M/s Cargo Handling Pvt Workers Pool., Hyderabad v. The DCIT, Central Circle., Visakhapatnam

PAGE 1 OF 18 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NOS.272 TO 274/VIZAG/2005 ITA NOS. 296-297/VIZAG/2006 & ITA NO.342/VIZAG/2008 ASSESSMENT YEAR: 1999-2000 TO 2004-05 M/S CARGO HANDLING PVT.WORKERS POOL VISAKHAPATNAM VS. ACIT CENTRAL CIRCLE VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AAATC 1920 F APPELLANT BY: SHRI C.P. RAMASWAMY ADVOCATE RESPONDENT BY: SHRI SUBRATA SARKAR CIT (DR) ORDER PER BENCH: ALL THESE SIX APPEALS FILED BY THE ASSESSEE AGAIN ST THE ORDERS PASSED BY LD CIT (A) RELATE TO THE ASSESSMENT YEARS 1999-200 0 TO 2004-05. SINCE THE ISSUES AGITATED IN THESE APPEALS ARE IDENTICAL IN N ATURE AND SINCE THEY WERE HEARD TOGETHER WE FIND IT CONVENIENT TO DISPOSE OFF THEM BY THIS COMMON ORDER. 2. THE GROUNDS OF APPEALS RAISED BY THE ASSESSEE IN ITS APPEAL RELATING TO THE ASSESSMENT YEAR 1999-2000 READS AS UNDER: 1. THE ORDER OF THE LEARNED CIT (A) IS AGAINST LAW WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE. 2 (A) THE LEARNED CIT (A) OUGHT TO HAVE HELD THAT T HE APPELLANTS ACTIVITY CONSTITUTES AN ADVANCEMENT OF GENERAL PUBL IC UTILITY IN TERMS OF SECTION 2(15) OF THE I.T ACT 1961. PAGE 2 OF 18 (B) THE LEARNED CIT (A) ERRED IN HOLDING THAT THE A CTIVITY OF THE APPELLANT TRUST IN SUPPLYING ORGANIZED LABOUR FORCE AS REQUIRED BY THE DOCK LABOUR FORCE IS A BUSINESS ACTIVITY AND NO T A CHARITABLE ACTIVITY. (C) THE LEARNED CIT (A) ERRED IN HOLDING THAT THE E LEMENT OF CHARITY IS NOT PRESENT BY RELYING ON IRRELEVANT DEC ISIONS AND BY IGNORING THE RELEVANT DECISIONS OF THE SUPREME COUR T AND THE JURISDICTIONAL HIGH COURT. (D) THE LEARNED CIT (A) ERRED IN NOT APPLYING THE P ROVISIONS OF SEC.11(4A) TO THE FACTS OF THE APPELLANT TRUST. HE FAILED TO APPRECIATE THAT IF THERE WERE A BUSINESS ACTIVITY IT WAS INCIDENTAL TO THE ATTAINMENT OF OBJECTIVES OF THE APPELLANT TR UST. 3 (A) WITHOUT PREJUDICE THE LEARNED CIT (A) ERRED IN DENYING EXEMPTION ON THE REASON THAT MONEYS HAVE BEEN ADVAN CED TO THE SETTLOR ASSOCIATIONS IGNORING THE FACT THAT THE LOA NS WERE ADVANCED WITH INTEREST AND SUCH INTEREST AND PART OF PRINCIP AL HAD BEEN RECOVERED FROM THE BORROWERS. (B) THE LEARNED CIT (A) FAILED TO APPLY THE RATIO O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF POLISETTY SOMASUNDARAM CHARITIES 133 ITR 377 WHICH IS IN FAVOUR OF THE APP ELLANT IN THIS REGARD. 4. WITHOUT PREJUDICE TO GROUND NO.3 THE LEARNED C IT (A) FAILED TO APPLY THE PROVISIONS OF SECTION 13(4) AND FAILED TO RESTRICT THE DENIAL OF EXEMPTION TO THE EXTENT OF INCOME DERIVED FROM SUCH INVESTMENTS. 5. THE LEARNED CIT (A) ERRED IN CONFIRMING THE WORK ING OF THE SURPLUS BY A.O IN EXCESS OF 25% OF THE INCOME AND A LSO ERRED IN COMING TO THE CONCLUSION THAT THE APPELLANT TRUST F AILED TO FILE FORM NO.10 SEEKING PERMISSION TO ACCUMULATE THE UNSPENT SURPLUS. 6. THE LEARNED CIT (A) FAILED TO APPRECIATE THE FAC T THAT THE ACCUMULATED SURPLUS HAS BEEN REMAINING IN SPECIFIED ASSETS RUNNING INTO MORE THAN RS.20 CRORE AND AS PER THE T RUST DEED IN THE EVENT OF LIQUIDATION ANY SUCH ACCUMULATION CAN BE PASSED ON TO ANOTHER TRUST AND NOT BACK TO THE SETTLORS. THE CIT (A) OUGHT TO HAVE APPRECIATED THESE APPARENT FACTS AND GRANTED E XEMPTION IN TERMS OF SEC.11 TO 13 TO THE APPELLANT TRUST. PAGE 3 OF 18 7. (A) THE LEARNED CIT (A) ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 234A 234B AND 234C ON THE FACTS AND CIRCUMSTAN CES OF THE CASE BECAUSE THE APPELLANT DENIES ITS LIABILITY TO TAX BEING A CHARITABLE TRUST. (B) THE LEARNED CIT (A) FAILED TO APPRECIATE THAT N O INTEREST WOULD BE LEVIABLE BECAUSE OF THE PROVISIONS OF SEC.234A(3 ) AND 234(B) AND 234C. HE OUGHT TO HAVE DELETED ALL THE INTEREST . 8. FOR THE ABOVE GROUNDS AND SUCH OTHER GROUNDS THA T MAY BE URGED AT THE TIME OF HEARING THE APPELLANT PRAYS T HAT THE APPEAL BE ALLOWED. 9. THE APPELLANT CRAVES LEAVE TO ADD TO AMEND OR M ODIFY THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIM E OF HEARING OF THE APPEAL IF IT IS CONSIDERED NECESSARY. 3. THE GROUNDS RAISED IN THE APPEALS RELATING T O THE ASSESSMENT YEARS 2000-01 AND 2001-02 ARE IDENTICAL WITH THE GROUNDS EXTRACTE D IN PARA 2 SUPRA. HOWEVER IN THE APPEALS FILED FOR ASSESSMENT YEARS 2002-03 T O 2004-05 THE ASSESSEE HAS RAISED CERTAIN OTHER GROUNDS ALSO. HOWEVER BOTH T HE COUNSEL AGREED THAT THE SOLITARY ISSUE THAT NEEDS TO BE ADJUDICATED IS WITH REGARD TO THE AVAILABILITY OF EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE UNDER T HE FACTS AND CIRCUMSTANCES OF THE CASE. IT WAS STATED THAT THE OTHER ISSUES AR E ONLY OFF SHOOT OF THE ISSUE RELATING TO THE DENIAL OF EXEMPTION 11 OF THE ACT. IN ADDITION TO THE ARGUMENTS ADVANCED AT THE TIME OF HEARING BOTH THE COUNSEL H AVE FILED THEIR WRITTEN SUBMISSIONS ALSO. 4. THE FACTS RELATING TO THE CASES ARE STATED IN BR IEF. THE ASSESSEE HEREIN WAS CONSTITUTED AS A TRUST BY A TRUST DEED DATED 19.01.1994. THE AUTHORS OF THE TRUST WERE TWO TRADE BODIES VIZ. VISAKHAPATNA M STEVEDORS ASSOCIATION AND THE VISAKHAPATNAM CLEARING AND FORWARDING AGENTS A SSOCIATION (HERE IN AFTER SETTLOR ASSOCIATIONS). THE MAIN OBJECTS OF THE T RUST AS SPELT OUT IN CLAUSE NO.3 OF THE TRUST DEED READ AS UNDER: PAGE 4 OF 18 3. THE MAIN OBJECTS OF THE TRUST ARE: A) TO IDENTIFY ENROLL ALLOT THE WORK AND REGULATE TH E PRIVATE WORKERS ENGAGED BY THE MEMBERS AND USERS OF STEVEDO RS ASSOCIATION AND CLEARING AND FORWARDING AGENTS ASS OCIATION OF VISAKHAPATNAM ONLY AGAINST SHORT SUPPLY OF THE LAB OUR BY THE VISAKHAPATNAM DOCK LABOUR BOARD VISAKHAPATNAM. B) TO GENERALLY PROMOTE THE WELFARE OF THE WORKERS WHO ARE IDENTIFIED AND ENROLLED IN THE TRUST. C) TO UTILIZE THE FUNDS OF THE TRUST FOR THE ABOVE PUR POSES AND ALSO FOR OTHER CHARITABLE PURPOSES SUCH AS EDUCATIO N HEALTH SPORTS AND ALLEVIATION OF SUFFERINGS OF THE POOR AN D THE NEEDY ETC. D) TO CARRYOUT OTHER PUBLIC UTILITY ACTIVITY WITHIN TH E MEANING OF CHARITABLE PURPOSES DEFINED IN THE INCOME-TAX ACT . THE ASSESSEE TRUST HAS ALSO BEEN REGISTERED U/S 12A OF THE INCOME TAX ACT VIDE ORDER DATED 02-03-2001 PASSED BY LD CIT VISAKHAPAT NAM. THE REGISTRATION WAS GRANTED BY LD CIT WITH EFFECT FROM THE DATE OF CREA TION OF THE TRUST. IT IS PERTINENT TO NOTE HERE THAT THE REGISTRATION U/S 12 A IS A MANDATORY CONDITION FOR AVAILING EXEMPTION U/S 11 OF THE ACT. 5. THE ASSESSEE HAS FILED A NOTE BEFORE LD CIT( A) ON THE CIRCUMSTANCES WHICH NECESSITATED THE CREATION OF THE ASSESSEE TRUST. TH EY ARE SET OUT IN BRIEF. THE DOCK LABOUR BOARD IN VISAKHAPATNAM PORT IS THE AUTH ORIZED BODY WHICH REGULATES EMPLOYMENT OF WORKERS FOR DOCK WORKS IN VISAKHAPATN AM PORT. ACCORDING TO THE SCHEMES FRAMED BY THE GOVT. OF INDIA BOTH THE WORK ERS WHO SEEK TO WORK ON BOARD VESSELS AND THE SHIPPING COMPANIES WHO SEEK TO USE THE SAID WORKERS ARE REQUIRED TO BE REGISTERED WITH THE VISAKHAPATNA M DOCK LABOUR BOARD. SINCE 1985 THE VISAKHAPATNAM DOCK LABOUR BOARD WAS PERMIT TING THE SHIPPING COMPANIES TO ENGAGE PRIVATE WORKERS ON SHIFT TO SHI FT BASIS IN CASE OF SHORTAGE OF WORKERS REGISTERED WITH THE VISAKHAPATNAM DOCK L ABOUR BOARD. AS THE REQUIREMENT OF PRIVATE WORKERS INCREASED IT CREATE D MANY PROBLEMS IN THE DOCK PAGE 5 OF 18 WORK OPERATIONS IN VIEW OF ABSENCE OF ANY SYSTEMATI C PROCEDURE. HENCE A SETTLEMENT WAS REACHED BETWEEN TRADE UNION AND TRAD E REPRESENTATIVES BEFORE THE ASSISTANT LABOUR COMMISSIONER IN JUNE 1992 AND ACCORDINGLY IT WAS AGREED TO ADOPT A SYSTEMATIC PROCEDURES TO REGULATE ENGAGE MENT OF PRIVATE WORKERS. IN PURSUANCE THERE OF THE VISAKHAPATNAM STEVEDORS ASSO CIATION AND THE CUSTOMS CLEARANCE AND FORWARDING AGENTS ASSOCIATION JOINED TOGETHER TO FORM A TRUST TO REGULATE THE EMPLOYMENT OF PRIVATE WORKERS AND ACCO RDINGLY THE ASSESSEE TRUST WAS FORMED IN JANUARY 1994 BY BOTH THE ASSOCIATIO NS WITH THE OBJECTS MENTIONED IN PARA 4 SUPRA. 6. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THESE SIX YEARS CLAIMING EXEMPTION OF ITS INCOME U/S 11 OF THE INCOME-TAX AC T. THE RETURNS OF INCOME RELATING TO THE ASSESSMENT YEARS 1999-2000 TO 2002- 03 WERE INITIALLY PROCESSED U/S 143(1). SUBSEQUENTLY THEY WERE REOPENED BY IS SUING NOTICE U/S 147 OF THE ACT. THE RETURNS OF INCOME RELATING TO THE ASSESSIN G YEAR 2003-04 AND 2004-05 WERE TAKEN UP FOR SCRUTINY. WHILE COMPLETING THE AS SESSMENT OF ALL THESE SIX YEARS THE ASSESSING OFFICER REJECTED THE CLAIM FOR EXEMPTION OF THE ASSESSEES INCOME U/S 11 OF THE ACT FOR THE FOLLOWING REASONS: (A) THE ASSESSEE IS ENGAGED IN COMMERCIAL ACTIVIT Y ONLY. THE PREDOMINANT OBJECTIVE IS COMMERCIAL IN NATURE. THE PRIMARY OBJECTIVE OF THE ASSESSEE VIZ. ENROLLING THE PRIVATE WORKERS AND SUPPLYING THEM TO THE MEMBERS OF THE SE TTLORS ASSOCIATION IS A BUSINESS ACTIVITY. THE ASSESSEE RECEIVES CHARGES FROM THE USERS OF THE LABOURERS RETAINS A PART OF IT FOR THE GENERAL WEL FARE OF THE WORKERS AND PASSES ON THE REMAINING AMOUNT TO THE WORKERS. THIS IS ONLY A LABOUR CONTRACT ACTIVITY AND HENCE IT CANNOT BE TREATED AS A CHARITABLE ACTIVITY. THE ASSESSEE HAS FAILED TO MAINTAIN SEPARATE BOOKS OF ACCOUNT AS MANDATED U/S 11(4A) OF THE ACT. PAGE 6 OF 18 B) NO CHARITABLE ACTIVITY IS UNDERTAKEN TILL DATE. SINCE INCEPTION THE ASSESSEE TRUST HAS UND ERTAKEN ONLY ITS PRIMARY OBJECTIVE OF SUPPLYING LABOUR WHICH IS PURELY COMM ERCIAL IN NATURE AND DID NOT CARRY OUT ANY OTHER CHARITABLE ACTIVITY. T HE RELATIONSHIP BETWEEN THE ASSESSEE AND THE WORKERS IS THAT OF EMPLOYER AN D EMPLOYEE RELATIONSHIP. HENCE THE OTHER OBJECTIVES CAN ONLY BE TREATED AS A COMMERCIAL OBLIGATION INCIDENTAL TO THE EMPLOYMENT OF THE WORKERS AND THEY CANNOT BE VIEWED AS CHARITABLE IN NATURE. C) MERE REGISTRATION U/S 12A OF THE ACT WILL NOT CO NFER EXEMPTION AUTOMATICALLY U/S 11. D) VIOLATION OF SECTION 11(5) AND 11 (3). THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SEC.11(5) BY INVESTING THE FUNDS OF RS.30 00 000 AND RS.5 00 000 RESPECTIVELY WITH M/S VISAKHAPATNAM STEVEDORS ASSOCIATION AND M/S VISAKHA PATNAM CLEARING AND FORWARDING AGENTS ASSOCIATION BOTH BEING SETTLOR ASSOCIATIONS. E) VIOLATION OF SECTION 13(1)(C): THE ASSESSEE IS EXISTING FOR THE PERSONAL BE NEFIT OF THE TRUSTEES. THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SEC.13(1)(C ) R.W.S 13(2) BY INVESTING FUNDS WITH THE SETTLOR ASSOCIATIONS AS INTEREST FREE LOANS. THE OFFICE BEARERS OF SETTLOR ASSOCIATIONS ARE ALSO TRUSTEES OF THE ASSESSEE TRUST. F) IMPROPER COMPLIANCE OF SECTION 11(2): THE ASSESSEE HAS FILED APPLICATION FOR ACCUMULATION OF FUNDS U/S 11(2). HOWEVER THE PURPOSE OF ACCUMULATION IS GENERAL IN NATURE AND NOT FOR CHARITABLE OBJECTS. FURTHER THE AMOUNT ACCUMULATED IS LESSER THAN THE AMOUNT REQUIRED TO BE ACCUMULATED. HENCE ACCUMULATI ON IS NOT PERMISSIBLE U/S 11(2). PAGE 7 OF 18 6.1 THE ASSESSEE HAD COMPUTED INCOME BY TAKING REC EIPTS AND PAYMENTS FROM THE RECEIPTS AND PAYMENTS ACCOUNT. HOWEVER THE AO PROCEEDED TO COMPUTE INCOME BY TAKING THE SURPLUS DISCLOSED IN INCOME AN D EXPENDITURE AND MAKING FURTHER DISALLOWANCES AS PER THE PROVISIONS APPLICA BLE FOR COMPUTING BUSINESS INCOME. 7. THE LD CIT (A) APPROVED THE ORDER PASSED BY THE ASSESSING OFFICER. THE OBSERVATIONS OF THE LD CIT (A) HAVE BEEN SUMMARIZED BY THE LD DR AS UNDER IN PARA-7 OF HIS WRITTEN SUBMISSIONS: 7. THE CIT(A) AT THE APPELLATE STAGE H AS FURTHER OBSERVED THAT- I) ASSESSEES CASE CANNOT BE COMPARED TO DOCK LABOUR B OARD FOR CLAIMING EXEMPTION U/S.11 SINCE THERE IS NO PAR ITY IN WAGES BETWEEN THE WORKERS OF DOCK LABOUR BOARD AND THE WORKER OF ASSESSEE AS THEY ARE PAID LESSER WAGES. II) ASSESSEE IS ABLE TO SAVE EVEN AFTER DISTRIBUTING LE SSER WAGES TO THE WORKERS WHICH HAS NOT BEEN UTILIZED FOR ANY CHARITABLE PURPOSE EXCEPTING SOME MINIMUM INCIDENTA L WELFARE MEASURES FOR THE WORKERS TO AUGMENT EFFICIE NCY OF THE WORKERS. III) THE MAIN OBJECTIVES OF THE TRUST WERE TO PROCURE WO RKERS AND REGULATE THEIR SERVICES FOR UTILIZATION OF TWO SETTLERS WHO ARE ENGAGED IN SERVICES OF STEVEDORING CLEARING & FORWARDING AGENCY WORKS. THE REMUNERATION RECEIVED BY THE TRUST IN THE PROCESS HAS PARTLY BEEN DISTRIBUTE D AMONG THE WORKERS AND PARTLY RETAINED. THE RETAINED AMOUN T WAS SUPPOSED TO BE FOR THE PURPOSE OF GENERAL CHARITY B UT IN PRACTICE THE ASSESSEE COULD ONLY DO A MINIMUM WELFA RE WORK FOR THE WORKERS AS PER THE LABOUR RULES WHICH IS GENERALLY BEING DONE IN ANY OTHER ORGANIZATIONS. TH EREFORE THE ACCUMULATED FUNDS OF THE APPELLANT HAS NOT BEEN UTILIZED FOR ANY GENERAL CHARITABLE PURPOSE. IV) THE MEMBERS OF THE TRUSTEE BOARD ARE AGAIN MEMBERS OF THE SETTLERS ASSOCIATION ONLY AND THEY HAVE TOTAL C ONTROL OF THE MANAGEMENT WITH REGARD TO DEALING WITH LABOURER S FINANCE ETC. THE LABOURERS HAVE NO SAY IN THE MANA GEMENT PAGE 8 OF 18 OF THE APPELLATE TRUST. THEREFORE ASSESSEE FUNCTIO NS LIKE EMPLOYER DEALING WITH EMPLOYEES TO SAFEGUARD ITS IN TEREST AND OCCASIONALLY DOES SOME WELFARE ACTIVITY FOR ITS WORKERS. V) ASSESSEE HAS BEEN FUNCTIONING FOR THE LAST 10 YEARS AND ACCUMULATED HUGE SURPLUS FUNDS BUT NOT TAKEN UP ANY PUBLIC CHARITY WORKS. THEREFORE IT CANNOT BE SAID THAT THE APPELLANT TRUST IS FORMED FOR CHARITABLE PURPOSE TO GENERAL PUBLIC. VI) THE STEVEDORING ASSOCIATION AND THE C&F ASSOCIATION UTILIZED RS.30 LAKHS RS.5 LAKHS RESPECTIVELY WITHOU T INTEREST BEING CHARGED BY THE SETTLERS. IT IS ONLY WHEN THE A SSESSEE WAS POINTED OUT BY THE DEPARTMENT A SPECIAL RESOLU TION WAS PASSED BY THE ASSESSEE AFTER 31/3/00 TO CHARGE INTEREST AND THEREBY THE SETTLERS VIOLATED THE PROV ISIONS OF SEC 11(5) OF THE ACT. VII) THOUGH THE APPELLANT TRUST CLAIMS THAT IT HAS TAKEN LAND FOR THE PURPOSE OF CONSTRUCTING HOSPITAL BUT TILL DATE THE PURPOSE FOR WHICH IT IS STATED TO HAVE BEEN PURCHAS ED IS NOT UTILIZED. THEREFORE IT CANNOT BE SAID THAT THAT TH E ASSESSEE TRUST HAS BEEN ACCUMULATING FUNDS ONLY FOR NOBLE CA USE OF DOING CHARITABLE WORK FOR THE WORKERS OR GENERAL PU BLIC. VIII) THE CIT (A) SUMMED UP THAT TAKING ALL ASPECT IN CONSIDERATION HE IS OF VIEW THAT THE APPELLANT HAS NOT DONE ANY CHARITABLE WORK TO CLAIM EXEMPTION U/S 11 OF TH E I.T ACT. ULTIMATELY ASSESSEES ACTIVITIES ARE MORE OF COMMERCIAL AND NO CHARITY AT ALL AND ASSESSEES ARGUMENT THAT COMMERCIAL ACTIVITIES TAKEN UP BY THE ASSESSEE TRUS T ARE INCIDENTAL TO CHARITY WORK HAS NO SUBSTANCE. 8. ON THE ASSIMILATION OF FACTS OF THE CASE IN OUR OPINION WE NEED TO ADJUDICATE THE FOLLOWING ISSUES: A) WHETHER THE ASSESSING OFFICER IS ENTITLED TO PRO BE INTO THE OBJECTS OF THE CHARITABLE TRUST WHICH IS ALREADY REGISTERED U/S 12 A OF THE ACT AND HOLD THAT THE OBJECTS ARE COMMERCIAL IN NATURE AND CONSEQUENT LY DENY EXEMPTION U/S 11. B) WHETHER THE ACTIVITIES CARRIED ON BY THE ASSESSE E CAN BE TERMED AS BUSINESS ACTIVITY IN TERMS OF SEC.11 (4A) OF THE ACT. PAGE 9 OF 18 C) WHETHER THE AMOUNT OF RS.30 00 000/- AND RS.5 00 000/- GIVEN TO THE TWO SETTLOR ASSOCIATIONS CAN BE TREATED AS INVESTMENT I N TERMS OF SEC. 11(5) OF THE ACT. D) WHETHER THE SAID ADVANCE OF RS.30 00 000/- AND R S.5 00 000/- ARE HIT BY THE PROVISIONS OF SEC.13(1) ( C ) R.W.S. 13(2)(A) OF T HE ACT. E) WHETHER THE OBJECTS FOR WHICH ACCUMULATION W AS MADE U/S 11(2) WAS FOR CHARITABLE PURPOSES OR NOT. 9. NOW LET US DEAL WITH THE FIRST ISSUE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE TRUST HAS BEEN GRANTED REGISTRATI ON BY LD CIT VISAKHAPATNAM U/S 12A OF THE ACT FROM THE DATE OF ITS INCEPTION. IN THIS REGARD IT IS PERTINENT TO NOTE THE CASE LAW RELIED UPON BY LD AR. IN THE CASE OF ACIT VS. SURAT CITY GYMKHANA (2008) (300 ITR 214) THE HONBLE SUPREME COURT HAS AFFIRMED THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF HIRALAL B HAGWATI VVS. CIT (2000) (246 ITR 188 (GUJ) IN HOLDING THAT THE REGISTRATION OF A TRU ST U/S 12A OF THE INCOME-TAX ACT OF 1961 ONCE DONE IS A FAIT ACCOMPLI AND THE ASSESSING OFFICER CANNOT THEREAFTER PROBE INTO THE OBJECTS OF THE TRUST. FOR THE SAKE OF CONV ENIENCE WE EXTRACT BELOW THE HEAD NOTES OF THE SURAT CITY GYMKHANA CASE CITED SUPRA: THE REGISTRATION OF A TRUST UNDER SECTION 12A OF T HE INCOME-TAX ACT 1961 ONCE DONE IS A FAIT ACCOMPLI AND THE ASS ESSING OFFICER CANNOT THEREAFTER MAKE FURTHER PROBE INTO THE OBJEC TS OF THE TRUST. THE DECISION OF THE HIGH COURT IN THE HIRALAL BHAGW ATI V.CIT (2000) 246 ITR 188 (GUJ) ATTAINED FINALITY ON THIS POINT ALSO SINCE THAT DECISION ALSO COVERED THIS POINT AND THE DEPAR TMENT HAD NOT CHALLENGED THAT DECISION BEFORE THE SUPREME COURT WE NOTICE THAT THE ASSESSING OFFICER HAS DEALT IN D ETAIL TO STATE THAT THE OBJECTS OF THE TRUST ARE NOT CHARITABLE IN NATURE. IN VIEW OF THE DECISION OF THE HONBLE APEX COURT THE ASSESSING OFFICER IS NOT RIGHT IN LAW IN PROBIN G INTO THE OBJECTS OF THE TRUST DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. ACCORDING LY THE DENIAL OF EXEMPTION U/S 11 IS ALSO NOT IN ACCORDANCE WITH LAW. PAGE 10 OF 18 10. THE NEXT QUESTION THAT COMES FOR CONSIDERAT ION IS WHETHER THE ACTIVITIES CARRIED ON BY THE ASSESSEE TRUST CAN BE TERMED AS BUSINESS ACTIVITY AS PER THE VIEW OF THE AO. IT IS NOW WELL SETTLED PREPOSITION THAT THE TE RM BUSINESS DENOTES CONTINUOUS AND SYSTEMATIC EXERCISE OF AN OCCUPATION OR PROFESS ION WITH THE OBJECT OF MAKING INCOME OR PROFIT . HENCE THE PROFIT MOTIVE IS ONE OF THE MAIN INGRE DIENTS TO TEST THE NATURE OF ACTIVITY CARRIED ON BY THE ASSESSEE. 10.1 THE PREAMBLE OF THE TRUST DEED STATES THAT THE ASSESSEE TRUST WAS CONSTITUTED IN ORDER TO ORGANIZE THE FUNCTIONING OF PRIVATE WOR KERS POOL FOR THE BENEFIT OF SUCH WORKERS . CLAUSE 16 OF THE TRUST DEED STATES THAT THE BOAR D OF TRUSTEES SHALL NOT BE ENTITLED TO ANY REMUNERATION AND SHALL WORK IN AN H ONORARY CAPACITY. CLAUSE 34 OF THE TRUST DEED STATES THAT THE IN THE EVENT OF THE DISS OLUTION OF THE TRUST THE REMAINING PROPERTY SHALL NOT BE DISTRIBUTED AMONG THE MEMBERS OF THE TRUST BUT SHALL BE GIVEN OR TRANSFERRED TO ANY OTHER INSTITUTION WITH SIMILA R OBJECTIVES AND AIMS AND WHICH IS REGISTERED U/S 12A OF THE INCOME-TAX ACT. THE MAIN OBJECTS FOR WHICH THE TRUST WAS FORMED AS EXTRACTED IN PARA 4 SUPRA DOES NOT DEPI CT ANY PROFIT MOTIVE. THE PRIMARY OBJECT OF THE TRUST IS TO IDENTIFY ENROLL ALLOT T HE WORK AND REGULATE THE OPERATION OF THE PRIVATE WORKERS. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS CARRYING ON THE VERY SAME ACTIVITY SINCE ITS INCEPTION. THE SURPLUS EAR NED ON CARRYING ON THE SAID ACTIVITY ARE NOT TO BE DISTRIBUTED BETWEEN THE TRUSTEES BUT TO BE RETAINED BY THE ASSESSEE TRUST FOR THE PURPOSE OF CARRYING ON THE OBJECTS OF THE TRUST. HENCE IN THE ABSENCE OF THE PROFIT MOTIVE ATTACHED TO THE ACTIVITIES CARRIE D ON BY THE TRUST IN OUR OPINION THE ACTIVITIES CARRIED ON BY THE TRUST CANNOT BE TREATE D AS A BUSINESS ACTIVITY. FURTHER THE ASSESSEE TRUST WAS FORMED ONLY FOR THE PURPOSE OF T HE REGULATING THE OPERATIONS OF THE PRIVATE WORKERS IN THE DOCK YARD AND SAID OBJEC T HAVE BEEN APPROVED AS CHARITABLE PURPOSE BY THE LD CIT. FURTHER AS POI NTED OUT BY LD AR AS PER SEC.42 OF THE MAJOR PORT TRUST ACT 1963 THE PERFORMANCE OF SERVICE BY BOARD OR OTHER PERSON INCLUDE RECEIVING REMOVING SHIFTING TRANS PORTING STORING OR DELIVERING GOODS BROUGHT WITHIN THE BOARD PREMISES. HENCE THE ACTIVI TIES OF THE ASSESSEE TRUST FALLS IN THE CATEGORY OF ONE OF THE SERVICES AS DEFINED IN T HE MAJOR PORT TRUST ACT 1963. SINCE PAGE 11 OF 18 THE ACTIVITIES CARRIED ON WITHOUT ANY PROFIT MOTIVE AND ONLY FOR THE PURPOSE OF THE WELFARE OF THE WORKERS IN OUR OPINION IT CANNOT B E TREATED AS BUSINESS ACTIVITY FOR THE DETAILED REASONS DISCUSSED SUPRA. 11. THE NEXT TWO ISSUES ARE INTER CONNECTED. THE Y RELATE TO THE ISSUE OF VIOLATION OF SECTION 11(5) AND SECTION 13(1)(C) R.W.S. 13(2) OF THE ACT AS PER THE PROVISIONS OF SECTION 11(5) OF THE ACT THE AMOUNT ACCUMULATED U/ S 11(2) OF THE ACT HAVE TO BE INVESTED OR DEPOSITED IN THE FORMS AND MODES SPECIF IED IN THE SAID SECTION. ACCORDING TO SECTION 13(1)(D) A CHARITABLE TRUST WILL LOSE E XEMPTION U/S 11 OR SECTION 12 IF ANY FUNDS OF TRUST ARE INVESTED OTHERWISE THAN IN ANY O NE OR MORE OF THE FORMS OR MODES SPECIFIED IN SECTION 11(5) OF THE ACT. 11.1 ACCORDING TO SECTION 13(2)(A) IF ANY PART OF INCOME OR PROPERTY OF THE TRUST IS OR CONTINUES TO BE LENT TO ANY PERSON REFERRED TO I N SECTION 13(3) FOR ANY PERIOD DURING THE PREVIOUS YEAR WITHOUT ADEQUATE SECURITY OR ADEQUATE INTEREST OR BOTH THE INCOME OR THE PROPERTY OF THE TRUST SHALL BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A PERSON REFERRED TO IN SECTION 13(3 ). ACCORDING TO SECTION 13(1)(C) IF ANY INCOME OR PROPERTY OF THE TRUST IS DIRECTLY OR INDIRECTLY USED OR APPLIED FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SECTION 13(3) THE PROVISIONS OF SECTION 11 OR SECTION 12 SHALL NOT APPLY TO THE INCOME OF THE CHA RITABLE TRUST. 11.2 NOW THE FACTS RELATING TO THESE TWO ISSUES ARE DISCUSSED IN BRIEF. THE ASSESSEE HAD ADVANCED AN AMOUNT OF RS.30 00 000/- A ND RS.5 00 000/- RESPECTIVELY TO M/S VISAKHAPATNAM STEVEDORS ASSOCIATION AND M/S VISAKHAPATNAM CLEARING AND FORWARDING AGENTS ASSOCIATION IN THE YEAR 1995. TH E FIRST AMOUNT OF RS.30.00 LAKHS WERE RECEIVED BACK IN THE FINANCIAL YEAR 2007-08. T HE SECOND AMOUNT OF RS.5.00 LAKH WAS RECEIVED BACK IN THE FINANCIAL YEAR 2000-2001. THE ASSESSING OFFICER TREATED BOTH THE AMOUNTS AS AN INVESTMENT IN VIOLATION OF SEC.11 (5) OF THE ACT. HOWEVER THE LD AR BY PLACING RELIANCE ON THE DECISION OF THE JURIS DICTIONAL ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. POLISETTY SOMASUNDARAM CHARI TIES 183 ITR 377 (AP) HAS PAGE 12 OF 18 CONTENTED THAT THE AMOUNT ADVANCED BY THE ASSESSEE TRUST TO THE TWO ASSOCIATIONS CANNOT BE TREATED AS AN INVESTMENT. THE CONTENTIONS OF THE LD AR AS GIVEN IN HIS WRITTEN SUBMISSIONS ARE EXTRACTED BELOW: 7. THE APPELLANT HAS MADE ALL THE INVESTMENTS ON LY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 11(5) OF INCOME TAX ACT 1961 IN SPECIFIED ASSETS. ADVANCING LOAN IS NO T AN INVESTMENT AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT VS. POLISETTY SOMASUNDARAM CHARITIES 183 ITR 377 (AP). AT PAGES 381 AND 382 OF THE JUDGEMENT THE HONBLE ANDHRA PRADESH HIGH COURT HELD AS UNDER: THE BENEFIT TO THE PROHIBITED PERSONS LISTED OUT I N SUB SECTION (3) IS ELUCIDATED AND SHOULD BE DEEMED TO H AVE BEEN CONFERRED IN THE CIRCUMSTANCES DETAILED IN SUB -SECTION (2). THE TWO CRUCIAL PROVISIONS FOR THE PURPOSE OF THIS REFERENCE ARE CLAUSE (A) OF SUB-SECTION (2) WHICH P OSTULATES THE BENEFIT IN THE EVENT OF LENDING THE AMOUNT WITH OUT ADEQUATE INTEREST OR SECURITY AND CLAUSE (H) ADVERT S TO THE BENEFIT IN THE EVENT OF INVESTMENT ALONE. THE CONTR OVERSY IS FOCUSED UPON THE CONNOTATION OF THE WORDS LEND AND INVEST. AS THESE EXPRESSIONS ARE SOUGHT TO BE MADE APPLICABLE IN DIFFERENT SITUATIONS THE LEGITIMATE INFERENCE IS THAT THEY BEAR A DISTINCT INTERPRETATION IN THE CON TEXT OF THE SET UP AND SYNONYMITY IS RULED OUT. IN COMMERCIAL P ARLANCE LENDING IS ASSOCIATED WITH ADVANCING MONEY FOR AN A GREED RATE OF INTEREST RETURNABLE WITHIN A SPECIFIED PERI OD OR ON DEMAND. THOUGH THE EXPRESSION INVEST IN A BROAD S WEEP TAKES IN LENDING ALSO IT CAN BE CONSIDERED AS CONF INED TO LAYING OUT THE AMOUNT IN A VENTURE OR INSTITUTION W ITH A PROFIT MOTIVE AND WITH NO PROMISE OF ASSURED RETURN . IT IS NOT FEASIBLE TO SURVEY THE MULTIFARIOUS MODES OF IN VESTMENT AND IT IS SUFFICIENT TO INDICATE PROMINENT MODES TO CONVEY THE WIDTH OF THE EXPRESSION INVEST. INVESTMENT INV OLVES LAYING OUT THE AMOUNT IN PARTNERSHIP FIRMS SHARES IN JOINT STOCK COMPANIES REAL ESTATE BUSINESS AND SUCH OTHE R CONCERNS OR BUSINESS. IN THE PROCESS OF INVESTMENT AN ELEMENT OF RISK IS INVOLVED AND THE EXPECTATION OF RETURN OR PROFIT IS NOT ASSURED AND THE DEPLETION O F CAPITAL ITSELF IS NOT AN ABNORMAL FEATURE. IN THE C ASE OF LENDING THE RETURN BY WAY OF INTEREST IS GENERA LLY ASSURED AND THE ELEMENT OF RISK IS MINIMAL. IN NAWAN ESTATES (P) LTD. VS. CIT (1977) 106 ITR 45 (SC) IN THE PAGE 13 OF 18 CONTEXT OF CONSIDERING THE CONNOTATION OF THE EXPRE SSION INVESTMENT IN SECTION 23A AND WHETHER INVESTMENT IN SECTION 23A CAN BE STRETCHED TO HOUSE PROPERTY OR C APITAL GAINS APART FROM THE HOLDING OF SHARES DEBENTURES STOCKS OR OTHER SECURITIES THE SUPREME COURT HELD THAT INVESTMENT COVERS ACQUISITION OF HOUSE PROPERTY O R CAPITAL GAINS AND INVESTMENT PRIMARILY MEANS THE ACT OF L AYING OUT MONEYS IN THE ACQUISITION OF SOME SPECIES OF PR OPERTY. IN CIT VS. ETERNAL SCIENCE OF MANS SOCIETY (19812) 128 ITR 456 THE DELHI HIGH COURT HELD THAT THE INTEREST IN COME RECEIVED BY A CHARITABLE INSTITUTION HAS TO BE EXCL UDED FROM THE TAXABLE INCOME OF THE ASSESSEE IN VIEW OF CLAUS E SECTION (2) AND CLAUSE (H) IS NOT ATTRACTED. WE ARE IN AGREEMENT WITH THIS VIEW . IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT CITED SUPRA THE AMOUNT OF RS.30.00 LACS AND RS.5.00 LACS ADVANC ED BY THE ASSESSEE CANNOT BE TREATED AS AN INVESTMENT AND ACCORDINGLY THERE IS NO VIOLATION OF SECTION 11(5) OF THE ACT. HENCE THE QUESTION OF VIOLATION OF SECTION 11(3) ALSO DOES NOT ARISE. 11.3 THE NEXT ISSUE IS WHETHER THERE IS ANY VIO LATION OF SECTION 13(1)(C) R.W.S. 13(2) OF THE ACT. THE IMPUGNED AMO UNT OF RS.30.00 LAKHS AND RS.5.00 LACS HAVE BEEN ADVANCED TO THE TWO SETT LER ASSOCIATIONS. SINCE THEY ARE THE AUTHORS OF THE ASSESSEE TRUST AN D THE TRUSTEES OF THE ASSESSEE TRUST ARE ALSO THE OFFICE BEARERS IN THE A BOVE SAID TWO ASSOCIATIONS THE AO TREATED THE TWO ASSOCIATIONS A S THE PERSONS REFERRED TO IN SECTION 13(3) OF THE ACT. AS POINTED OUT IN P ARA 11.1 SUPRA A CHARITABLE TRUST WILL LOOSE EXEMPTION U/S 11 IF AN Y INCOME OR PROPERTY IS USED OR APPLIED FOR THE BENEFIT OF ANY PERSON REFER RED TO IN SECTION 13(3). ACCORDING TO LD AR THOUGH THE ASSESSEE DID NOT CHA RGE INTEREST ON THESE TWO LOANS INITIALLY LATER ON BOTH THE AMOUNTS WERE COLLECTED ALONG WITH THE INTEREST @ 12%. ACCORDING TO LD AR SINCE THE IMPUGNED LOANS ARE COVERED BY ADEQUATE SECURITY AND ADEQUATE INTEREST THERE IS NO VIOLATION PAGE 14 OF 18 OF SECTION 13(1)(C) R.W.S. SECTION 13(2) OF THE ACT . IN THIS REGARD LD AR HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL AP HIGH COURT IN THE CASE OF POLISETTY SOMASUNDARAM CHARITI ES SUPRA. THE RELEVANT OBSERVATIONS OF THE HONBLE HIGH COURT ARE EXTRACTED BELOW: SECTION 13(2)(A) PROVIDES THAT THE EXEMPTION UNDER SECTION 11 CANNOT BE DENIED IN THE EVENT OF LENDING THE AMOUNT JACKED UP BY INTEREST OR ADEQUATE SECURITY O R BOTH. THE LENDING AS SUCH IS NOT PROHIBITED IF ADEQUATE I NTEREST AND SECURITY ARE TAKEN CARE OF. SECTION 13(2) (H) I NTERDICTS INVESTMENT AND THE ACT OF INVESTMENT ALONE IS SUFFI CIENT TO DENY THE EXEMPTION. IN VIEW OF THIS SEMINAL DISTINC TION THE REVENUE ENDEAVOURED TO BRACKET THE TRANSACTION UNDE R INVESTMENT SO AS TO ATTRACT THE DENIAL OF EXEMPTION UNDER CLAUSE (H). THE AMOUNT IS ADVANCED ON AN AGREED RATE OF INTEREST AND THEREFORE THE TRANSACTION IS WITH IN THE FOLD OF LENDING AND IT CANNOT BE CONSIDERED AS AN INVESTMENT. THE LENDING IN CLAUSE (A) SHOULD BE SUPPORTED BY ADEQUATE INTEREST OR SECURITY. THE APPELLANT ASS ISTANT COMMISSIONER FOUND THAT THE RATE OF INTEREST AT 12% IS NORMAL AND ADEQUATE AND THE FIRM IS FINANCIALLY SOU ND AND THE APPELLANT TRIBUNAL CONFIRMED THE FINDING. THERE FORE THE ASSESSEE IS ENTITLED TO EXEMPTION UNDER SECTION 11 AND THE CONDITIONS UNDER SECTION 13(2) ARE SATISFIED AND SE CTION 13 (2) (H) IS NOT APPLICABLE. THE LD AR ALSO SUBMITTED THAT FOR THE PURPOSE OF CO MPUTING THE INCOME U/S 11 TO 13 OF THE INCOME TAX ACT THE ASSESSEE IS FOLLOWING TH E CASH SYSTEM OF ACCOUNTING. THE INTEREST COLLECTED FROM THE IMPUGNED TWO LOANS HAS BEEN OFFERED TO TAX IN THE YEAR OF RECEIPT. THE DETAILS OF LOANS GRANTED AND RECEIPT O F INTEREST AND PRINCIPAL ON THESE TWO LOANS HAVE BEEN EXTRACTED BELOW FROM THE WRITTEN SU BMISSIONS OF LD AR. VISAKHAPATNAM STEVEDORES ASSOCIATION DATE RS. PS. 03-04-1995 LOAN AMOUNT GRANTED 30 00 000.00 INTEREST ACCRUED ON LOAN 46 60 451.86 ---------------- 76 60 451.86 LESS 15-10-2003 INTEREST AMOUNT RECEIVED 22 56 000.00 PAGE 15 OF 18 07-07-2007 INTEREST AMOUNT RECEIVED 12 51 121.86 26-11-2007 INTEREST AMOUNT RECEIVED 10 98 248.00 29-01-2008 INTEREST AMOUNT RECEIVED 20 000.00 24-03-2008 INTEREST AMOUNT RECEIVED 35 082.00 26-11-2007 PRINCIPAL AMOUNT RECEIVED 10 00 00 0.00 29-01-2008 PRINCIPAL AMOUNT RECEIVED 10 00 00 0.00 24-03-2008 PRINCIPAL AMOUNT RECEIVED 10 00 000 .00 ------------------------------------- 46 60 451.86 30 00 000.00 76 60 451.86 --------------------------------------------- -------- NIL --------------- VISAKHAPATNAM CUSTOMS CLEARANCE & FORWARDING AGENTS ASSOCIATION DATE RS. PS. 03-04-2005 LOAN AMOUNT GRANTED 5 00 000.00 INTEREST ACCRUED ON LOAN 3 62 137.00 --------------- 8 62 137.00 LESS 26-02-2001 PRINCIPAL AMOUNT RECEIVED 5 00 000.00 15-05-2002 INTEREST AMOUNT RECEIVED 3 62 137.00 8 62 137.00 --------------------------------------------- ---- NIL ---------------- ACCORDING TO LD AR THE INTEREST RATE OF 12% WAS MO RE THAN THE INTEREST EARNED BY THE ASSESSEE BY PARKING THE SURPLUS FUNDS IN THE FI XED DEPOSITS OF THE SCHEDULED BANKS. THUS THERE CAN NOT BE ANY DISPUTE THAT THE INTEREST RATE OF 12% RECEIVED BY THE ASSESSEE IS ADEQUATE. THE AO HAS NOT EXPRESSED ANY DOUBT ABOUT THE FINANCIAL STABILITY OF THE TWO SETTLER ASSOCIATIONS. THUS TH E AMOUNTS LENT TO THE TWO FOUNDER ASSOCIATIONS WERE ADEQUATELY SECURED AND ALSO EARNE D ADEQUATE INTEREST @ 12%. IT WAS STATED THAT THE ASSESSEE IS FOLLOWING CASH SYST EM OF ACCOUNTING FOR THE INCOME TAX PURPOSES AND HENCE THE INTEREST CAN BE OFFERED TO TAX ONLY IN THE YEAR OF RECEIPT. THOUGH INITIALLY THE ASSESSEE TRUST DID NOT CHARGE INTEREST LATER IT HAS FULLY COLLECTED THE DUE INTEREST. ACCORDING TO THE CASH SYSTEM TH E INTEREST HAS BEEN OFFERED TO TAX IN THE YEAR OF RECEIPT WHICH IS ALSO IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT. PAGE 16 OF 18 11.4 IT IS NECESSARY HERE TO CONSIDER A PECULIAR FEATURE ATTACHED TO THE ASSESSEE TRUST. GENERALLY THE TRUSTS ARE FOUNDED BY NATURA L PERSONS OR COMMERCIAL LEGAL PERSONS. HOWEVER IN THE INSTANT CASE THE ASSESSE E TRUST WAS FOUNDED BY TWO TRADE ASSOCIATIONS WHICH ARE NON-COMMERCIAL LEGAL PERSON S. THE CONCEPT OF PERSONAL INTEREST IS ATTACHED TO NATURAL PERSONS ONLY. IT I S VERY MUCH SETTLED THAT THERE CANNOT BE ANY PERSONAL ELEMENT IN THE CASE LEGAL PE RSONS. THE AUTHORS OF THE ASSESSEE TRUST ARE TRADE ASSOCIATIONS I.E. NON-CO MMERCIAL LEGAL PERSONS. ITS OFFICE BEARERS ARE PRECLUDED FROM ENJOYING ANY PERSONAL BE NEFITS OR GAINS. THE TRUSTEES OF A TRUST OR THE OFFICER BEARERS OF A TRADE ASSOCIATI ON WORK FOR THE WELFARE OF THE TRUST/ASSOCIATION WITHOUT ANY MONETARY BENEFIT. THE OBJECT OF INTRODUCING RESTRICTIONS THROUGH SECTION 13 IS STATED IN SAMPAT H IYENGARS LAW OF INCOME TAX 10 TH EDITION PAGE 1807) AS UNDER: THE RESTRICTION PROVIDED FOR U/S 13(1)(C) IS OBVIOUSLY INTENDED TO ENSURE THAT DESPITE THE OSTENSIBLY CHARITABLE OBJECTS OF SUCH A TRUST OR INSTITUTION ITS INCOME IS NOT DIVERTED AWAY TO THE BENEFIT PERSONS WHO ARE CL OSELY CONNECTED WITH THE CREATION ESTABLISHMENT AND CONDUCT OF THE TRUST OR INSTITUTI ON. THE AUTHORS OF THE ASSESSEE TRUST ARE TWO TRADE ASS OCIATIONS AND AS STATED EARLIER THERE CANNOT BE ANY PERSONAL INTEREST SO FAR AS THE TRADE ASSOCIATIONS ARE CONCERNED. THE IMPUGNED LOANS HAVE NOT BEEN GIVEN TO THE TRUST EES BUT ONLY TO THE TRADE ASSOCIATIONS. THOUGH THE TRUSTEES FALL IN THE CATE GORY OF SPECIFIED PERSONS U/S 13(3) THE TRADE ASSOCIATIONS IN WHICH THEY ARE OFFICE BEA RERS CANNOT BE TREATED AS A CONCERN IN WHICH THEY ARE SUBSTANTIAL INTERESTED. HENCE T HE QUESTION WHETHER THE PROVISIONS OF SECTION 13(1)(C) SHALL APPLY TO THE ASSESSEE IN RESPECT OF THE IMPUGNED ADVANCES OR NOT IS A DEBATABLE ISSUE. BE THAT AS IT MAY I N ANY CASE ON MERITS WE HAVE SEEN THAT THE IMPUGNED ADVANCES HAVE BEEN MADE WITH ADEQ UATE SECURITY AND ADEQUATE INTEREST AND THEY HAVE BEEN COLLECTED SUBSEQUENTLY. HENCE WE DO NOT FIND ANY REASON TO SUSPECT THE ADEQUACY OF SECURITY OR INTER EST IN TERMS OF SECTION 13(2)(A) OF THE ACT. IN VIEW OF THE FOREGOING REASONS WE HOLD THAT THERE IS NO VIOLATION OF SECTION 13(1)(C) R.W.S. SECTION 13(2) OF THE ACT. PAGE 17 OF 18 12. THE NEXT ISSUE RELATES TO THE ACCUMULATION OF INCOME U/S 11(2) OF THE ACT. ACCORDING TO SECTION 11(2) THE AMOUNT THAT SHOULD HAVE BEEN APPLIED AS PER SECTION 11 IS NOT APPLIED DURING ANY YEAR AND THE ASSESSEE ACCUMULATES OR SET APART ANY AMOUNT FOR APPLICATION FOR CHARITABLE PURPOSES IN F UTURE THEN THE AMOUNT SO ACCUMULATED SHALL NOT BE INCLUDED IN THE TOTAL INCO ME PROVIDED THE FOLLOWING CONDITIONS ARE COMPLIED WITH VIZ. A. SUCH PERSON SPECIFIES BY NOTICE IN WRITING GI VEN TO THE AO IN THE PRESCRIBED MANNER THE PURPOSE FOR WHICH THE INCOME IS BEING A CCUMULATED OR SET APART AND THE PERIOD FOR WHICH THE INCOME IS TO BE ACCUMULATED OR SET APART SUBJECT TO THE CEILING OF CERTAIN YEARS. B. THE MONEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITED IN THE FORMS AND MODES SPECIFIED IN SUB SECTION (5). THE PRESCRIBED FORM IS FORM NO.10. IN THE FORM NO. 10 FOR THE ASSESSMENT YEAR 1999-2000 THE ASSESSEE AS STATED THE PURPOSES OF A CCUMULATION AS UNDER: A. BUILDING CONSTRUCTION B. FOR PAYMENT OF PROVIDENT FUND PENSION GRATUI TY PRODUCTIVITY BONUS FAMILY SECURITY SCHEME TIME RATE AND PIECE RATE WAGES AND TO MEET THE EXPENDITURE FOR OTHER WELFARE AMENITIES PROVIDED BY THE POOL. ACCORDING TO THE AO THE PURPOSE OF ACCUMULATION IS GENERAL IN NATURE AND FOR WELFARE OF THE WORKERS AND NOT FOR ANY CHARITABLE ACTIVITIE S. SINCE THE AO HAS TREATED THE ACTIVITIES OF THE ASSESSEE AS COMMERCIAL ONE HE HA S ARRIVED AT SUCH A CONCLUSION. FURTHER IT APPEARS THAT THE AO HAS FAILED TO UNDERS TAND THE DIFFERENCE BETWEEN THE TERM CHARITABLE PURPOSE AND CHARITABLE ACTIVITIES . WE HAVE EARLIER HELD THAT THE ACTIVITIES CARRIED ON BY THE TRUST ARE IN ACCORDANC E WITH THE OBJECTS FOR WHICH IT WAS FORMED. SUCH OBJECTS HAVE BEEN APPROVED AS FOR CHA RITABLE PURPOSES BY LD CIT BY GRANTING REGISTRATION U/S 12A OF THE ACT. HENCE IN OUR OPINION THE PURPOSES SPECIFIED BY THE ASSESSEE TRUST IN FORM NO.10 ARE O NLY IN CONNECTION WITH THE ADVANCEMENT OF THE OBJECTS OF THE TRUST AND THEY CA NNOT BE TERMED AS GENERAL. PAGE 18 OF 18 ACCORDINGLY THE AO IS DIRECTED TO TAKE INTO ACCOUNT THE APPLICATION FILED BY THE ASSESSEE IN TERMS OF SECTION 11(2) WHILE COMPUTING THE INCOME OF THE ASSESSEE. 13. IN VIEW OF THE FOREGOING DISCUSSIONS WE HOLD THAT THE ASSESSEE TRUST IS ENTITLED TO EXEMPTION U/S 11 OF THE ACT. SINCE THE COMPUTAT ION OF INCOME MADE BY THE AO IS NOT IN ACCORDANCE WITH THE VIEWS EXPRESSED BY US W E DIRECT THE AO TO RE-COMPUTE THE INCOME IN THE LIGHT OF THE PRINCIPLES STATED AB OVE. 14. IN THE RESULT ALL THE APPEALS FILED BY THE ASSES SEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 08-01-2010 SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM 8 TH JANUARY 2010. COPY TO 1 M/S CARGO HANDLING PVT.WORKERS POOL C/O.SHRI C.P . RAMASWAMY ADVOCATE FLAT NO. 303 GITANJALI APARTMENTS PLOT NO.108 SRINAGAR COLONY HYDERABAD 500 073 2 THE ACIT CENTRAL CIRCLE VISAKHAPATNAM 3 THE CIT VISAKHAPATNAM 4 THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM