Delhi High Court
Pt. Kanahya Lal Punj Charitable Trust vs Director Of Income Tax (Exemption) on 14 May, 2007
Equivalent citations: [2008]297ITR66(DELHI)
Author: V.B. Gupta
Bench: Madan B. Lokur, V.B. Gupta
JUDGMENT V.B. Gupta, J.
1. By way of present appeal filed under Section 260-A of the Income Tax Act, 1961(in short as 'Act') the assessed has challenged the order dated 31st January, 2005 passed by the Income Tax Appellate Tribunal, 'F' Bench, New Delhi (in short as 'Tribunal') in ITA No. 457/Del/1999 for the assessment year 1997-98.
2. The assessed is a Society registered under the Societies Registration Act as well as under Section 12-A of the Act. The assessed is having income mainly from the interest on fixed deposits and donations. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessed has advanced huge amount to M/s Punj Lloyd Limited and as such he raised a query as to why Section 13(1)(c) read with Section 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 Assessing Officer found that as on 31st March, 1997 a sum of Rs. 75 lacs was outstanding with M/s Punj Lloyd Ltd. In response to query, it was stated that the assessed paid this amount to M/s Punj Lloyd Ltd. as interest 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 Assessing Officer that the Trust has not taken adequate security to which the assessed stated that security was provided in the form of equitable mortgage of commercial space owned by M/s Punj Lloyd Ltd. The Assessing Officer found that the story of payments being made for purchase of land for a school was nothing but an after thought, 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 Assessing Officer denied exemption under Sections 11 and 12 of the Act.
3. The assessed preferred an appeal before the Commissioner of Income Tax (Appeals), who confirmed the denial of the exemption and dismissed the appeal filed by the assessed.
4. Thereafter, the assessed challenged the order of the Commissioner of Income Tax (Appeals) before the Tribunal and vide impugned order, the Tribunal dismissed the appeal filed by the assessed and that is how the assessed is before this Court.
5. It has been contended on behalf of the assessed that under Section 11 of the Act, income of a trust held wholly for charitable or religious purpose is exempt. The assessed 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 materalise, M/s. Punj Lloyd Ltd. returned the money and as such the assessed has been wrongly denied exemption under Section 11 and 12 of the Act.
6. The basic requirement for the availability for exemption under Section 11 and 12 of the Act is that if any money is lent to an interested party as defined in Section 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".
7. If the contention of the assessed 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 trust 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.
8. Section 13(1)(c) of the Act speaks of "any income" which has been used to benefit "directly or indirectly" any person referred to in Section 13(3). The plain reading of this Section would show that the Act is intended to eliminate any possibility of 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 Section 13(1)(c) and 13(2)(a) of the Act.
9. The Tribunal in its order has noted that once there is a violation of provision of Section 13(3) read with Section 13(1)(c), the provisions of the Section 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 Section 11 and 12 of the Act, the voluntary contribution 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 Section 11 and 12 is denied, the assessed would not get any protection from Section 11 and 12 and the voluntary contribution would be treated as income, as per definition of income give in Section 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 Section 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.
10. There are concurrent findings of the fact by three income tax authorities and we do not find any reason to disagree with the conclusion arrived at by these authorities.
11. Under these circumstances, we hold that no fault can be found with the view taken by the Tribunal. Thus, the order of Tribunal does not give rise to a question of law, much less a substantial question of law, to fall within the limited purview of Section 260-A of the Act, which is confined to entertaining only such appeal against the order which involves a substantial question of law.
12. Accordingly, the appeal is hereby dismissed.