T LIKE A RECURRING DEPOSIT WITH THE BANK. THERE IS NO BAR ON THE FOREMAN OF THE CHIT FUND ALSO PARTICIPATING AS A SUBSCRIBER. 7. THE BUSINESS OF CHIT FUNDS IS STRICTLY REGULATE D BY THE CHIT FUNDS ACT, 1982. IT CONTAINS DETAILED PROVISIONS RELATING TO REGISTRATION OF CHITS, COMMENCEMENT AND CONDUCT OF CHIT BUSINESS. R IGHTS 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 AN D OTHER MISCELLANEOUS PROVISIONS. SUFFICE TO NOTE THAT SECT ION 11 RECOGNISES THAT A CHIT BUSINESS CAN BE KNOWN BY SEVERAL NAMES SUCH AS CHIT, CHIT FUND, CHITTY, KURI, ETC. DEALING WITH THE CHIT FUNDS ACT, THE SUPREME COURT IN SRIRAM CHITS & INVESTMENT (P) LTD. VS. UNION OF INDIA : AIR 1993 SC 2063 HAS LAID DOWN THE FOLLOWIN G PROPOSITIONS: - 25 (A) THE ACT, IN PITH AND SUBSTANCE, DEALS WITH SPEC IAL CONTRACT AND CONSEQUENTLY FALLS WITHIN ENTRY 7 OF LIST III O F 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 AM OUNT, 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 HOLDER 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 FRAUD 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 HON'BLE 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 BASICA LLY SAVING SCHEMES IN WHICH A CERTAIN NUMBER OF SUBSCRIBERS JO IN TOGETHER AND EACH CONTRIBUTES A CERTAIN FIXED SUM E ACH ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 5 MONTH, THE TOTAL NUMBER OF MONTHS BEING EQUAL TO TH E TOTAL NUMBER OF SUBSCRIBERS. THE SUBSCRIPTIONS ARE PAID T O THE MANAGER OF THE FUND BY A CERTAIN PRESCRIBED DATE EA CH MONTH AND THE TOTAL SUBSCRIPTIONS TO THE FUND ARE AUCTION ED EACH MONTH AMONGST THE SUBSCRIBERS. AT EACH AUCTION, THE LOWEST BIDDER IS PAID THE AMOUNT OF HIS BID AND THE BALANC E RECEIVED FROM OUT OF THE TOTAL SUBSCRIPTIONS RECEIVED IS DIS TRIBUTED EQUALLY AMONGST OTHER SUBSCRIBERS, AS PREMIUM. THE MANAGER IS PAID A CERTAIN PERCENTAGE OF THE COLLECTIONS EAC H MONTH ON ACCOUNT OF EXPENSES AND CHARGES FOR CONDUCTING THE AUCTION. IN THE AUCTION, A MAXIMUM AMOUNT, WHICH THE HIGHEST BIDDER AGREES TO FORGO, IS 26 THE AMOUNT, WHICH IS DISTRIB UTED TO THE OTHER MEMBERS, SUBJECT TO DEDUCTION OF THE MANAGER' S COMMISSION.' 17. THE HON'BLE 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: 'FURTHER, IT WAS OBSERVED BY THE HON'BLE SUPREME CO URT IN SRIRAM CHITS AND INVESTMENTS (P) LTD. (SUPRA) THAT IT WOULD NOT BE CORRECT TO STATE THAT EACH SUBSCRIBER LENT MONEY TO THE PERSON WHO GETS CHITS EARLIER. IT CANNOT ALSO BE CO NSTRUED THAT THE PERSON WHO GETS CHIT LATER SHOULD BE TREATED AS A MONEY LENDER. THE AGREEMENT BETWEEN THE PARTIES THOSE ENT ERED AS PER SECTION 6 OF THE ACT ONLY PROVIDES FOR DISTRIBU TION OF THE CHIT AMOUNT. THE SUPREME COURT HOWEVER RELIED ON TH E JUDGEMENT OF THE KERALA HIGH COURT IN JANARDHANA MA LLAN AND OTHERS VS. GANGADHARAN AND OTHERS AIR 1983 KERALA 1 78, WHEREIN IT WAS OBSERVED THAT ON ENTERING INTO A CHI T AGREEMENT, A DEBT IS NOT INCURRED BY THE SUBSCRIBER FOR THE AMOUNT OF ALL THE FUTURE INSTALMENTS AND IN RESPECT OF SUCH AMOUNT THERE IS NO DEBTORS-CREDITORS RELATIONSHIP.' THE HON'BLE DELHI HIGH COURT FURTHER OBSERVED AS FO LLOWS: 'THIS APPROACH IS FALLACIOUS ON THE FACE OF IT AND PARTICULARLY IN VIEW OF THE PRINCIPLE LAID DOWN IN THE AFORESAID JU DGEMENT OF THE SUPREME COURT IN SRIRAM CHITS AND INVESTMENT PV T. LTD. (SUPRA), WHEREIN THE APEX COURT OBSERVED THAT THE S UBSCRIPTION RECEIVED FROM THE MEMBERS OF THE CHIT FUND COMPANY IN TERMS OF CONTRACT ARE NOT TREATED AS DEPOSITS FOR THE PUR POSE OF RESERVE BANK OF INDIA DIRECTION. THE AMOUNT CONTRIB UTED BY THE MEMBERS EVERY MONTH IS GIVEN BACK TO THEM IN TH E FOLLOWING MANNER. THE SUCCESSFUL BIDDER TAKES THE E NTIRE AMOUNT (MINUS) THE BID AMOUNT AND THE BID AMOUNT IS DISTRIBUTED EQUALLY AMONG THE MEMBERS. THEREFORE, B Y NO STRETCH OF IMAGINATION, THE AFORESAID AMOUNT CONTRI BUTED BY THE 27 MEMBERS CAN BE TREATED AS A DEPOSIT WITH THE COM PANY MUCH LESS MONEY BORROWED BY THE ASSESSEE.' 18. THE HON'BLE SUPREME COURT IN THE CASE OF M/S. S RIRAM CHITS AND INVESTMENTS VS. UNION OF INDIA AND OTHERS AIR 1993 (SQ2063 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 JUDGE S OF THE KERALA HIGH COURT IN JANARDHANA MALLAN AND ORS. V. ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 6 GANGADHARAN AND ORS.. THE FULL BENCH THERE WAS CONC ERNED WITH THE CHIT AGREEMENT UNDER THE KERALA CHITTIES A CT (ACT 23 OF 1975) WHERE THE KERALA HIGH COURT SPEAKING THROU GH POTI, ACTING CHIEF JUSTICE, TOOK THE VIEW THAT ON ENTERIN G INTO THE CHITTY AGREEMENT A DEBT IS NOT INCURRED BY THE SUBS CRIBER FOR THE AMOUNT OF ALL THE FUTURE INSTALLMENTS AND IN RE SPECT OF SUCH AMOUNT THERE IS NO DEBTOR CREDITOR RELATIONSHIP. TH E CHITTY VARIOLA ONLY EMBODIES A PROMISE TO PAY ON FUTURE DA TES. THAT IS NOT A PROMISE TO REPAY AN EXISTING DEBT, BUT TO PAY IN DISCHARGE OF A 'CONTRACTUAL OBLIGATION. FOR SIMILAR REASONS NEITHER THE PRIZING OF THE CHITTY NOR THE EXECUTION OF THE SECURITY BOND WOULD GIVE RISE TO A DEBT, FOR F THE PRIZE AMOUNT IS NOT RECEIVED AS A LOAN, BUT AS OF RIGHT BY VIRTU E OF THE TERMS OF THE CONTRACT BETWEEN THE PARTIES. THEREFORE, NO DEBT DUE TO THE FOREMAN ARISES BY REASON OF THE RECEIPT OF THE PRIZE AMOUNT OR OF THE EXECUTION OF THE SECURITY BOND FOR SECURING FUTURE SUBSCRIPTIONS. THE FULL BENCH IN THIS DECISI ON OVER-RULED ITS EARLIER DECISION IN THE CASE OF P.K ACHUTAN V. STATE BANK OF TRAVANCORE, CALICUT. WHILE RENDERING THE DECISION I N JANARDHANA MALLAN AND ORS. (SUPRA) THE FULL BENCH O F THE KERALA HIGH COURT CONSIDERED A CATENA OF DECISIONS STARTING FROM 1937 IN THE MATTER OF RAMANATHA LYYAR V. NARAYANASWAMI. THE ANDHRA PRADESH HIGH COURT ALSO, WHILE DEALING WITH THE TRANSACTION OF A CHIT FUND ORGANIS ATION, IN THE MATTER OF DHOOSA NARSIMLOO V. YELALA RAJANNA AND AN R. I.LR. (1958) ANDHRA PRADESH 409, WHERE THE 28 PETITIONER HAD FILED A SUIT IN THE COURT OF THE DISTRICT JUDGE AGAINST T HE RESPONDENTS ON A PROMISSORY NOTE EXECUTED BY THEM F OR THE AMOUNT THEY DREW IN A POOL FROM A CHIT FUND ORGANIS ATION AND WHERE THE DISTRICT JUDGE HAD DISMISSED THE SUIT FOR WANT OF A LICENSE UNDER SECTION 9(2) OF THE HYDERABAD MONEY L ENDERS ACT (ACT V OF 1349 F.) AND ON REVISION, THE QUESTIO N THAT CAME FOR CONSIDERATION WAS WHETHER THE CHIT FUND ORGANIS ATION COULD BE REGARDED AS A MONEY LENDER WITHIN THE MEANING OF THE SAID ACT AND WHETHER ITS TRANSACTION PARTAKE THE NATURE OF A LOAN. SRINIVASACHARI, J. SPEAKING FOR THE COURT HELD THAT THE AMOUNT DRAWN BY A MEMBER OF A CHIT FUND WHO BID AT THE PER IODICAL AUCTION GIVING THE LARGEST DISCOUNT COULD NOT COME WITHIN THE DEFINITION OF A LOAN WITHIN THE MEANING OF THE MONE Y LENDERS ACT NOR COULD SUCH A TRANSACTION BE REGARDED AS A M ONEY LENDING TRANSACTION BE AND IN THE CIRCUMSTANCES SEC TION 9 OF THE HYDERABAD MONEY LENDERS ACT (V OF 1349 F.) COUL D HAVE NO APPLICATION TO SUCH A CASE. AT PAGE 415 OF THE A FORESAID REPORTIT HAS BEEN OBSERVED 'IN OUR OPINION THERE IS NOTHING IN THE CHIT FUND TRANSACTION WHICH COULD BE CALLED THE BUSINESS OF MONEY LENDING. IT IS IN ESSENCE AN ORGANISATION FOR MUTUAL BENEFIT' 7F APPROVED THE DECISION OF THE MADRAS HIGH COURT IN RAGHAVAN V, ARMUGHAM: (1934) 38M.L..L 283. THAT WAS ALSO A CASE OF CHIT FUND TRANSACTION AND THE QUESTION FOR DECIS ION WAS WHETHER A PROVISION IN THE BOND FOR PAYMENT OF THE WHOLE AMOUNT IN DEFAULT OF ANY ONE INSTALMENT WAS IN THE NATURE OF A PENALTY COMING WITHIN SECTION 74, ILLUSTRATION (G) OF THE CONTRACT ACT. THE LEARNED JUDGES RULED THAT A CHIT FUND TRANSACTION WAS NOT A CASE OF BORROWING AT ALL AND IT WAS ENTIRELY DIFFERENT FROM A LOAN TRANSACTION. THE LEA RNED JUDGES FURTHER HELD THAT 'A LOAN ENVISAGES THE RELATIONSHI P OF A CREDITOR AND DEBTOR IN SO FAR AS THE LENDER AND THE BORROWER ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 7 ARE CONCERNED. THERE CANNOT BE THE RELATIONSHIP OF A CREDITOR AND DEBTOR BETWEEN THE STAKE HOLDER AND A SUBSCRIBE R, IN A CHIT FUND TRANSACTION. IF THE STAKE-HOLDER ADVANCES ANY AMOUNT HE ADVANCES ONLY TO ONE OF THE MEMBERS, THE FUNDS O F THE WHOLE BODY OF THE CHIT FUND, AS THE FUNDS BELONG TO THE WHOLE LOT OF SUBSCRIBERS, THE MEMBERS, BORROWER IS AS MUC H A CREDITOR AS A DEBTOR. THE AMOUNTS ARE IN DEPOSIT WI TH 29 THE STAKE-HOLDER ONLY AS A TRUSTEE FOR THE BENEFIT OF T HE MEMBERS OF THE FUND.' SRINIVASACHARI, J. NOTICED THE OBSERV ATIONS 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 HON'BLE SUPREME COURT HAS APPROVED THE OPINION OF H ON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF DHOOSA NARASIMLOO VS. YELLALA RAJANNA AND ANOTHER (SUPRA) THAT 'IT IS IN ESSENCE AN ORGANIZATION FOR MUTUAL BENEFIT'. IT IS FURTHER MADE DEAR THAT CHIT TRANSACTION IS NOT A MONEY LENDING TRANSACTION AND THAT THERE IS NO RELATIONSH IP OF DEBTOR AND CREDITOR. THE ROLE OF THE FOREMAN IS THA T OF A TRUSTEE. HE CHARGES COMMISSION FOR HIS SERVICE. THE MONEY CONTR IBUTED BY THE SUBSCRIBERS TO THE CHIT DOES NOT BELONG TO THE FORE MAN. IT BELONGS TO ALL THE STAKE HOLDERS. UNDER THESE CIRCUMSTANCES, I T 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 INVESTME NT OR DEPOSIT. 20. HON'BLE HARYANA HIGH COURT IN THE CASE OF SODA SILICATE & CHEMICAL WORKS VS. CIT 179 ITR 588 (P&H) HELD AS FO LLOWS; 'IN ORDER TO ANSWER THE QUESTION POSED, REGARD MUST BE HAD TO THE NATURE AND WORKING OF THE CHIT FUND, IN THE CON TEXT OF THE ASSESSEE, WITH PARTICULAR REFERENCE TO THE FACT THA T RUNNING A CHIT FUND OR BEING A MEMBER OF SUCH FUND, WAS NOT T HE BUSINESS OF THE ASSESSEE. THE TRANSACTIONS CONCERNE D HERE ARE CONTRIBUTIONS MADE TO THE FUND BY THE ASSESSEE AND THE LUMP SUM RECEIVED BY IT, THOUGH AT A DISCOUNT AND T HE 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 TH E CHIT FUND WITH THEIR IDENTITY BEING KNOWN AND ESTABLISHED. WH EN SUCH IS THE CASE, CONTRIBUTIONS MADE TO THE CHIT FUND -CANN OT 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 ASSESSES . 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 BENEF IT ASSOCIATION IF ALL THE PARTICIPATORS TO THE COMMON FUND ARE ALSO CONTRIBUTORS AND THEIR IDENTITY IS ESTABLISHED . THE CONTRIBUTORS TO THE COMMON FUND AND THE PARTICIPATO RS IN THE SURPLUS MUST BE AN IDENTICAL BODY, THE COURT WENT O N TO OBSERVE THAT THIS DOES NOT MEAN THAT EACH MEMBER SH OULD CONTRIBUTE TO THE COMMON FUND OR THAT EACH MEMBER S HOULD PARTICIPATE IN THE SURPLUS OR GET BACK FROM THE SUR PLUS PRECISELY WHAT HE HAS PAID, WHAT IS REQUIRED IS THA T THE ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 8 MEMBER AS A CLASS SHOULD CONTRIBUTE TO THE COMMON F UND AND PARTICIPATORS AS A CLASS MUST BE ABLE TO PARTIC IPATE IN THE SURPLUS'. 21. THE SAME JUDGMENT RELIED ON ANOTHER DECISION OF THE MADRAS HIGH COURT IN THE CASE OF BOARD OF REVENUE VS. NORT H MADRAS MUTUAL BENEFIT CO, LIMITED 19221ITC172 (MADRAS) WHE REIN IT WAS HELD- THAT THE OPERATIONS OF CHIT FUND CANNOT BE SA ID TO BRING ANY PROFIT TO ITS SUBSCRIBERS AS A BODY AND THE INCOME REPRESENTED BY PREMIA WAS THUS NOT ASSESSABLE TO INCOME TAX. 22. THE HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT (TDS) VS. SUMAN CHIT FUNDS PRIVATE LIMITED HELD THA T THE DISCOUNT PAID BY THE FOREMAN TO THE SUBSCRIBERS TO A CHIT FUND TRANSACTION DOES NOT PARTAKE THE CHARACTER OF INTER EST WITHIN THE MEANING OF SECTION 2(28A) OF THE INCOME TAX ACT. TH IS DECISION WAS RENDERED FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN SAHIB CHITS (DELHI) (P) LIMITED IN ITA NO.44 OF 2008 AND ALSO THE HON'BLE SUPREME COURT IN THE C ASE OF CIT VS. BILAHARI INVESTMENT PRIVATE LIMITED. REFERENCE WAS MADE TO A DECISION OF BANGALORE BENCH OF ITAT IN THE CASE O F MARGA SOOCHI PRIVATE LIMITED IN ITA NO. 995/BANGALORE/200 8. 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 INVES TMENT, AS THERE IS NO QUESTION OF A INDIVIDUAL SUBSCRIBER BEI NG ENTITLED TO RECEIVE PROFIT OR INCOME UNDER A SCHEME OF CHIT FUN DS. NO MONEY IS LAID OUT WITH A SECOND PARTY THAT TOO WITH AN IN TENTION TO EARN PROFIT. THE FOREMAN HOLDS THE MONEY RECEIVED FROM T HE CHIT SUBSCRIBERS ONLY AS A TRUSTEE. SECTION 11(5) OF THE ACT ONLY REFERS MONEY THAT IS TO BE INVESTED OR DEPOSITED WITH A PE RSON OR ENTITY OR ORGANIZATION OR GOVERNMENT WHICH IS OTHER THAN T HE ASSESSES ITSELF. INVESTMENT HELD BY SELF I. E. WHERE NO SECO ND PARTY IS INVOLVED IS OBVIOUSLY NOT COVERED TO THESE SECTIONS . THUS, WE CAN CONCLUDE THAT CHIT FUND BUSINESS IS GOVERNED BY THE PRINCIPLES OF MUTUALITY AND CONTRIBUTING TO A CHIT FUND IS CONTRI BUTION 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 PUR POSES OF S.13(L)(D). FOR THIS PURPOSE, WE ANALYSE THE FOLLOW ING TERMS USED IN SECTION 13(L)(D): I) ANY FUNDS II) INVESTMENT OR DEPOSIT 25. THE TERM 'ANY FUNDS' WHEN READ WITH THE PHRASE 'ANY INCOME THEREOF, IN OUR OPINION SIGNIFIES INCOME DEFINED U/ S 2(24) OF THE ACT. THUS ANY RECEIPT, WHICH FALLS WITHIN THE DEFINITION OF INCOME U/S 2(24) OF THE ACT IS TO BE CONSIDERED. AS RIGHTLY CO NTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE RESTRICTION O N UTILIZATION OF FUNDS BELONGING TO A CHARITABLE INSTITUTION HAVE BE EN BROUGHT IN TO CURB THE MISUSE OF TAX EXEMPT FUNDS BY THESE CHARIT ABLE INSTITUTIONS. THEREFORE, ON A HARMONIOUS CONSTRUCTION OF THE PROV ISIONS OF S,13(L)(D) WE ARE OF THE CONSIDERED VIEW THAT THE T ERM 'ANY FUNDS' REFERS TO ONLY THE INCOME OF A CHARITABLE INSTITUTI ON. ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 9 26. THE TERM 'ANY FUNDS' HAS BEEN EXPLAINED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHREE SRI RAM FOU NDATION 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 THAI: TAKEN BY THE TRIBUNAL. IN CONSTRUING THE 32 PROVISIONS OF SECTIO N 13(2)(H), THE EXPRESSION 'FUNDS' HAS TO BE UNDERSTOOD IN THE CONTEXT OF THE PROVISION AND NOT ONLY WITH REFERENCE TO DIC TIONARIES OR TO COMMERCIAL PARLANCE OR TO THE PRINCIPLES OF ACCO UNTANCY. IT IS TO BE NOTED THAT THE EXPRESSION USED IS 'FUND S' AND NOT 'FUND'. 'FUNDS' MEANS MONEY IN HAND OR CASH ACCORDI NG TO SOME DICTIONARIES. THIS, ACCORDING TO US, WOULD BE THE PROPER MEANING TO BE ATTRIBUTED TO THE EXPRESSION ' FUNDS' AS APPEARING IN THE PROVISION. THE FUNDAMENTAL REQUIRE MENT OF SECTION 13(2)(H) IS THAT THERE MUST BE INVESTMENT O F FUNDS OF A TRUST. IF ANY EXPANDED MEANING IS GIVEN TO INCLUD E 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 F ROM MONEY IN HAND OR CASH OR BALANCE IN 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' C ONNOTES A POSITIVE ACT ON THE PART OF THE TRUST WHERE-BY TH E FUNDS OF THE TRUST ARE LAID OUT OR COMMITTED IN ANY PARTICUL AR PROPERTY OR BUSINESS OR TRANSACTION WITH THE OBJECT OF EARNI NG A PROFIT OR FINANCIAL ADVANTAGE OR RETURN. WHAT IS CONTEMPLA TED IS THAT THE TRUST HAVING ASSETS IN THE FORM OF MONEY O R CASH OR BALANCE IN A BANK OR ANY OTHER FORM CAPABLE OF BEIN G INVESTED OR BY A POSITIVE ACT AND PURSUANT TO A DEC ISION OF THE TRUST WAS LAID OUT OR COMMITTED IN A CONCERN OF A NATURE SPECIFIED BEFORE IT CAN BE HELD THAT SUCH AN INVEST MENT COMES WITHIN THE MISCHIEF 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 TERM 'MONEY', ETC., WHICH IS SPECIFIC. A SUM OF MONEY OR OTHER LIQUID ASSETS SET APART FOR A SPECIFIC PURPOSE OR AVAILABL E FOR THE PAYMENT OF DEBTS OR CLAIMS. IN THE PLURAL, THIS WOR D HAS A VARIETY OF SLIGHTLY DIFFERENT MEANINGS, AS FOLLOWS: 'MONEYS 1 AND MUCH MORE, SUCH AS NOTES, BILLS, CHEQUES, DRAFTS, STOCKS AND BONDS, AND IN BROADER MEANING MA Y INCLUDE PROPERTY OF EVERY KIND . . . MONEY IN HAND, ASSETS, CASH, MONEY AVAILABLE FOR TH E PAYMENT OF A DEBT, LEGACY, ETC. CORPORATE STOCKS OR GOVERNMENT SECURITIES ; IN THIS SENSE USUALLY SPOKE N OF AS THE 'FUNDS'. ASSETS, SECURITIES, BONDS OR REVENUE OF A STATE OR GOVERNMENT APPROPRIATED FOR THE DISCHARGE OF ITS DEBTS. GENERALLY, WORKING CAPITAL; SOMETIMES USED TO REFER TO CASH OR TO CASH AND MARKETABLE SECURITIES.' ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 10 '(B) DICTIONARY FOR ACCOUNTANTS, FOURTH EDITION, BY ERIC L KOHLER : 1. AN ASSET OR GROUP OF ASSETS WITHIN ANY ORGANISATION, SEPARATED PHYSICALLY OR IN THE ACCOUN TS OR BOTH FROM OTHER ASSETS AND LIMITED TO SPECIFIC USES. EXA MPLES : A PETTY CASH OR WORKING FUND ; A REPLACEMENT AND RENE WAL FUND ; AN ACCIDENT FUND ; A CONTINGENT FUND ; A PENSION FU ND. EXAMPLE : A TRUST FUND CREATED BY A WILL; AN ENDOWM ENT 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 C ENTURY DICTIONARY, NEW EDITION: FUND: N. A SUM OF MONEY ON WHICH SOME ENTERPRISE IS FOUNDED OR EXPENSE SUPPORTED: A SUPPLY OR SOURCE OF MONEY:' 'THE CONCISE OXFORD DICTIONARY, FIFTH EDITION : FUND N. 1. PERMANENT STOCK OF SOMETHING READY TO BE DRAWN UPON STOCK OF MONEYPECUNIARY RESOURCES.' 'WEBSTER'S SEVENTH NEW COLLEGIATE DICTIONARY-BASED ON WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY (P. 53 8): FUND. 1. AN AVAILABLE QUANTITY OR MATERIAL OR INTAN GIBLE RESOURCES ; SUPPLY; 2. A SUM OF MONEY OR OTHER RESOURCES THE PR INCIPAL OR INTEREST OF WHICH IS SET APART FOR A SPECIFIC OB JECTIVE.' THE EXPRESSION, 'INVEST' IN THE SAID SECTION 13(2)( H) IS USED AS A VERB AND THE MEANING OF THE SAID EXPRESSION IN THE STANDARD DICTIONARIES IS AS FOLLOWS : 'CHAMBER'S TWENTIETH CENTURY DICTIONARY, NEW EDITIO N :. . . TO LAY OUT FOR PROFIT AS BY BUYING PROPERTY, SHARES , ETC.' 'THE CONCISE OXFORD DICTIONARY, FIFTH EDITION: ...LAY OU T MONEY ON, AS (INVEST) IN A CAR.' 'WEBSTER'S SEVENTH NEW COLLE GIATE DICTIONARY: VB. VT 1: TO COMMIT (MONEY) IN ORDER TO EARN A FINANCIAL RETURN ; 2 TO MAKE USE OF FOR FUTURE BENEFITS OR ADVANTAGES VT. 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 ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 11 CONTEXT. IT IS NOT A LEGAL TERM WITH A SETTLED MEAN ING, BUT IT IS A TERM IN COMMON USE, SUGGESTING MONEY, IN COMMON SPE ECH, ALTHOUGH TECHNICALLY IT MAY BE EMPLOYED TO COVER OT HER ARTICLES OF VALUE, FOR THE TERM 'FUND' OR 'FUNDS' IS GENERIC AND ALL- EMBRACING AS COMPARED, WITH THE TERM 'MONEY', ETC. WHICH IS SPECIFIC. ., IN THE PLURAL, 'CAPITAL: CASH, MONEY, OR MONEYS ; MONEY AND NEGOTIABLE PAPER IMMEDIATELY OR READILY C ONVERTIBLE INTO CASH, AVAILABLE PECUNIARY RESOURCES ; MONEY IN HAND OR AVAILABLE FOR THE PAYMENT OF A DEBT, LEGACY, ETC., SPECIE, OR A STOCK OF CONVERTIBLE WEALTH; AND 'FUNDS' MAY MEAN O R INCLUDE NOT ONLY MONEY, AS THE TERM IS GENERALLY UNDERSTOOD , BUT OTHER CIRCULATING MEDIUM OR INSTRUMENT OR TOKENS IN GENER AL USE IN THE COMMERCIAL WORLD AS THE REPRESENTATIVES , OF VALUE, SUCH AS BANK NOTES, BILLS, CHEQUES, DRAFTS, NOTES, STOCKS A ND BONDS, DEPOSITS OR CERTIFICATES OF DEPOSIT, EVIDENCES OF M ONEY LENT TO THE GOVERNMENT, CONSTITUTING A NATIONAL DEBT, FOR W HICH INTEREST IS PAID AT PRESCRIBED INTERVALS. ... .' IN R. K. DALMIA V. DELHI ADMINISTRATION [1962] 32 C OMP CAS 699 ; AIR 1962 SC 1821, IT WAS OBSERVED THAT THE WO RD 'FUND' MAY MEAN ACTUAL CASH RESOURCES OF A PARTICULAR KIND (E.G., MONEY IN A DRAWER OR IN A BANK OR IT MAYBE A MERE ACCOUNTANCY EXPRESSION USED TO DESCRIBE A PARTICULA R CATEGORY WHICH A PERSON USES IN MAKING UP HIS ACCOU NTS). A SIMILAR VIEW WAS EXPRESSED IN AHCHM V. COULLKARD [1 942] 2 KB 228. THE EXPRESSION 'FUND' OR 'FUNDS' HAS A VARI ETY OF MEANINGS BUT THE SENSE IN WHICH IT IS EMPLOYED MUST BE GATHERED FROM THE CONTEXT. IT WOULD NOT BE CORRECT TO ADOPT A STRICTLY LITERAL OR TECHNICAL MEANING OF THIS EXPRE SSION WHILE CONSTRUING SECTION 13(2)(H). IN OTHER WORDS WE MUST NOT CONSTRUE THAT PROVISION MECHANICALLY. WE MUST CONST RUE IT HAVING REGARD TO THE OBJECT WHICH THE LEGISLATURE H AD IN VIEW IN ENACTING IT AND IN THE CONTEXT OF THE SETTING IN WHICH IT OCCURS. THAT, PROVISION CAME TO BE INSERTED IN THE ACT BY THE FINANCE ACT, 1970. ON A PLAIN READING OF THAT PROVI SION, IT IS CLEAR THAT CLAUSE (H) OF SUB-SECTION (2) OF SECTION 15 COVERS INVESTMENT OF THE TRUST FUNDS IN ANY CONCERN IN WHI CH ANY OF THE PERSONS SPECIFIED IN SUB-SECTION (3) HAS SUBSTA NTIAL INTEREST ('SPECIFIED PERSONS' IN SHORT) AND IF SUCH INVESTMENT OF THE TRUST FUNDS IS MADE AFTER DECEMBER 31,1970, IT WOULD RESULT IN FORFEITURE OF EXEMPTION FROM TAX. HOWEVER , IF THE TRUST FUNDS HAVE ALREADY BEEN INVESTED IN ANY CONCE RN AS AFORESAID BEFORE JANUARY 1, 1971, THE EXEMPTION WOU LD BE FORFEITED IF THE FUNDS CONTINUED TO REMAIN SO INVES TED EVEN AFTER DECEMBER 31, 1970. THE OBJECT OF THE ABOVE PR OVISION IS TO DISCOURAGE INVESTMENT OF TRUST FUNDS IN THE C ONCERNS IN WHICH SPECIFIED PERSONS HAVE SUBSTANTIAL INTEREST A ND IF AN INVESTMENT IS ALREADY MADE IN SUCH CONCERNS, TO DIS COURAGE CONTINUANCE THEREOF AFTER DECEMBER 31, 1970, IN ORD ER TO ATTRACT THE PROVISIONS OF SECTION 13(2)(H), WHAT IS ESSENTIAL IS THAT THE FUNDS OF THE TRUST ARE INVESTED IN A CONCE RN COVERED BY SECTION 13{2)(C) AND IF SUCH INVESTMENT 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 T RUST ITSELF ARE UNDER SECTION 11, THE FUNDS HAVE TO BE SUCH AS ARE CAPABLE OF INVESTMENT. THEREFORE, IN ORDER TO ATTRA CT SECTION 13(2)(H}, IT HAS TO BE ESTABLISHED THAT THE FUNDS O F THE TRUST WHICH ARE CAPABLE OF BEING INVESTED HAVE BEEN UTILI SED FOR ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 12 MAKING INVESTMENT AS PROVIDED THEREIN. WHEN THE FUN DS OF THE TRUST ARE SO INVESTED AND SUCH INVESTMENT IS CO NTINUED AFTER DECEMBER 31, 1970, THE TRUST WHOSE FUNDS ARE SO INVESTED WILL NOT BE ENTITLED TO CLAIM EXEMPTION UN DER SECTION 11. THE ABOVE POSITION HAS BEEN ELABORATELY DEALT W ITH BY THE GUJARAT 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 O F RESULTING IN AN INCOME OR RETURN OR PROFIT TO THE I NVESTOR AND IN EVERY CASE OF INVESTMENT, THE INTENTION AND POSITIV E ACT ON THE PART OF THE INVESTOR SHOULD BE TO EARN SUCH INCOME, RETURN OR PROFIT TO THE INVESTOR. IN ORDER TO CONSTITUTE AN 3 6 INVESTMENT, THE MONEY SHALL BE LAID OUT IN SUCH MANNER, AS TO A CQUIRE SOME SPECIES OF PROPERTY WHICH BRINGS IN AN INCOME TO THE INVESTOR. AN INVESTMENT POPULARLY MEANS EVERY APPLI CATION 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 MONEY IN VESTED IN BUSINESS. (VIDE EDWARDS ]., I N. TAX COMMISSIONER V. AUSTRALIAN MUTUAL PROVIDENT FUND SO CIETY [1902] 22 NZLR 445). IN ARNAJLD V. GRINSTEAD (21 WR ENG 155), IT WAS OBSERVED THAT IN ITS MOST COMPREHENSIV E SENSE IT IS GENERALLY UNDERSTOOD TO SIGNIFY THE LAYING OUT O F MONEY IN SUCH A MANNER THAT IT PRODUCES A REVENUE. AN ILLUMI NATING OBSERVATION WAS MADE IN IRC V. DESOUTTER BROS, LTD. [1946] 1 ALL ER 58 (CA) ABOUT WHAT 'INVESTMENT' MEANS. IT WA S OBSERVED THAT THE WORD 'INVESTMENT' IS NOT A WORD O F ART, BUT HAS TO BE INTERPRETED IN A POPULAR SENSE. IT IS NOT CAPABLE OF LEGAL DEFINITION, BUT A WORD OF CURRENT VERNACULAR. THE WORDS 'INVEST' AND 'INVESTMENT' ARE TO BE TAKEN IN THE BU SINESS SENSE OF LAYING OUT OF MONEY FOR INTEREST OR PROFIT . A PLEA SIMILAR TO THE ONE TAKEN BY LEARNED COUNSEL FOR THE REVENUE WAS RAISED BEFORE THE KERALA HIGH COURT IN CIT V. CHANDRIKA EDUCATIONAL TRUST [1994] 207 ITR 108. THE RE ALSO IT WAS PLEADED THAT THE EXPRESSION 'CONTINUED TO REMAI N' QUALIFIES THE EXPRESSION 'IN ANY CONCERN' WHETHER I T WAS AN INVESTMENT OR NOT. THE PLEA WAS REJECTED BY THE KER ALA HIGH COURT. IT WAS OBSERVED THAT IT WOULD BE DOING VIOLE NCE TO THE PLAIN LANGUAGE OF THE PROVISION. SECTION 13(2)(H) R EQUIRES THAT THE FUNDS OF THE TRUST ARE, OR CONTINUE TO REMAIN I NVESTED IN ANY CONCERN OF THE NATURE MENTIONED THEREIN, (UNDER LINED 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 OTHE R HAND, MEANS THAT WHICH IS PLACED ANYWHERE, AS IN ANY ONE' S HANDS 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 AS SUCH. IN ORDER TO CONSTITUTE AN INVESTMENT THE AMOUNT LAID D OWN SHOULD BE CAPABLE OF AND RESULT IN ANY INCOME RETUR N OR ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 13 PROFIT TO THE INVESTOR AND IN EVERY CASE OF INVESTM ENT, THE INTENTION AND POSITIVE ACT ON THE PART OF THE INVES TOR 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 PROPERT Y WHICH WOULD BRING IN AN INCOME TO THE INVESTOR, A L OAN, ON THE OTHER HAND, IS GRANTING TEMPORARY 'DEPOSIT' AND 'LOAN' ARE CERTAINLY DIFFERENT. SECTION 11(5) REFERS TO PA TTERN OF INVESTMENT BY THE ASSESSEE. SECT/ON 11(5) WAS INTRO DUCED BY THE FINANCE ACT, 1983, WITH EFFECT FROM APRIL 1, 1983, I.E., FOR AND FROM ASSESSMENT YEAR 1983-84. IT PRES CRIBES THE FORMS AND MODES OF INVESTING AND DEPOSITING MON EY REFERRED T IN SECTION LL(2)(B). SUBSEQUENTLY, NEW F ORMS AND MODES HAVE BEEN ADDED. SECTION 13(L)(D) AS AMENDED BY THE FINANCE ACT, 1983, PROVIDES THAT THE INCOME OF ANY CHARITABLE OR RELIGIOUS TRUST OR INSTITUTION WILL N OT BE ENTITLED TO EXEMPTION UNDER SECTION 11 AND 12, IF CERTAIN CO NDITIONS STIPULATED THEREIN ARE NOT COMPLIED WITH. THE WORD DEPOSIT DOES NOT COVER TRANSACTION OF LOAN WHICH CAN BE MOR E APPROPRIATELY DESCRIBED AS DIRECT BAILMENT. THE ESS ENCE 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 COMMERCIA L SENSE, THE TERM IS USED TO INDICATE THE AFORESAID TRANSACT ION AS DEPOSIT OF MONEY FOR EMPLOYMENT, IN BUSINESS, DEPOS ITS FOR VALUE TO INITIATE SECURITY FOR DEPOSIT OF TITLE DEE DS, SIMILAR DOCUMENTS AS SECURITY FOR LOAN, DEPOSIT OF MONEY BI LLS IN A BANK IN THE ORDINARY COURSE OF BUSINESS OF CURRENT ACCOUNT AND DEPOSITS OF A SUM AT INTEREST AT A FIXED DEPOSI T IN A BANK. THE AMOUNT GIVEN TO MAHILA HAAT WAS NEITHER F OR THE PURPOSE OF INVESTMENT NOR FOR DEPOSIT, MORE PARTICU LARLY IN THE FACTUAL BACKGROUND AS HIGHLIGHTED ABOVE. THE TRANSACTION WITH WHICH THE PRESENT DISPUTE IS LINKE D CANNOT BE TREATED AS AN INVESTMENT OR DEPOSIT AS HAS BEEN FACTUALLY FOUND BY 38 THE TRIBUNAL. THE CONCLUSION BEING ESSENTIALLY FACTUAL, NO QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL. ACCORDINGLY, THE PETITION IS DISMISSED.' 28. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INCOME TAX OFFICER VS. DR. VIKHE PATEL FOUNDATION (SUPRA) HE LD AS FOLLOWS: 'IT IS WELL SETTLED THAT THE DEPICTION IN BOOKS OF ACCOUNTS IS NOT A DETERMINATIVE TEST BUT THE FACTUAL NATURE OF THE TRANSACTION WHICH HAS TO BE CONSIDERED FOR THE PURP OSE OF TAXATION.' IN THIS CASE, THE INVESTMENT IN THE SHAR ES OF COOPERATIVE BANK WAS A PRE CONDITION FOR RAISING LO ANS AND IT WAS THEREFORE NOT AN INVESTMENT AS NORMALLY UNDERSTOOD. THE TRIBUNAL HAS RECORDED A FINDING OF FACT THAT THE SHARES WAS SUBSCRIBED ONLY FOR PURPOSES OF OBTAINING THE LOAN AND THE AMOUNTS SO OBTAINED WERE USED FOR FURTHERANCE OF THE OBJECTS OF THE TRUST. THERE IS NO DISPUTE ABOUT THE FACTS THAT LOANS TAKEN FROM THE S AID TWO COOPERATIVE BANKS WERE NOT COMPLETELY REPAID IN THE ASSESSMENT YEAR 2008-09 AND, THEREFORE, THE ASSESSE E WOULD BE REQUIRED TO HOLD SHARES TO CONTINUE AS MEM BER OF THE COOPERATIVE SOCIETY RUNNING THE BANKING BUSI NESS.' ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 14 29. THE 'C BENCH OF THE ITAT DELHI IN THE CASE OF A DIT (EXEMPTION) VS. INDIA FRINGE CENTRE FOR THE PROMOTION OF ADVANC ED RESEARCH ITA NO.3065 AND 6164 DELHI 2012 ASSESSMENT YEARS 2008-0 9 AND 2009- 10 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 M ONEY FOR EMPLOYMENT IN BUSINESS, DEPOSIT OF TITLE DEEDS SIMI LAR DOCUMENT AS SECURITY FOR LOAN, DEPOSIT OF MONEY IN A BANK IN THE ORDINARY COURSE OF BUSINESS OF CURRENT ACCOU NT AND TO DEPOSIT A SUM OF INTEREST AT A FIXED DEPOSIT IN A BANK. THUS, BOTH 'INVESTMENT' AND 'DEPOSIT' REQUIRE A POS ITIVE ACT ON THE PART OF THE ASSESSEE WITH AN INTENTION T O EARN INCOME/INTEREST,' 30. THE MADRAS 'C BENCH OF THE TRIBUNAL IN ITA NO.L445/MADRAS/2012 IN THE CASE OF M/S. SETHU VALLI AMMAL EDUCATIONAL TRUST (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 PREVIOUS YEAR, SUBSCRIBED TO TW O CHITS, ONE CONDUCTED BY M/S TERN CREDITS & CHITS PRIVATE L IMITED AND THE OTHER BY M/S K.R. PALANIAPPAN (CHIT). LEARN ED D.R. HAS ALSO NOT DISPUTED THE AVERMENT THAT BOTH T HESE WERE REGISTERED CHIT FUNDS, RUNNING CHITS. ASSESSEE HAD PLACED MONEY WITH THESE CHIT COMPANIES BY WAY OF SUBSCRIPTIONS. THE AMOUNTS WERE PAID ON A MONTHLY B ASIS TO THE TWO CHIT COMPANIES. THIS IS DEAR FROM PAPER- BOOK PAGES 14 TO 17, WHICH ARE COPIES OF RELEVANT LEDGER FOLIOS IN THE BOOKS OF THE ASSESSEE. THE TOTAL AMOUNT PLAC ED BY THE ASSESSEE, DURING THE RELEVANT PREVIOUS YEAR, WI TH M/S TERN CREDITS & CHITS PRIVATE URN/TED WAS RS.2,08,45 6/- AND WITH M/S K.R. PALANIAPPAN (CHIT) WAS RS.96,230/ -. THE ANNUAL INCOME OF THE TRUST CAME TO RS.7,35,19,9 54/- AGAINST WHICH, UTILIZATION FOR CHARITABLE PURPOSE C AME TO RS. 6,98,07,198/-, WHICH WAS WELL ABOVE THE LIMIT O F 85% PRESCRIBED UNDER SECTION LL(L)(A) OF THE ACT. AS PE R 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 S ECTION 11 OF THE ACT. SUBSCRIPTION PAID 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 PRIZ E THE CHITS EITHER BY COMPETITIVE BIDDING OR WHEN LOTS ARE DRAW N. IF THERE WAS NO BIDDING DONE IN A GIVEN MONTH, THERE W ILL BE NO INCOME WHATSOEVER DERIVED. THE INCOME THAT CAN B E 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 CREATED BY THE SUBSCRIBERS, AND THEIR TURN FOR GETT ING SUCH LOAN IS DECIDED EITHER BY AUCTION OR BY DRAWING LOT S. THE NATURE OF CHIT AS AFORESAID HAS BEEN VIVIDLY DESCRI BED IN ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 15 THE JUDGMENT OF KERALA HIGH COURT IN THE CASE OF KO TTAYARN 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 TH AT THE SUBSCRIBERS TO A CHIT FUND WERE ENTITLED ONLY FOR P RIZING THE CHITS AND THE MONEY PLACED BY A SUBSCRIBER TO A CHI T FUND COULD NOT BE EQUATED WITH DEPOSITS. THE FOREMAN OF A CHIT FUND IS ONLY ACTING AS A CONDUIT FOR THE SUBSCRIBER S TO POOL THEIR MONEY EVERY MONTH FOR THE BENEFIT OF ONE OF T HEM. CHIT FUNDS ACT, 1982 REQUIRES THE CONCERN RUNNING A CHIT TO A SUBSCRIBER OF THE CHIT ALSO. WE CANNOT SAY THA T 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 PLACIN G ANY DEPOSIT IN THE CONCERN RUNNING THE CHIT FUND. POOLI NG OF MONEY BY A GROUP OF PERSONS FOR THE BENEFIT OF ONE OF THEM, THROUGH CHITS, CANNOT BE EQUATED WITH INVESTM ENTS OR DEPOSITS.' THEREAFTER IT HELD AS FOLLOWS: 'IT IS CLEAR FROM THE ABOVE CONSEQUENCE THAT THE IN TENTION OF LEGISLATURE IS TO REGULATE THE MANNER OF INVESTMENT OF THE MONEY LEFT WITH THE ASSESSEE TRUST AFTER UTILIZATIO N FOR CHARITABLE PURPOSE.' 11. THEREFORE, IN OUR OPINION, THE LOWER AUTHORITIE S FELL IN ERROR IN CONCLUDING THAT SUCH SUBSCRIPTIONS WERE INVESTME NTS WHICH VIOLATED THE MODES SPECIFIED UNDER SECTION 11(5) OF THE ACT. THE QUESTION OF DENIAL OF EXEMPTION UNDER SECTION 1 1 WOULD ARISE ONLY IF INVESTMENTS WERE THERE. WE ARE, THERE FORE, OF THE OPINION THAT ASSESSEE COULD NOT HAVE BEEN DENIED EX EMPTION CLAIMED BY IT UNDER SECTION LL OF THE ACT, FOR A RE ASON THAT IT HAD SUBSCRIBED TO THE CHIT FUNDS. THERE IS NO CASE FOR THE REVENUE THAT ANY OF THE TRUSTEES, MANAGERS, CONTRIB UTORS OF RELATIVES OF SUCH PERSONS WERE HAVING INTEREST IN T HE 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 GRA NT THE ASSESSEE ITS CLAIM OF EXEMPTION UNDER SECTION 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) 170ITR 150, GUJARAT HIGH COURT IN CITV S. INSANIYAT TRUST (1988) 173 ITR 248 AND THE BOMBAY HIGH COURT IN TRUSTEES OF MANGALDAS N. VERMA CHARITABLE TRUST VS. CIT 203 ITR 322 HAVE TAKEN A VIEW THAT THE TERM 'FUNDS' MEANS MONEY OR C ASH AND THE TERM INVEST CONNOTES A POSITIVE ACT ON THE PART OF THE TRUST WHEREBY THE FUNDS OF THE TRUST ARE LAID OUT OR COMMITTED IN ANY PARTICULAR PROPERTY OR BUSINESS OR TRANSACTION WITH A VIEW OF EARNING A PROFIT OR FINANCIAL ADDITION OR RETURN. THE COURTS THEREFO RE HELD THAT SECTION 13(2}(H) DID NOT APPLY TO ASSETS RECEIVED A S A DONATION SINCE NO 'FUNDS' WERE 'INVESTED'. IN OUR VIEW THIS PROPOSITION, THOUGH GIVEN IN A CONTEXT OF SECTION 13(2)(H) WOULD EQUALLY APPLY TO SECTION 13(L)(D) OF THE ACT AS THE LANGUAGE AND PUR POSE OF THE SECTIONS ARE THE SAME. ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 16 32. WE NOW CONSIDER THE FACTS OF THIS CASE. A PERUS AL OF THE ORDER OF THE FIRST APPELLATE AUTHORITY REVEALS THAT THERE IS NO DISPUTE ON THE LEGAL PRINCIPLE THAT, IF THE CHIT FUND CONTRIBU TION IN QUEST/ON IS NOT MADE AS AN INVESTMENT, THEN THE PROVISIONS OF S ECTION 13(L)(D) ARE NOT ATTRACTED. IN OTHER WORDS, IT IS AN ACCEPTE D POSITION THAT SEC 13(L)(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 PRIY ADARSHINI EDUCATIONAL ACADEMY VS. DGIT (SUPRA) . HON'BLE A.P. HIGH COURT IN THAT CASE WAS CONSIDERING, IN A WRIT PETITION, A CASE WHERE EXEMPTION WAS DENIED U/S 10(23C)(VI) OF THE ACT. TH E ARGUMENT OF THE LD, COUNSEL IN THIS CASE ARE AT PARA ARE EXTRAC TED FOR READY REFERENCE: 'THE SURPLUS INCOME, IF ANY, AND ALL THEIR FUNDS ST OOD INVESTED IN ACQUISITION OF ASSETS, AND IN THE MODES AND FORM S SPECIFIED IN SECTION 11(5), FOR THE ASSESSMENT YEAR 2008-09, I.E., THE YEAR FOR WHICH APPROVAL WAS SOUGHT; THE LEGAL INFIR MITY, ON THE BASIS OF WHICH EXEMPTION WAS DENIED TO THE SOCIETY IN THE PAST ASSESSMENT YEARS, WAS BECAUSE OF ITS CONTRIBUTION T O A CHIT FUND SCHEME WHICH WAS CONSIDERED BY THE ASSESSING O FFICER AS A CONTRAVENTION OF SECTION 13(L)(D) OF THE ACT; THE SAID INFIRMITY DID NOT EXIST IN THE ASSESSMENT YEAR 2008 -09 INASMUCH AS THE INSTALLMENT HAD BEEN FULLY PAID IN THE EARLIER YEAR ITSELF; IN THE FINANCIAL YEAR, RELEVANT TO THE ASSESSMENT YEAR 2008-09, ALL THE PETITIONER'S FUNDS STOOD INVE STED IN THE FORMS APPROVED UNDER SECTION 11(5) OF THE ACT.' 33. THE HON'BLE HIGH COURT AT PARA 8&9 HELD AS FOLL OWS: '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 FORM S OR MODES SPECIFIED IN SECTION 11(5) OF THE ACT. SECTION 11(5 ) PRESCRIBES THE FORMS AND MODES OF INVESTING OR DEPOSITING MONE Y AS THOSE SPECIFIED IN CLAUSES (I) TO (XII) THERE UNDER . INVESTMENT/DEPOSIT IN A CHIT FUND IS NOT ONE OF THE MODES OF INVESTMENT OR DEPOSIT OF MONEY REFERRED TO IN CLAUS ES (I) TO (XII) OF SECTION 11(5) OF THE ACT. AS SECTION 10(23 C)(VI) OF THE ACT REQUIRES THE INCOME RECEIVED BY ANY PERSON, ON BEHALF OF THE EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDU CATIONAL PURPOSES AND' NOT FOR PROFIT, TO BE EXCLUDED WHILE COMPUTING THE TOTAL INCOME OF THE PREVIOUS YEAR OF SUCH A PER SON, THE THIRD PROVISO THERETO STIPULATES THAT THE INVESTMEN T OR DEPOSIT OF FUNDS OF THE EDUCATIONAL INSTITUTION, OTHERWISE THAN IN ANY ONE OF THE FORMS OR MODES SPECIFIED IN SECTION 11(5 ), FOR ANY PERIOD DURING THE PREVIOUS YEAR, WOULD RESULT IN DE NIAL OF THE BENEFIT OF EXCLUSION OF SUCH INCOME FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE SAID PERSON. EVEN IN CASES WHERE APPROVAL WAS GRANTED EARLIER UNDER SECTION 10(23Q(V I) OF THE ACT, FAILURE OF THE SOCIETY (EDUCATIONAL AGENCY) TO INVEST IN THE MODES AND FORMS SPECIFIED IN SECTION 11(5) OF THE A CT WOULD DISENTITLE THEM FROM CLAIMING THE BENEFIT OF EXCLUS ION OF THE INCOME, RECEIVED ON BEHALF OF AN EDUCATIONAL INSTIT UTION, FROM THEIR TOTAL INCOME FOR THE PREVIOUS YEAR. IN CASES WHERE INITIAL APPROVAL, OR EXTENSION OF THE APPROVAL GRANTED EARL IER, IS SOUGHT, THE PRESCRIBED AUTHORITY WOULD BE ENTITLED TO EXAMINE ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 17 THE ANNUAL ACCOUNTS OF THE APPLICANT-SOCIETY FOR TH E PREVIOUS THREE YEARS TO ASCERTAIN WHETHER INVESTMENT/DEPOSIT S MADE IN ANY OF THE PREVIOUS THREE YEARS ARE IN THE FORMS AN D MODES OTHER THAN THOSE SPECIFIED IN SECTION 1-1(5) OF THE ACT. IT IS ONLY IF THE PRESCRIBED AUTHORITY IS SATISFIED THAT THE APPLICANT HAS APPLIED ITS INCOME EXCLUSIVELY FOR THE PURPOSE OF EDUCATION, AND HAS ADHERED TO THE MODES SPECIFIED I N SECTION 11(5) OF THE ACT, THAT HE WOULD GRANT APPROVAL, OR RENEW THE APPROVAL GRANTED EARLIER, UNDER SECTION 10(23C)(VI) OF THE ACT. 9. ACCEPTING THE SUBMISSION OF THE LEARNED COUNSEL FOR THE PETITIONER THAT, SINCE THE PETITIONER'S INVESTMENT IN A CHIT FUND, (WHICH IS NOT ONE OF THE MODES AND FORMS SPECIFIED IN SECTION 11(5) OF THE ACT), WAS IN THE ASSESSMENT YEAR 2007- 08, PRIOR TO THE ASSESSMENT YEAR 2008-09 FOR WHICH APPROVAL WAS SOUGHT, SUCH INVESTMENT OR DEPOSIT CANNOT RESULT IN DENIAL OF GRANT OF EXEMPTION, WOULD RENDER THE REQUIREMENT OF FURNISHI NG THE AUDITED ANNUAL ACCOUNTS FOR THE PREVIOUS THREE YEAR S, AS STIPULATED IN FORM 56D, WHOLLY UNNECESSARY. A LOGIC AL 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 B E EXAMINED BY THE PRESCRIBED AUTHORITY, AND NOT THE T WO PREVIOUS YEARS PRIOR THERETO,' 34. ON PERUSAL OF THE ABOVE JUDGMENT, IT IS CLEAR T HAT, THE ISSUE WHETHER THE CONTRIBUTION MADE BY THE ASSESSEE TO A CHIT FUND AS AN INDIVIDUAL SUBSCRIBER, EITHER ON THE FACTS OF THE C ASE, OR UNDER THE SCHEME OF THE CHIT FUND ACT, CAN BE CONSIDERED AS A N INVESTMENT OR NOT, OR WHETHER SUCH CONTRIBUTION WAS A DEPOSIT OR NOT, WAS NOT THE ISSUE BEFORE THE HON'BLE HIGH COURT. THE ISSUE AS T O WHETHER THE CONTRIBUTION TO THE CHIT FUND IS AN INVESTMENT/DEPO SIT WAS NOT CONTESTED BY THE PARTIES. HENCE, THIS JUDGEMENT OF THE JURISDICTIONAL HIGH COURT CANNOT BE APPLIED TO THE CASE ON HAND WH ERE THE ISSUE IS WHETHER A CONTRIBUTION TO A CHIT BY AN INDIVIDUAL S UBSCRIBER CAN BE CONSIDERED AN INVESTMENT OR A DEPOSIT AS CONTEMPLAT ED U/S 13(1 )(D) R.W.S. SEC 11(5) OF THE ACT. THE VARIOUS JUDGM ENTS OF THE HON'BLE SUPREME COURT AND THE HIGH COURTS AS WELL A S THE TRIBUNAL CLEARLY LAY DOWN THAT CONTRIBUTION TO A CHIT FUND B Y AN INDIVIDUAL SUBSCRIBER IS GOVERNED BY THE PRINCIPAL OF MUTUALIT Y 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 EXPANS ION. THIS FACT IS NOT DISPUTED BY THE LD. CIT(DR). IT IS ALSO DEAR TH AT THE ASSESSEE SOCIETIES HAVE TAKEN HUGE LOANS FROM VARIOUS BANKS, FOR UNDERTAKING EXPANSION AND TO CREATE INFRASTRUCTURE. THESE LOANS WERE TAKEN BY THE SOCIETIES AS THEY DID NOT HAVE SU RPLUS FUNDS TO UNDERTAKE EXPANSION AND CREATE INFRASTRUCTURE. ON T HE BASIS OF THESE FACTS, WE COME TO THE CONCLUSION THAT THE CON TRIBUTION MADE BY THE ASSESSEES TO A CHIT, IS NOT A POSITIVE ACT T O LAY OUT MONEY FOR BUSINESS, WITH A VIEW TO OBTAIN AN INCOME OR PROFIT . IT IS NOT AN INVESTMENT, AS THE AMOUNT LAID OUT IS NOT A POSITIV E ACT ON THE PART OF THE ASSESSEES TO EARN ANY RETURNS, PROFIT OR INC OME. THE MONEY ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 18 HAS NOT BEEN LAID OUT IN SUCH A MANNER AS TO ACQUIR E 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. THIS IS CLEAR FROM FUNDS FLOW STATEMENT AND THE PROJECTED INVESTMENT R EQUIRED BY THE ASSESSEE. WHEN THE ASSESSEE IS PAYING HUGE AMOUNT O F INTEREST TO VARIOUS BANKS, IT IS WRONG TO CONCLUDE THAT ASSESSE E HAS WITH AN INTENTION TO EARN PROFIT OR INCOME MADE A CONTRIBUT ION 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 POINTING OUT THAT, EVERY MONTH THE WINNER OF THE CHIT IS DET ERMINED BY DRAW OF LOTS 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 ALSO WRONG, FOR THE REASON THA T THESE FIXED DEPOSITS WERE JOINTLY HELD IN THE NAME OF THE ASSES SEE AND THE GOVERNMENTAL AUTHORITY, AS IS WAS COMPULSORY AS PER RULES, FOR GRANT OF PERMISSION TO RUN EDUCATIONAL INSTITUTION. THUS, FOR ALL THESE REASONS, WE UPHOLD THE CONTENTION OF THE ASSESSEE T HAT THE CONTRIBUTION TO CHIT, IN THE CASES ON HAND, IS NOT AN INVESTMENT NOR A DEPOSIT AND HENCE SECTION 13(L)(D) OF THE ACT IS NO T ATTRACTED. 38. THE TERM 'FUND' USED IN SECTION 13(L)(D) OF THE ACT, IN OUR OPINION, HAS TO BE R.W.S. 11(5) OF THE ACT. UNDER S ECTION 11(5), THE WORDING IS 'FORMS AND MODES OF INVESTING AND DEPOSI TING THE MONEY REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2) IS AS FOLLOWS: SEC. 11 (2) (B) READS AS FOLLOWS: 'THE MONEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITED IN THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5)'. 39. THUS THE REQUIREMENT OF INVESTING OR DEPOSITING , U/S 11(5) OF THE ACT IS CONFINED TO MONEY IN HAND OR CASH. WHEN THE ENTIRE INCOME OF THE YEAR HAS ALREADY BEEN SPENT TOWARDS THE OBJE CTS OF THE SOCIETY, THERE CANNOT BE SAID TO BE ANY FUNDS REMAI NING OUT OF THE FUNDS RECEIVED BY WAY OF INCOME. A PERSON CAN INVES T ONLY THE MONEY WHICH IS IN HIS HANDS. IF 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 HON'B LE DELHI HIGH COURT IN THE CASE OF CIT VS. SRI SRIRAM FOUNDATION 250ITR 55, THOUGH MADE IN THE CONTEXT OF SECTION 13(2)(H), IS ON ALL FOURS APPLICABLE, WHILE INTERPRETING SECTION 13(L)(D) OF THE ACT. EVEN THE CBDT CIRCULAR NO.335 DT. 13.4.1982 EXPLAINS THE SAM E POSITION. THE EXAMPLE GIVEN THEREIN DEARLY EXPLAINS THAT IN A CASE WHERE THE TRUST DERIVES INCOME OF RS. 40,000 IN A YEAR, AS PE R $.LL(L)(A) IT HAS TO SPEND AT LEAST RS.30,000 ON CHARITABLE PURPOSE A ND THE BALANCE OF RS.10,000 WILL HAVE TO BE INVESTED IN THE FORMS OR MODES PRESCRIBED U/S 13(5)(NOW 5.11(5)). THEREFORE, IN A CASE WHERE THE ENTIRE INCOME OF RS.40,000 IS SPENT FOR CHARITABLE PURPOSES EXEMPTION U/S LL(L)(A) HAS TO BE GRANTED AND THERE IS NO NEED TO FURTHER EXAMINE WHETHER ANY INVESTMENTS WERE MADE I N VIOLATION OF 5.11(5) OF THE ACT IN AS MUCH AS THE TRUST IS LEFT WITH NO MORE FUNDS OUT OF THE INCOME OF RS.40 F OOO 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 YE AR AND THUS ENTIRE ITA NO.521/VIZAG/2014 M/S. SRI SIVANI EDUCATIONAL SOCIETY, SRIKAKULAM 19 INCOME OF EACH ASSESSMENT YEAR WAS FULLY SPENT TOWA RDS 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 SOM EONE ELSE, AND FURTHER THAT THE PROVISIONS OF S.LL(L)(A) HAVE BEEN COMPLIED BY INVESTING THE ENTIRE INCOME OF THE YEAR TOWARDS CHA RITABLE PURPOSES, WE CONCLUDE THAT THERE IS NO VIOLATION OF SECTION 1 3(L)(D) R.W.S. 11(5) OF THE ACT.' CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH ON THE ABOVE ISSUE, WE HOLD THAT PARTICIPATION IN CHIT FUND BY THE ASSESSEE DOES NOT VIOLATE SECTION 13(1)(D) R.W.S. 1 1(5) OF THE ACT. HENCE, WE UPHOLD THE ORDER OF THE FIRST APPELLATE A UTHORITY AND REJECT THE GROUNDS OF APPEAL TAKEN BY THE REVENUE. 6. IT IS FURTHER EVIDENT THAT THE COORDINATE BENCH AGAIN IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 ALS O EXPRESSED THE SAME VIEW. IN THE AFORESAID FACTS AND CIRCUMST ANCES, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AS THE VIEW EXPRESSED BY HIM IS IN CONFORMITY WITH THE DECISION S OF THE COORDINATE BENCH IN ASSESSEES OWN CASE. IN THE AF ORESAID VIEW OF THE MATTER, WE UPHOLD THE ORDER OF LD. CIT(A) BY DI SMISSING THE GROUNDS RAISED BY THE DEPARTMENT. 7. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 15 TH APRIL, 2015, 2105. SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER KV/SPS VISAKHAPATNAM, DATED 15 TH APRIL, 2015 COPY TO 1 ITO WARD-2, SRIKAKULAM. 2 M/S. SRI SIVANI EDUCATIONAL SOCIETY, D.NO.2-1-116 , NEAR VIJAYA BANK, PALAKONDA ROAD, SRIKAKULAM 3 THE CIT, VISAKHAPATNAM 4 THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE.