High Court Of Delhi
Pt. Kanahya Lal Punj Charitable Trust vs. Director Of Income Tax (Exemption)
Section 11, 12, 13(1)(c), 13(2)(a), 13(3), 260A
Asst. Year 1997-98
Madan B. Lokur & V.B. Gupta, JJ.
IT Appeal No. 1651 of 2006
14th May, 2007
Counsel Appeared :
Ajay Vohra with Ms. Kavita Jha, for the Appellant : R.D. Jolly with Vishnu Sharma, for the Respondent
JUDGMENT
V.B. Gupta, J. :
By way of present appeal filed under s. 260A of the IT Act, 1961 (in short as “the Act”), the assessee has challenged the order dt. 31st Jan., 2005, passed by the Tribunal, “F” Bench, New Delhi (in short as “the Tribunal”) in ITA No. 457/Del/1999 for the asst. yr. 1997-98.
2. The assessee is a society registered under the Societies Registration Act as well as under s. 12A of the Act. The assessee is having income mainly from the interest on fixed deposits and donations. During the course of assessment proceedings, it was noticed by the AO that the assessee has advanced huge amounts to M/s Punj Lloyd Ltd. and as such he raised a query as to why s. 13(l)(c) r/w s. 13(2)(a) of the Act be not invoked as no adequate interest has been charged on such amount, though that company was substantially interested in the trust. From the bank statements, the AO found that as on 31st March, 1997, a sum of Rs. 75 lakhs was outstanding with M/s Punj Lloyd Ltd. In response to a query, it was stated that the assessee paid this amount to M/s Punj Lloyd Ltd. as earnest money for purchase of land for a school project to be set up at Ponta Sahib (near Dehradun), and that interest charged by the bank from the trust was fully reimbursed by M/s Punj Lloyd Ltd. to the trust and hence there was no loss to the trust. It was also noticed by the AO that the trust has not taken adequate security to which the assessee stated that the security was provided in the form of equitable mortgage of commercial space owned by M/s Punj Lloyd Ltd. The AO found that the story of payments being made for purchase of land for a school was nothing but an afterthought, specially as there were no agreements with the vendors of land or corresponding bank transactions and no proof of the same was furnished. Since M/s Punj Lloyd Ltd. made contribution in excess of Rs. 50,000 to the trust, and was an interested party, the AO denied exemption under ss. 11 and 12 of the Act. The assessee preferred an appeal before the CIT(A), who confirmed the denial of the exemption and dismissed the appeal filed by the assessee.
Thereafter, the assessee challenged the order of the CIT(A) before the Tribunal and vide the impugned order, the Tribunal dismissed the appeal filed by the assessee and that is how the assessee is before this Court. It has been contended on behalf of the assessee that under s. 11 of the Act, income of a trust held wholly for charitable or religious purpose is exempt. The assessee did not lend any amount to M/s Punj Lloyd Ltd. during the course of commercial transactions and it had deposited the money with M/s Punj Lloyd Ltd. as earnest money for purchase of land for a school and when the deal did not materialise, M/s Punj Lloyd Ltd. returned the money and as such the assessee has been wrongly denied the exemption under ss. 11 and 12 of the Act. The basic requirement for the availability for exemption under ss. 11 and 12 of the Act is that if any money is lent to an interested party as defined in s. 13(3) of the Act for “any period” during the previous year, then the trust should charge “adequate interest” and there should be an “adequate security”. If the contention of the assessee is accepted that the payments were in the nature of earnest money for purchase of land, and the whole exercise was of a commercial nature, it cannot be explained why interest-free advances should be given. The Act requires very strictly that the trusts should use their funds only for the charitable objects for which they have been set up and they cannot be permitted to loan or deposit funds available with them without interest as in the present case. Further, in the present case, not only interest was not charged, even adequate security was also not taken. Sec. 13(1)(c) of the Act speaks of “any income” which has been used to benefit “directly or indirectly” any person referred to in s. 13(3). The plain reading of this section would show that the Act is intended to eliminate any possibility of the trust’s fund being used for the benefit of any interested person. In the present case, it cannot be denied that a benefit has “directly or indirectly” reached the interested person, namely, M/s Punj Lloyd Ltd. and thus, there is a clear violation of ss. 13(1)(c) and 13(2)(a) of the Act.
The Tribunal in its order has noted that once there is a violation of provision of s. 13(3) r/w s. 13(l)(c), the provisions of ss. 11 and 12 of the Act shall not operate so as to exclude the income of the trust from the total income of the previous year. According to ss. 11 and 12 of the Act, the voluntary contributions made with specific direction that they shall form part of the corpus of the trust or institution, shall not be included in the total income of the previous year of the trust. But once the exemption under ss. 11 and 12 is denied, the assessee would not get any protection from ss. 11 and 12 and the voluntary contribution would be treated as income, as per the definition of income given in s. 2(24) of the Act, according to which income includes the voluntary contribution receipts by a trust credited wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes meaning thereby once the exemption under ss. 11 and 12 of the Act is withdrawn all the receipts of the trust either by voluntary contribution or income derived from its property would be an income of the trust in a normal course and is chargeable to tax. There are concurrent findings of the fact by three IT authorities and we do not find any reason to disagree with the conclusion arrived at by these authorities. Under these circumstances, we hold that no fault can be found with the view taken by the Tribunal. Thus, the order of the Tribunal does not give rise to a question of law, much less a substantial question of law, to fall within the limited purview of s. 260A of the Act, which is confined to entertaining only such appeal against the order which involves a substantial question of law. Accordingly, the appeal is hereby dismissed.
[Citation : 297 ITR 66]
