Interest free Advances by charitable society-ITAT rules out violation of provisions of Section 13(1)(c) and 13(1)(d) of the Income Tax Act, 1961 Act
ABCAUS Case Law Citation:
ABCAUS 2777 (2019) (02) ITAT
Important Case Laws Cited/relied upon by the parties
Tribunal in DCIT (Exemptions) v. Vels Institute of Science, Technology & Advanced Studies (2015) 11 TMI 857.
CIT v. Rajasthan And Gujarati Charitable Foundation
The appeal of the Revenue was directed against the orders of the Commissioner of Income Tax (Appeals) in allowing exemption to the respondent charitable Society under Section 11 despite violation of Section 13(1)(c) and 13(1)(d) of the Income Tax Act, 1961 Act (the Act).
Interest free advance to employee
The Department submitted that the advance made to employees if the Trust without charging interest amounted to undue advantage at the cost of society fund. According to the, the borrowed funds of the assessee-trust was advanced as interest free loan to the employees and other interested persons, hence, there was a clear violation of Section 13(1)(c) of the Act and therefore, the assessee was not eligible for exemption under Section 11 of the Act.
The Tribunal opined that when the assessee advanced money to the employees of the trust, it could not be construed as violation of any of the provisions of Section 13 of the Act.
The Tribunal stated that the advance made to employees of the trust, in fact, enabled the assessee-trust to carry on the charitable object effectively and efficiently.
The Tribunal opined that unless the employees of the trust were motivated by advancing interest-free-funds, the assessee may not be able to carry out the charitable object as expected by the trustees. Therefore, there was no violation of Section 13(1) of the Act.
Advance made to other societies
The Tribunal observed that advance was made to the other societies who were having similar object out of the surplus funds of the current financial year.
The Tribunal opined that what is prohibited under the Act is advancing of money from the accumulated funds of the earlier year. It was not the case of the Revenue that the assessee had transferred the accumulated funds contrary to the purpose for which it was accumulated.
The Tribunal opined that when the assessee advanced money to similar societies who were carrying on similar object of charitable institution like assessee, there was no violation of Section 13(1) of the Act.
Advanced for purchase of land
The Tribunal opined that merely because there was delay in completion of sale deed, it cannot be said that there was any violation of Section 13(1)(c) or 13(2)(b) of the Act. Therefore, when the assessee advanced money for acquisition of property in connection with charitable object carried on by the assessee, it has to be construed as application of income.
Therefore, there was no question of violation of any provisions of the Act.