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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 888/2010
DIRECTOR OF INCOME
TAX (EXEMPTION) ..... Appellant
Through: Ms. Prem Lata Bansal, Advocate
versus
ACME EDUCATIONAL SOCIETY ..... Respondent
Through: Mr. Piyush Kaushik, Advocate
Reserved on : 19th July, 2010
% Date of Decision: 28th July, 2010
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE MANMOHAN
1. Whether the Reporters of local papers may be allowed to see the judgment? No
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
JUDGMENT
MANMOHAN, J
1. With consent of the parties, matter was taken up for hearing and
final disposal. After extensively hearing both the parties, the judgment
was reserved in the matter on 19th July, 2010.
2. The present appeal has been filed under Section 260A of Income
Tax Act, 1961 (for brevity “Act, 1961”) challenging the order dated
23rd April, 2009 passed by the Income Tax Appellate Tribunal (in short
“ITAT”) in ITA No. 625/Del/2009, for the assessment year 2005-2006.
ITA 888/2010 Page 1 of 9
3. Briefly stated the relevant facts of the present case are that on
27th October, 2005 assessee-society filed a return declaring nil income
and claiming benefit under Section 11 of Act, 1961. During the
assessment proceedings, the assessing officer noticed that the assessee-
society had in the assessment year 2005-2006 given a loan of Rs.
90,50,000/- to another educational society, namely, Nav Bharti
Educational Society. It is pertinent to mention that the President of Nav
Bharti Educational Society was the brother of the President of assessee-
society. The assessing officer held that there was violation of Section
13(1)(d) read with Section 11(5) of Act, 1961 and accordingly, he
denied benefit of Section 11 of Act, 1961 to the assessee-society.
4. On an appeal filed by the assessee-society, Commissioner of
Income Tax (Appeals) [in short “CIT(A)] deleted the addition and held
that there was no violation of Section13(1)(d) read with Section 11(5)
of Act, 1961 as both the societies had similar objects. CIT(A) further
held that the assessing officer had not brought anything on record to
show that the transaction of loan was a “deposit” or “investment”.
5. ITAT dismissed the appeal filed by the Revenue after holding
that there was no infringement of Sections 13(1)(d) read with 11(5) of
Act, 1961.
6. Ms. Prem Lata Bansal, learned counsel for Revenue submitted
that ITAT had erred in law in granting benefit of Sections 11 and 12 of
Act, 1961 to assessee-society. According to her, both the CIT(A) and
ITAT had erred in law in holding that advance of Rs. 90,50,000/- as
ITA 888/2010 Page 2 of 9
temporary loan by the assessee-society to Nav Bharti Educational
Society was neither an “investment” nor a “deposit”. She laid emphasis
on the fact that Nav Bharti Educational Society had been found to be
engaged in an entry scam by the Investigation Wing. Ms. Bansal stated
that upon Nav Bharti’s assessment proceedings being reopened, huge
monetary demand had been raised against the said society.
7. Mr. Piyush Kaushik, learned counsel who appeared on behalf of
respondent/assessee-society pointed out that the Nav Bharti Educational
Society to whom loan had been given was not only registered under
Section 12A of Act, 1961 but it also had objects similar to that of the
assessee-society. He further pointed out that the loan amount had been
returned to the assessee-society in the assessment year 2007-2008 and
the assessee-society had received no income either by way of interest or
otherwise on account of such loan being advanced by it.
8. Mr. Kaushik vehemently denied the allegation that Nav Bharti
Educational Society was engaged in an entry scam. He submitted that
the said allegation was without any basis and substance. Mr. Kaushik
further pointed out that the alleged addition on account of
accommodation entries had been deleted by the CIT(A) by way of a
detailed order wherein CIT(A) had concluded that the said society had
entered into genuine transactions. Since, Mr. Kaushik laid considerable
emphasis upon the order passed by the CIT(A) in the case of Nav
Bharti Educational Society for the assessment year 2003-2004, the
relevant portion of the said order is reproduced hereinbelow :-
ITA 888/2010 Page 3 of 9
“I have gone through the assessment order and the
arguments of the Ld. AR. It is a fact that the AO did not
consider the documents filed by the appellant. He has
also not mentioned any reason in the assessment order for
making the addition. Nothing is available from the
assessment order as to how the donation remains
unexplained in spite of all the documentary evidences
filed by the appellant. The evidences filed by the
appellant clearly indicate the name and address of the
donors, amount of donations, cheque nos. along with date,
name and address of the banks, confirmation from the
donors, PAN of the donors, there Income Tax jurisdiction,
copy of their bank account indicating the availability of
fund and acknowledgement of IT returns indicating
quantum of income. All these evidences clearly prove the
genuineness of transactions as well as the identity and the
creditworthiness of the donors. Therefore, it is held that
the donations are fully explained and hence the addition
of Rs. 32,00,000 is hereby deleted in view of the decision
of Hon’ble Delhi High Court in case of Keshav
Charitable Trust.”
9. Mr. Kaushik also pointed out that the CIT(A) had similarly
deleted addition on account of the alleged accommodation entries in the
case of Nav Bharti Educational Society for the next assessment year
2004-2005.
10. Having heard both the parties at length, we are of the view that
the issue that arises for consideration in the present case is whether
advancing of an interest free temporary loan by one society to another
society having similar objects is an “investment” or a “deposit” and
whether the assessee-society had violated the provisions of Section
13(1)(d) read with Section 11(5) of Act, 1961?
11. Sections 11(5) and 13(1)(d) Act, 1961 are reproduced
ITA 888/2010 Page 4 of 9
hereinbelow :-
“11. Income from property held for charitable or religious
purposes
xxx xxx xxx
(5) The forms and modes of investing or depositing the
money referred to in clause (b) of sub-section (2) shall be
the following, namely:–
(i) investment in savings certificates as defined in clause (c)
of section 2 of the Government Savings Certificates Act,
1959 (46 of 1959), and any other securities or certificates
issued by the Central Government under the Small Savings
Schemes of that Government;
(ii) deposit in any account with the Post Office Savings
Bank;
(iii) deposit in any account with a scheduled bank or a
co-operative society engaged in carrying on the business of
banking (including a co-operative land mortgage bank or a
co-operative land development bank).
Explanation.–In this clause, “scheduled bank” means the
State Bank of India constituted under the State Bank of India
Act, 1955 (23 of 1955), a subsidiary bank as defined in the
State Bank of India (Subsidiary Banks) Act, 1959 (38 of
1959), a corresponding new bank constituted under section
3 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (5 of 1970), or under section 3 of
the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980), or any other bank
being a bank included in the Second Schedule to the Reserve
Bank of India Act, 1934 (2 of 1934);
(iv) investment in units of the Unit Trust of India
established under the Unit Trust of India Act, 1963 (52 of
1963);
(v) investment in any security for money created and issued
by the Central Government or a State Government;
(vi) investment in debentures issued by, or on behalf of,
any company or corporation both the principle whereof and
the interest whereon are fully and unconditionally
guaranteed by the Central Government or by a State
Government;
(vii) investment or deposit in any [public sector
company]:
[Provided that where an investment or deposit in any public
sector company has been made and such public sector
ITA 888/2010 Page 5 of 9
company ceases to be a public sector company,–
(A) such investment made in the shares of such
company shall be deemed to be an investment made under
this clause for a period of three years from the date on
which such public sector company ceases to be a public
sector company;
(B) such other investment or deposit shall be deemed
to be an investment made under this clause for the period up
to the date on which such investment or deposit becomes
repayable by such company;]
(viii) deposits with or investment in any bonds issued by
a financial corporation which is engaged in providing long-
term finance for industrial development in India and which
is [eligible for deduction under] clause (viii) of sub-section
(1) of section 36;
(ix) deposits with or investment in any bonds issued by
a public company formed and registered in India with the
main object of carrying on the business of providing long-
term finance for construction or purchase of houses in India
for residential purposes and which is [eligible for deduction
under] clause (viii) of sub-section (1) of section 36;
[(ixa) deposits with or investment in any bonds issued by
a public company formed and registered in India with the
main object of carrying on the business of providing long-
term finance for urban infrastructure in India.
Explanation.–For the purposes of this clause,–
(a) “long-term finance” means any loan or advance
where the terms under which moneys are loaned or
advanced provide for repayment along with interest thereof
during a period of not less than five years;
(b) “public company” shall have the meaning assigned
to it in section 3 of the Companies Act, 1956 (1 of 1956);
(c) “urban infrastructure” means a project for
providing potable water supply, sanitation and sewerage,
drainage, solid waste management, roads, bridges and
flyovers or urban transport;]
(x) investment in immovable property.
Explanation.–“Immovable property” does not include any
machinery or plant (other than machinery or plant installed
in a building for the convenient occupation of the building)
even though attached to, or permanently fastened to,
anything attached to the earth;]
[(xi) deposits with the Industrial Development Bank of
India established under the Industrial Development Bank of
India Act, 1964 (18 of 1964);]
ITA 888/2010 Page 6 of 9
[(xii) any other form or mode of investment or deposit as
may be prescribed.]”
12. This Court in the case of Director of Income Tax (Exemption)
Vs. Alarippu, (2000) 244 ITR 358 has pointed out that the words
“investment”, “deposit”, and “loan” have different meanings. The
relevant observations in the said judgment are reproduced
hereinbelow:-
“The expressions used in both the provisions quoted above, are
“investment” and “deposit”. The former expression means to
lay out money in business with a view to obtain an income or
profit. Deposit, on the other hand, means that which is placed
anywhere, as in any 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 under-stood as such.
In order to constitute an investment the amount laid down should
be capable of any result of any income, return or profit to the
investor and in every case of investment, the intention and
positive act on the part of the investor should be to earn such
income, returns, profit in order to 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. A loan, on the other hand, is granting temporary use of
money, or temporary accommodation. The words “investment”,
“deposit” and “loan” are certainly different. Section 11(5)
refers to pattern of investment by the assessee. Section 11(5) was
introduced by the Finance Act, 1983, with effect from April 1,
1983, i.e., for and from assessment year 1983-84. It prescribes
the forms and modes of investing and depositing money referred
to in section 11(2)(b). Subsequently, new forms and modes have
been added. Section 13(1)(d) as amended by the Finance Act,
1983, provides that the income of any charitable or religious
trust or institution will not be entitled to exemption under section
11 and 12, if certain conditions stipulated therein are not
complied with. The word deposit does not cover transaction of
loan which can be more appropriately described as directed
bailment. The essence of deposit is that there must be a liabilityITA 888/2010 Page 7 of 9
to return it to the party by whom or on whose behalf has been
made on fulfillment of certain conditions. In the commercial
sense, the term is used to indicate the aforesaid transaction as
deposit of money for employment, in business, deposits for value
to initiate security for deposit of title deeds, similar documents as
security for loan, deposit of money bills in a bank in the ordinary
course of business of current account and deposits of a sum at
interest at a fixed deposit in a bank.”
13. In Baidya Nath Plastic Industries (P) Ltd. & Ors. Vs. K.L.
Anand, (1998) 230 ITR 522 (Delhi) a learned Single Judge of this
Court pointed out that the distinction between “loan” and “deposit” is
that in the case of the former it is ordinarily the duty of the debtor to
seek out the creditor and to repay the money according to the
agreement, while in the case of the latter it is generally the duty of the
depositor to go to the banker or to the depositee, as the case may be,
and make a demand for it.
14. A Division Bench of this Court in case of Director of Income-
Tax (Exemption) Vs. Priwar Sewa Sansthan, (2002) 254 ITR 268 has
held that no question of law arises from the order of ITAT holding that
there was no violation of provision Section 13(1)(d) of Act, 1961 where
loan had been given by one society to another society having similar
objects.
15. Keeping in view the aforesaid exposition of law, we are of the
opinion that interest free loan of Rs. 90,50,000/- given by the assessee-
society to Nav Bharti Educational Society does not violate Section
13(1)(d) read with Section 11(5) of Act, 1961 as the said loan was
neither an “investment” nor a “deposit”. This is more so as both the
ITA 888/2010 Page 8 of 9
societies had similar objects and were registered under Section 12A of
Act, 1961 and had approvals under Section 80G of the Act, 1961. The
fact that the loan was interest free and had been subsequently returned
is also significant. In view of the order passed by the CIT(A) in the
case of Nav Bharati Educational Society, Ms. Bansal’s allegation with
regard to “entry scam” also does not survive. Consequently, there is no
substantial question of law involved in the present appeal and
accordingly, appeal is dismissed but with no order as to costs.
MANMOHAN, J
CHIEF JUSTICE
JULY 28, 2010
rn
ITA 888/2010 Page 9 of 9