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4. The brief facts of the case extracted from assessment year 2011-12 are that, the assessee is a charitable trust registered u/s.12A of the Income Tax Act, 1961 (hereinafter the 'Act') and is imparting education by running various educational institutions, which includes 5 Engineering Colleges and 1 Arts & Science College, a Matriculation School, a Higher Secondary School, a Polytechnic College and 3 Colleges teaching B.Ed and 3 Teacher Training CO Nos. 18 & 19/CHNY/2019 Institutions. The assessee had filed its return of income for the assessment year 2011-12 declaring 'Nil' total income after claiming exemption u/s.11 of the Act, towards income applied for charitable purpose. The case was taken up for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee has allowed benefit to the persons specified u/s.13 (1)(c) of the Act, by allowing various loans and advances to trustees or companies, in which trustees are interested, thereby violated provisions of section 13(1)(c) of the Act and hence, called upon the assessee, to explain as to why exemption claimed u/s.11 of the Act cannot be rejected. In response to show- cause notice, the assessee submitted that it has not allowed any benefit either to trustees or companies, in which trustees are interested, which violates provisions of section 13(1)(c) of the Act. But, the amount specified in the show-cause notice including a sum of Rs.10,24,860/- paid to Shri M.G. Bharathkumar, Founder trustee and the Chairman of the trust is amount paid to M/s Star Educational Trust, a charitable trust which is engaged in imparting education and hence, the same cannot be considered as loan or advance given to the trustee in contravention to provisions of section 13(1)(c) of the Act. Similarly, the trust has given a sum of Rs.1,88,59,716/- to M/s. Star Educational Trust for the purpose of imparting education to help said trust to tide over its CO Nos. 18 & 19/CHNY/2019 financial crisis for running the institution smoothly and hence, financial aid or help given to another charitable trust, which is having common objects cannot be considered as benefits allowed to an interested person in contravention of section 13(1)(c) of the Act. As regards, amount paid to M/s. Mahaajay Spinners India Pvt. Ltd., a company in which the Chairman Shri M.G. Bharathkumar and his son Shri B. Mahendran are Directors, it was submitted that a sum of Rs.50,50,000/- was paid as advance for purchase of uniforms and coats to students of the institutions coming under the trust. Further, said advance was given after due diligence and obtaining competitive quotation from various suppliers as per which Shri Mahaajay Spinners India Pvt. Ltd., was lowest bidder for supply of uniforms. The company has supplied uniforms and coats in subsequent years for which necessary bills and other evidences have been placed before the AO.

6. Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), the CO Nos. 18 & 19/CHNY/2019 assessee has filed detailed written submissions which has been reproduced at para 5 on page Nos.5 to 13 of ld.CIT(A) order. The sum and substance of arguments of the assessee before the CIT(A) are that, the AO was completely erred in holding that the assessee has given or allowed trust funds to the benefit of interested persons in contravention to section 13(1)(c) of the Act, without appreciating the fact that amount given to M/s. Star Educational Trust is for the purpose of imparting education, which is evident from the fact that said trust objects are charitable in nature similar to the objects of assessee trust and the loan has been used for running number of educational institutions. It was further submitted that M/s. Star Educational Trust is a public charitable trust with the objective of providing education to public at large. The mere fact, that the said trust is not registered u/s.12AA of the Act, does not convert the activities of the said trust as non-charitable. The non-registration of any trust may have adverse consequences on their tax liability, but the object would remain as charitable in nature. Further, while applying provisions of section 13(1)(c) of the Act, it is essential to see whether any part of income of the trust is directly or indirectly allowed to the interested persons or not. In this case, trust has given advance to another charitable trust for imparting education. Hence, the same cannot be considered as contravention to CO Nos. 18 & 19/CHNY/2019 provisions of section 13(1)(c) of the Act. As regards, advance made to Shri M.G. Bharathkumar, the facts remains that said amount has been given for the purpose of imparting education, which is evident from the fact that Shri M.G. Bharathkumar has transferred said funds to M/s. Star Educational Trust. Although, the money has been given through Shri M.G. Bharathkumar, but ultimate beneficiary of said funds is M/s. Star Educational Trust and said funds were used for imparting education. Similarly, advance made to M/s. Mahaajay Spinners India Pvt. Ltd., it was submitted that said amount has been given for supply of uniform and coats to students of institutions, for which necessary procedure and due diligence has been followed, where a competitive quotations have been obtained from various suppliers and M/s. Mahaajay Spinners India Pvt. Ltd., was considered to be least bidder for supply of uniforms and coats. Further, considering the least bid, an advance amount has been given for which they have supplied uniforms and coats in the subsequent financial year. Therefore, advance given in the normal course of activities of the trust to a company in which the trustees of the trust are Directors cannot be said as direct or indirect benefit allowed to the interested persons.

Similarly, advance given to Shri M.G. Bharathkumar, the Managing Trustee of the trust is also ultimately for the purpose of imparting education, which is evident from the fact that said amount has been transferred to M/s. Star Educational Trust and said amount has been utilized for objects of the trust. Once, amount has been given to CO Nos. 18 & 19/CHNY/2019 another charitable trust having common objects and such trust has ultimately used the funds for its objects without giving any benefit to the specified persons, then simply for the reason that said trust was not registered u/s.12A of the Act, the genuine advance given for charitable purpose cannot be considered as advance or diversion of funds given to the interested persons without adequate interest or guarantee. As regards, advance given to M/s. Mahaajay Spinners India Pvt. Ltd., the ld.AR submitted that, it is a fact on record that the assessee has given advance for purchase of lab coats and uniforms, for which necessary quotations from various vendors and bills issued by the supplier for supply of uniform and coat was furnished. Although, the assessee has initially taken a stand that it was given to the company without any benefit, but subsequently it was noticed that said advance was given for supply of materials in the normal course of business and hence, the same cannot be considered as diversion of funds to the interested persons in violation of provisions of section 13(1)(c) & 13(1)(d) of the Act.

12. Having said so, let us examine in the given facts and circumstances of the case is there any violation of provisions of CO Nos. 18 & 19/CHNY/2019 section 13(1)( c) of the Act, to deny the benefit of exemption u/s ii of the Act. The AO has considered advances given to M/s. Star Educational Trust as violative of section 13(1)(c) of the Act, on the sole ground that said trust was not registered u/s.12A of the Act. Except this, the AO has not denied the fact that the objects of M/s. Star Educational Trust is charitable in nature and said trust was imparting education by establishing various educational institutions. Once, the objects of the trust are charitable in nature and it is carrying out its activities according to is objects, then the mere fact that said trust is not registered u/s.12A of the Act, does not convert the activities of the said trust as non-charitable. The non- registration of the trust may have adverse consequences of their tax liability, but the object would remain as charitable purpose only. Further, while applying provisions of section 13(1)(c) of the Act, it is essential to see whether the income of the trust is used or applied for the benefit of the trustees directly or indirectly. In this case, there was no such finding from the AO that the income was used or applied for the benefit of trustees. The only allegation is that the surplus can be utilized for their benefit. In our considered view, the reasoning given by the AO is totally ill founded, because in order to consider any payment within the ambit of provisions of section 13(1)(c) of the Act, he should bring on record necessary evidences CO Nos. 18 & 19/CHNY/2019 to prove that the trust has allowed direct or indirect benefit to the persons specified u/s.13(3) of the Act. Unless, the AO has brought on record, evidences to support his finding, merely for the reason the trust was unregistered and the trustees may utilized the surplus for their benefit is not a ground for denying exemption, more particularly when such advance is given to another charitable trust for imparting education. Thus, in our view advance given to M/s Star Education Trust is not violative of section 13(1)(c) of the Act.