@JUDGMENTTAG-ORDER
1. We have heard Shri R.K. Upadhyay, learned counsel for the income tax department. Shri Shakeel Ahmad appears for the respondent assessee.
2. In this income tax appeal u/s 260A of the Income Tax Act, 1961 preferred against the order dated 28-2-2011 passed by the Income Tax
Appellate Tribunal in I.T.A. No. 456/LKW/2010 for the assessment year 2006-07 the appellant has raised the following substantial questions of
law for consideration of the Court:
(i) Whether the Hon''ble Income Tax Appellate Tribunal was justified in law and on facts in holding that the source of loan given by the assessee to
Ram Lakhan Shiksha Samiti was from the funds included in accumulated funds proposed to be utilized for the purposes of section 11(5) of the
Act. Therefore, the funds which were set aside for the purposes as per section 11(2) could only be utilized in the manner provided in section 11(5)
of the Act.
(ii) Whether the Hon''ble ITAT was justified in law and on fact in holding that at the relevant time, no registration u/s 12AA of the Act was
available to the recipient society in the Financial Year in which the loan was given to it.
3. The appeal is admitted on the questions framed as above and was heard with the consent of the parties.
4. In the present case the assessing officer (assessing officer) held that there was violation of section 13(1)(d) read with section 11(5) of the
Income Tax Act and denied the benefit of section 11 of the Act on the loan amount of Rs. 1,28,06,709 given by the assessee society to another
educational society namely Ram Lakhan Shiksha Samiti. The assessing officer held that though the amount given as loan is less than 15% of the
income over expenditure, since the amount was not deposited in any of the securities mentioned in section 11(5), no allowance can be given for
such amount.
5. Brief facts giving rise to this income tax appeal are that the assessee is registered u/s 12A of the Income Tax Act and is running an education
institution in the name of schools: (i) Subhash Institute of Software Technology (ii) Subhash Balika Inter College (iii) Subhash Public School.
6. The assessee gave loans to Ram Lakhan Shiksha Samiti in financial year 2002-03. The donee society was not registered u/s 12AA of the Act.
It was granted registration u/s 12AA on 25-5-2005 with effect from 1-4-2004 by the CIT-1, Kanpur. The assessee society had given loan to it at
the time when it was not registered u/s 12AA. Further, the loans were given out of general reserve. The assessee had Rs. 71,85,439 under the
head general reserve and funds of Rs. 6,08,552 as surplus funds over and above 25% specified u/s 11(2) of Income Tax Act. Since the assessee
had advanced loan of Rs. 1.28 crores in financial year 2002-03, the advance could only be given out of funds which includes accumulated
balances over the above 25% u/s 11(2) of the Act. The assessee had made advance of Rs. 1.28 crores to M/s. Ram Lakhan Shiksha Samiti, and
Rs. 1,00,000 to Subhash Degree College out of its accumulated balance which included the funds accumulated u/s 11(2) apart from the funds
available upto 25% of its income. The funds continued to be lent from financial year 2002-03 till the end of the year under consideration.
7. Shri Ram Lakhan Bhatt is founder trustee and Manager of the assessee trust as well as that of M/s. Ram Lakhan Shiksha Samiti to which the
loans were advanced.
8. The assessing officer held that even if the advances were made out of funds over and above 75%, still in view of provisions contained in section
13(1)(d)(i), the assessee is not entitled for claim of deduction u/s 11 and 12 in view of exclusion provided by section 13(1) of Income Tax Act.
9. The Commissioner (Appeals) after considering the submissions held that the words in section 11 are clear and unambiguous. The exemption is
available only if money is invested or deposited in the modes specified. Section 11 is in two parts namely (i) that the accumulated funds have to be
used by the trust in a manner which amount is ''invested or deposited'', and (ii) such amount invested or deposited is in the specified form or modes
given in section 11(5). In case of failure to adhere the either of the conditions, the exemption will not be available. In this case the Commissioner
(Appeals) held that the A.R. has admitted that giving loan is not the same thing as investment or deposit. In giving loan there has been a clear
violation of the provisions in limine. Even assuming that giving loan is a form of deposit or investment, even then the second condition which is such
deposit/investment has to be in specified assets has not been met in this case. There is no difference in the wording of section 13(1)(d)(i) and
section 11(2) of the Act. The appeal was consequently dismissed.
10. The ITAT relied upon the judgment of Delhi High Court in Director of Income Tax Vs. Acme Educational Society, in which it was held as
follows:
that the interest-free loan of Rs. 90,50,000 given by the assessee-society to the other society did not violate section 13(1)(d) read with section
11(5) of Act, 1961 as the loan was neither an ''investment'' nor a ''deposit''. Moreover, both societies had similar objects and were registered u/s
12A of the Act and had approvals u/s 80G. The fact that the loan was interest-free and had been subsequently returned was also significant.
11. The ITAT thereafter observed that total expenditure of the assessee were Rs. 1,55,49,885 and the total receiving were Rs. 2,34,38,260. The
excess of income over expenditure was at Rs. 21,11,624, which was less than 15% of the gross receipts and thus it cannot be said that the loan
given by the assessee was out of the surplus funds beyond prescribed limit. Moreover, the loan was not in the period relevant to the assessment
year under consideration. It was given in between 20-2-2003 to 24-2-2003 i.e. in the period relevant to the assessment year 2003-04. The ITAT
further found that the provisions of section 13(1)(d) of the Income Tax Act, which have been invoked by the AO were not applicable to the facts
of the assessees case. The assessee neither invested the amount nor deposited the same otherwise than in any one of the forms or modes specified
in sub-section (5) of section 11 because the loan is neither an investment nor a deposit as held in Acme Educational Society (supra) and
accordingly provisions of section 13(1)(d) are not applicable. The appeal was allowed.
12. Shri R.K. Upadhyay, learned counsel for the revenue submits that the loan is also in the nature of deposit or investment. There is clear
embargo in section 11(5) that the society registered for charitable and religious purpose can invest the amount only in the specified investments and
that these investments do not include loan to another society even if the objects of both the societies are same.
13. In the present case we find that excess of income over expenditure in the relevant year was less than 15% of the gross receipts. The loan was
not given in the period relevant to assessment year. It was given between 20-2-2003 to 24-2-2003 and was repaid in the year 2009 and further
the amount was given by way of loan to a society, which was later on registered u/s 12A w.e.f. 1-4-2004 to 25-5-2005, with the same objects
and purpose as that of the assessee.
14. It was held in Mansa Ram & Sons v. Janki Dass Om Prakash AIR 1984 All. 267 that the term loan and deposit are not mutually exclusive.
The test is whether on the admitted facts of the case there was an allegation on the debtor to seek out the creditor and repay him or whether he
was to keep the money till the creditor asks for the same. The case of deposit is something more than a mere loan of money. It depends on the
facts of the each case whether the transaction is clothed with the character of deposit of money.
15. We are in agreement with the reasoning given by the Delhi High Court in Acme Educational Society (supra) holding that a loan is neither
investment nor deposit. Where both the societies have similar objects and are registered u/s 12A and have approvals u/s 80G, interest free loan
cannot be treated as deposit or investment so as to attract section 11(5) of the Act.
16. For the aforesaid reasons, both the questions are decided against the revenue and in favour of the assessee.
17. The income tax appeal is dismissed.