Income Tax Appellate Tribunal - Madras
Kumudam Endowments vs Income-Tax Officer on 10 November, 1989
Equivalent citations: [1990]32ITD210(MAD)
ORDER
T.N.C. Rangarajan, Judicial Member
1. This appeal is directed against the denial of the exemption Under Section 11 of the Income-tax Act, 1961.
2. The assessee is a public charitable trust. For the assessment year 1984-85, corresponding to the previous year ended 31-3-1984, the assessee claimed that it was exempt under Section 11. This was denied by the ITO on the ground that part of its funds had been invested otherwise than in the specified manner. The CIT (Appeals) confirmed the order of assessment bringing to tax the entire income disregarding the application for exemption.
3. In the further appeal before us it was pointed out on behalf of the assessee that the four items were recorded by the ITO as contravening the provisions of Section 13(l)(d) actually were not investments at all. In the alternative it was contended that only the income arising from the offending investments should be denied the exemption under Section 11. On the other hand, it was contended on behalf of the revenue that these items must be regarded as investments and, therefore, the assessee was not entitled to the exemption.
4. Section 13(l)(d) says that if any funds of the trust invested or deposited before 1-3-1983 otherwise than in any one or more of the forms or modes specified under Sub-section (5) of Section 11 continue to remain so invested or deposited after the 30th day of November, 1983 then the exemption in Section 11 shall not apply. The acceptation of the word "investment" is the application of the money in the purchase of some property from which interest or profit is expected and which is held for the sake of the income which it will yield. (See IRC v. Desoutter Bros. Ltd. [1946] 1 All ER 58 (CA)). It follows that all amounts due to the assessee as debts cannot be regarded as investments. Similarly, there is a clear distinction between a deposit and a loan well recognised by courts. A deposit is distinct from a loan as it is given not for the convenience of the man to whom it is given but for the benefit of the person who hands it over. A deposit is generally for a fixed term and does not impose the immediate obligation on the depositee to repay and as a corollary a demand by a depositor is a normal condition for repayment. A deposit no doubt is a debt owed but every debt owed does not become a deposit. (See Mohammad Akbar Khan v. Attar Singh AIR 1936 PC 171). In the context of Section 13(l)(d) which uses the words 'invested' and 'deposited' together it can only mean that the deposit is an investment like a fixed deposit in a bank or company made for the purpose of earning income. In this context we may also note that the balance sheet prescribed in Table "A' of the Companies Act also distinguishes investments from loans and advances which are exhibited separately. The revenue referred to the definition of 'deposit' in the Explanation to Section 40A(8). That is an inclusive definition enlarging the meaning of the word "deposit" to include money borrowed and can have no application to the context of Section 13(l)(d). Consequently the decision in Kaloomal Shorimal Sachdev Rangwalla (P.) Ltd. v. First ITO [1985] 14 ITD 248 (Bom.) (SB) relied on by the revenue under that section which treats a current account of a Director with a company as a deposit within that provision can have no application in considering the scope of the word "deposit" in Section 13(l)(d). Similarly, the decision in the case of Sharda Trust v. CIT [1981] 127 ITR 236 (Punj. & Har.) referred to by the revenue only stated that an amount donated but kept with the firm was treated as a deposit by the assessee-trustee in that case and it does not derogate from the concept of a deposit as distinct from a loan or a debt owed. With this background of the law, we may consider the individual items.
5. In the balance sheet as on 31-3-1984, the amount shown under investments is 'nil'. Under current assets the first item was Seva Trust - Rs. 3,54,003. The Seva Trust is a private trust and the assessee is one of the beneficiaries having 80% share. For the year ended 31-3-1983 the share allocated to the assessee was Rs. 1,17,745 and for the year ended 31-3-1984 the share was Rs. 2,36,918 totalling Rs. 3,54,663. Out of this amount, Rs. 3,54,003 was outstanding as on 31-3-84. This only shows that the amount was due to the assessee and it could not be regarded as an investment or deposit made by the assessee nor has the assessee treated it as deposit or investment as in the case cited by the revenue. In the circumstances, this amount cannot be regarded as a deposit or investment for the purpose of Section 13(l)(d).
6. The second item is also under the head current assets and the sum of Rs. 76,000 is from Moolangudi Chit Funds (P.) Ltd. The assessee was contributing to a chit of Rs. 2000 each and completed 38 instalments as on 31-3-1981. As on 31-3-1982 the company went into voluntary liquidation and, therefore, the assessee is not in a position to get back any of this amount though it is exhibited in the balance sheet. Though the contribution to the chit could have been initially considered as an investment, after the company had gone into liquidation it becomes a debt owed to the company and ceases to be a deposit or investment
7. The third item is a loan to Sri Srinivasa Trust amounting to Rs. 10,472. The assessee had originally advanced a sum of Rs. 1,71,934 for constructing a Kalyana Mandapam and the amount outstanding was Rs. 10,472. It is apparent that this amount was only a loan repayable by Srinivasa Trust and not an investment or deposit because it was given for the purpose of the Srinivasa Trust and not for the purpose of the assessee.
8. The last item is an amount of Rs. 73,894 outstanding against Kumudam Publications Private Ltd. in the list of loans and advances. The very heading makes it clear that this was only a loan and not a deposit. The assessee was a distributor for the magazines published by Kumudam Publications Pvt. Ltd. and in the course of that business this amount became due to the assessee and was outstanding. It is clear that this amount is also only a debt owed and not a deposit or investment by the assessee. We are therefore satisfied that none of these items could be regarded as an investment or deposit off ending the provisions of Section 13(1)(d) so as to deny the exemption under Section 11 to the assessee. We therefore set aside the orders of the authorities below and direct the ITO to grant exemption under Section 11 and reframe the assessment
9. The appeal is allowed.