M/s Little Angels Educational Society, Visakhapatnam v. The ITO, Ward-3(2), Visakhapatnam, Visakhapatnam

ITA 388/VIZ/2012 | 2005-2006
Pronouncement Date: 28-04-2014 | Result: Allowed

Appeal Details

RSA Number 38825314 RSA 2012
Assessee PAN AAATL1031A
Bench Visakhapatnam
Appeal Number ITA 388/VIZ/2012
Duration Of Justice 1 year(s) 6 month(s) 11 day(s)
Appellant M/s Little Angels Educational Society, Visakhapatnam
Respondent The ITO, Ward-3(2), Visakhapatnam, Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 28-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 28-04-2014
Date Of Final Hearing 06-03-2014
Next Hearing Date 06-03-2014
Assessment Year 2005-2006
Appeal Filed On 17-10-2012
Judgment Text
ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NOS.386 TO 391/VIZAG/2012 ASSESSMENT YEARS : 2003-04 TO 2008-09 RESPECTIVELY LITTLE ANGELS EDUCATIONAL SOCIETY VISAKHAPATNAM VS. ITO WARD-3(2) VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AAATL 1031A ASSESSEE BY: SHRI C. SUBRAHMANYAM CA REVENUE BY: SMT. KOMALI KRISHNA ADDL. CIT DATE OF HEARING : 06.03.2014 DATE OF PRONOUNCEMENT : 28.04.2014 ORDER PER J. SUDHAKAR REDDY ACCOUNTANT MEMBER:- ALL THESE APPEALS ARE FILED BY THE ASSESSEE AND AR E DIRECTED AGAINST THE COMMON ORDER OF THE CIT(A) DATED 28.9.2012 FOR THE ASSESSMENT YEARS 2003- 04 TO 2008-09. THE FACTS ARE BROUGHT OUT AT PARA 2 & 3 OF THE CIT(A)S ORDER. THE ASSESSEE WENT IN APPEAL. THE ISSUES IN APPEAL HAVE BEEN BROUGHT OUT AT PARA-5 OF THE CIT(A)S ORDER. 1. CONTRIBUTION TO CHITS IS NEITHER AN INVESTMENT NOR A DEPOSIT; 2. ASSESSEES CASE IS SQUARELY COVERED BY ITAT VISAKHA PATNAM BENCH DECISION IN THE CASE OF GURAJADA EDUCATIONAL SOCIET Y; 3. EVEN IF IT IS ASSUMED THAT CONTRIBUTION TO CHITS IS HIT BY SECTION 13(1)(D) AO INSTEAD OF DENYING COMPLETE EXEMPTION OUGHT TO HAVE COMPLETED THE ASSESSMENT BY INVOKING THE PROVISIONS OF SECTION 164(2). 2. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E THE LD. CIT(A) HELD AS FOLLOWS: (A) THE ISSUES ARE SQUARELY COVERED AGAINST THE AS SESSEE BY THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE C ASE OF PRIYADARSHINI EDUCATIONAL SOCIETY 333 ITR 340 WHEREIN IT IS HELD THAT THE CONTRIBUTION TO CHIT FUNDS IS VIOLATIVE OF S.13(1)(D) R.W.S. 11(5) OF THE ACT. ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 2 (B) THE ASSESSEES ARGUMENT THAT FOR THE FIRST 3 YEARS 2003-04 2004-05 AND 2005-06 THERE WAS NO INVESTMENT BUT ONLY A BORR OWING DUE TO LIFTING OF CHITS HE HELD THAT CHIT CONTRIBUTION IS A MODE OF INVESTMENT TO START WITH AND RELIED ON HIS OWN ORDER IN THE CASE OF SRI SIVANI EDUCATIONAL SOCIETY IN ITA NO.306/2011-12. HE EXTENSIVELY RELIED ON THE OBSERV ATIONS OF THE ITAT IN THE CASE OF PRIYADARSHINI EDUCATIONAL SOCIETY AT PARA 5 .2.2 HE HELD AS FOLLOWS: 5.2.2 I HAVE CONSIDERED THE ARGUMENTS OF THE ASSESS EE AND HAVE CAREFULLY GONE THROUGH THE DECISIONS OF HON'BLE ITAT IN THE CASE O F GURAJADA EDUCATIONAL SOCIETY AND PRIYADARSHINI EDUCATIONAL SOCIETY AND MY DECISION I N CASE OF SRI SIVANI EDUCATIONAL SOCIETY. THE_ASSESSEE SEEMS TO HAVE SELECTIVELY REL IED UPON MY DECISION IN CASE OF SRI SIVANI EDUCATIONAL SOCIETY. IN THAT DECISION I SOUG HT TO HIGHLIGHT THE DISTINGUISHING REASONS CITED BY THE HON'BLE ITAT BETWEEN THE FACTS OF GURAJADA AND PRIYADARSHINI CASES. HON'BLE TRIBUNAL IN PRAIYADARSHNI CASE WHIC H IS A LATER DECISION EXPLAINED THE DECISION OF GURAJADA EDUCATIONAL SOCIETY. HOWEV ER IT IS CATEGORICALLY STATED BY THE HON'BLE TRIBUNAL THAT CHIT FUND SCHEME IS AN INVESTMENT COMBINING BO TH SAVINGS AND BORROWINGS. TAKING CUE FROM THAT OBSERV ATION OF HON'BLE ITAT IN PRIYADARSHINI CASE IN CONTINUATION OF THE PART OF THE DECISION HIGHLIGHTED BY THE ASSESSEE I HAVE FURTHER HELD AS UNDER: ''THE HON'BLE VISAKHAPATNAM ITAT IN A LATER DECISIO N IN THE CASE OF PRIYADARSHINI EDUCATIONAL ACADEMY 123 TTJ 195 EXPLA INED THE DECISION OF GURAJADA EDUCATIONAL SOCIETY. IT IS CATEGORICALLY S TATED BY THE HON'BLE TRIBUNAL THAT CHIT FUND SCHEME IS AN INVESTMENT COMBINING B OTH SAVINGS AND BORROWINGS. IT IS FURTHER OBSERVED BY ITAT THAT WHEN SAVINGS ACTIVITY OUTWEIGHS BORROWING ACTIVITY THEN THE CONTRIBUTION WOULD TAKE CHARACTER OF INVESTMENT AND VICE VERSA. HOWEVER ITAT ALSO LEFT A CAUTIOUS NOTE THAT IT IS NOT NECESSARY THAT THE INVESTMENT SHOULD ALWAYS RES ULT IN PROFIT ONLY. MANY TIMES INVESTMENT MAY RESULT IN LOSS ALSO. HENCE I T IS HELD BY HONBLE ITAT THAT THE FINAL OUTCOME OF INVESTMENT ACTIVITY IS IRRELEV ANT TO DECIDE THE CHARACTER OF CHIT CONTRIBUTIONS. THUS THE ASSESSEES ARGUMENT THAT THE CHIT CONTRI BUTION FINALLY RESULTED IN LOSS CANNOT BE THE BASIS FOR TREATING T HE CHIT CONTRIBUTION AS LOAN TAKEN. THE ASSESSEES ACTIVITY OF CONTRIBUTING TO CHIT FOR TWO YEARS IN SUCCESSION SHOWS THE INTENTION OF THE ASSESSEE TO INVEST IN CH ITS WHICH IS IN CONTRAVENTION OF THE PROVISIONS OF LAW. 5.2.3 FROM THE ABOVE IT CAN BE SEEN THAT IN PRIYAD ARSHINI CASE THE HONBLE ITAT CLEARLY HELD THAT FINAL OUTCOME OF INV ESTMENT ACTIVITY IS IRRELEVANT TO DECIDE THE CHARACTER OF CHIT CONTRIBU TION. THUS THE ARGUMENT THAT THE CHIT CONTRIBUTION FINALLY RESULTED IN A LO SS CANNOT BE THE BASIS FOR TREATING THE CHIT CONTRIBUTION AS LOAN TAKEN. MY INTENTION I N DISTINGUISHING THE PRIYADARSHINI CASE FROM GURAJADA CASE WAS TO HIGHLIGHT THESE STAT EMENTS OF HON'BLE TRIBUNAL WHICH REPRESENT A PARADIGM SHIFT IN THE HON'BLE TRI BUNAL'S STAND IN A LATER CASE OF PRIYADARSHINI EDUCATIONAL SOCIETY. IN VIEW OF THE A BOVE I WOULD LIKE TO CLARIFY THAT THE SAID PART OF SRI SIVANI DECISION IS NOT INTENDE D TO MAKE A STATEMENT THAT IF THERE ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 3 IS A LOSS IN CHIT ACTIVITY OR BORROWINGS OUTWEIGHED INVESTMENT THEN THERE IS NO VIOLATION OF SECTION 11(5). 5.2.4 TO ILLUSTRATE IN CASE A PERSON PUTS MONEY IN RECURRING DEPOSIT OR IN A LIC SCHEME AND MAKES A BORROWING AGAINST THE SAME HE M AY ULTIMATELY END UP PAYING MORE INTEREST THAN WHAT HE HAS GOT. THAT DOES NOT A LTER THE CHARACTER OF RECURRING DEPOSIT FIXED DEPOSIT LIC CONTRIBUTION AS AN INVESTMENT TO THAT OF BORROWING. SUCH PAYMENT INTRINSICALLY WOULD STILL H AVE THE CHARACTER OF INVESTMENT EVEN THOUGH THERE WOULD BE AN ULTIMATE LOSS. THAT I S WHY THE HON'BLE TRIBUNAL LEFT A CAUTIOUS NOTE IN PRIYADARSHINI CASE THAT IT IS NOT NECESSARY THAT THE INVESTMENT SHOULD ALWAYS RESULT IN PROFIT ONLY. FUR THER TO THIS 1 HAVE ALSO RELIED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRIYADARSHINI EDUCATIONAL SOCIETY. THE HIGH COURT CATEGORICALLY HELD THAT CONTRIBUTION TO CHIT FUND WHICH IS NOT ONE OF THE MODES SPECIFIED IN SECTION 11(5) WOULD AUTOMATICALLY MAKE THE ASSESSEE INELIGIBLE FOR EXEMPTION. IN VIEW OF T HIS BINDING OF DECISION THE HON'BLE HIGH COURT ASSESSEE'S RELIANCE ON GURAJADA EDUCATIO NAL SOCIETY IN. MY OPINION IS NO MORE RELEVANT. THEREFORE RESPECTFULLY FOLLOWING THE HON'BLE JURISDICTIONAL HIGH COURT DECISION I HOLD THAT ANY CONTRIBUTION TO CHIT FUND IRRESPECTIVE OF THE FACT WHETHER IT RESULTS IN DIVIDEND OR LOSS WOULD STILL BE IN VIOLATION OF SECTION 11(5) AND THE ASSESSEE WOULD AUTOMATICALLY LOSE ITS EXEMPTION THEREFORE THIS CONTENTION OF THE ASSESSEE IS ALSO DISMISSED AND IT IS HELD THAT CONTRIBUTION MADE TO CHIT FUND IN ALL THE ASSESSMENTS IS IN VIOLATION OF SECTION 11(5 ) AND THEREFORE I UPHOLD THE ACTION OF AO IN DENYING EXEMPTION TO THE ASSESSEE. 4. HE REJECTED THE ALTERNATE ARGUMENT OF THE ASSESS EE THAT VIOLATION OF PROVISIONS OF SECTION 13(1)(D) WOULD NOT RESULT IN DENYING THE ENTIRE EXEMPTION U/S 11 OF THE ACT AS FOLLOWS: 5.3.2 I HAVE CONSIDERED THE ARGUMENTS OF THE ASSESS EE AND HAVE GONE THROUGH THE RELEVANT CIRCULAR AND THE DECISIONS CITED IN SU PPORT OF ITS ARGUMENT. ON GOING THROUGH THE SAID PROVISIONS AND DECISIONS I FIND T HAT ASSESSEE'S ARGUMENT IS CORRECT. AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST 249 ITR 533 ONLY THAT PART OF INCOME WHICH H AD VIOLATED INVESTMENT NORMS WOULD BE TAXABLE AT MAXIM UM MARGINAL RATES AND THE REMAINING INCOME SHALL BE CHARGED UNDER NORMAL RATE S. THEREFORE FOLLOWING THE ABOVE BOARD CIRCULAR AND THE DECISIONS OF HON'BLE B OMBAY HIGH COURT AND HON'BLE HYDERABAD TRIBUNAL I DIRECT AO TO TAX THE AMOUNT RELATED TO CHIT CONTRIBUTION AT MAXIMUM MARGINAL RATES AND ON THE REMAINING AMOUNT AO IS DIRECTED TO CALCULATE TAX ACCORDING TO THE NORMAL RATES. THIS I SSUE IS THEREFORE PARTLY ALLOWED. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US O N THE FOLLOWING GROUNDS: 1.0 THE LEARNED COMMISSIONER OF INCOME TAX(A) OUG HT TO HAVE HELD THAT CONTRIBUTION MADE TOWARDS CHIT SUBSCRIPTION IS NEIT HER INVESTMENT NOR DEPOSIT AS CONTEMPLATED UNDER THE PROVISIONS OF SEC TION 13(L)(D) OF THE I.T. ACT. ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 4 1.1 THE LEARNED COMMISSIONER OF INCOME TAX(A) FOR THE IMPUGNED ASST. YEAR OUGHT TO HAVE HELD THAT THE ASSESSEE'S BID FOR THE CHITS AMOUNTS TO BORROWING AND WHEN THE BORROWING ACTIVIT Y OUTWEIGHS THE SAVING ACTIVITY THE SUBSEQUENT SUBSCRIPTIONS PAID TANTAMOU NT TO RE- PAYMENT OF THE LOAN THEREFORE THERE IS NO 'INVEST MENT OR 'DEPOSIT IN VIOLATION OF THE PROVISIONS OF SECTION 13(L)(D) OF THE I.T. A CT. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX(A) ON THE ANALOGY AS ABOVE THAT WAS AFFIRMED BY THE JURISDICTIONAL BENCH IN TH E CASE OF GURAJADA EDUCATIONAL SOCIETY AND PRIYADARSHINI EDUC ATIONAL ACADEMY SINCE FACTS ARE SIMILAR OUGHT TO HAVE HELD THAT TH E ASSESSEE HAS NOT VIOLATED THE PROVISIONS OF SECTION 13(L)(D) OF THE I.T. ACT. 1.3 THE LEARNED CIT(A) FAILED TO CONSIDER THE JURI SDICTIONAL BENCH DECISIONS IN THE CASE OF GURAJADA EDUCATIONAL SOCIE TY AND PRIYADARSHINI EDUCATIONAL ACADEMY IN THE RIGHT PERSPECTIVE. 1.4 APPELLANT CRAVES LEAVE TO ADD ALTER OR DELET E ANY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE APPEAL. 1.5 FOR THESE AND OTHER REASONS THAT ARE TO BE URG ED AT THE TIME OF HEARING OF THE CASE THE APPELLANT PRAYS THAT THE O RDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(A) ARE BAD IN LA W AND NEEDS TO BE SET-ASIDE. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED HIS SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE DREW OUR ATTENTIO N TO THE VARIOUS DOCUMENTS IN THE PAPER BOOK WRITTEN SUBMISSIONS AND ALSO THE CASE LAWS RELIED UPON BY HIM. THE PITH AND SUBSTANCE OF HIS SUBMISSIONS IS THAT CONTRIBUTION TO A CHIT FUND IS NOT AN INVESTMENT AS CONTEMPLATED IN S.11(5 ) R.W.S.13(1)(D) AND IN THE ALTERNATIVE HIS SUBMISSION IS THAT FOR THE A.YS .2003-04 TO 2005-06 THERE WAS NO INVESTMENT BUT ONLY A BORROWING DUE TO BIDDI NG OF CHITS BY THE ASSESSEE. 7. THE LD. D.R ON THE OTHER HAND PLACED STRONG RELI ANCE IN THE ORDER OF THE CIT(A). SHE PLACED RELIANCE IN THE CASE OF PRI YADARSHINI EDUCATIONAL ACADEMY VS. DGIT 333 ITR 347 AND CONTENDED THAT ONC E THERE IS A CONTRIBUTION TO CHITS THE ENTIRE EXEMPTION U/S 11(1 ) HAS TO BE DENIED TO THE ASSESSEE. ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 5 8. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND PERUSAL OF PAPERS RECORDED OF AUTHORITIES BELOW WE HELD AS FOLLOWS: 9. THE ISSUE INVOLVED IN ALL THE APPEALS OF THE ASS ESSEE IS AS TO WHETHER CONTRIBUTION TO CHIT IS AN INVESTMENT THAT WOULD DI SENTITLE IT FROM CLAIMING EXEMPTION U/S 11(1) OF THE ACT. WHILE DECIDING AN IDENTICAL ISSUE IN THE CASE OF SRI SIVANI EDUCATIONAL SOCIETY IN ITA NO.175/V/2 012 WE HAVE HELD THAT A CHIT FUND TRANSACTION OPERATES ON THE PRINCIPLE OF MUTUALITY AND THAT THE CONTRIBUTION TO A CHIT IS NOT AN INVESTMENT THAT IS VIOLATIVE OF S.11(5) R.W.S. 13(1)(D) OF THE ACT. OUR FINDINGS IN THAT CASE ARE EXTRACTED HEREUNDER: OUR FINDINGS: 14. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CON SIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED WE HOLD AS FOLLOWS: THE RELEVANT SECTIONS THAT COME UP FOR OUR CONSIDER ATION I.E. 11 (1) SECTION 11(5) AND 13(1)(D) ARE EXTRACTED FOR READY REFERENCE. SECTION 11(1) : SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63 T HE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT TO WHICH SUCH INC OME IS APPLIED TO SUCH PURPOSES IN INDIA; AND WHERE ANY SUCH INCOME IS AC CUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA TO THE EXTEN T TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF [FIFTE EN] PERCENT OF THE INCOME FROM SUCH PROPERTY; (B) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST IN PART ONLY FOR SUCH PURPOSES THE TRUST HAVING BEEN CREATED BEFORE THE COMMENCEMENT OF THIS ACT TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; AND WHERE ANY SUCH INCOME IS FINALLY SET APART FOR APPLICATIO N TO SUCH PURPOSES IN INDIA TO THE EXTENT TO WHICH THE INCOME SO SET APART IS NOT IN EXCESS OF [FIFTEEN] PER CENT OF THE INCOME FROM SUCH PROPERTY; (C) INCOME [DERIVED] FROM PROPERTY HELD UNDER TRUS T (I) CREATED ON OR AFTER THE 1 ST DAY OF APRIL 1952 FOR A CHARITABLE PURPOSE WHICH TENDS TO PROMOTE INTERNATIONAL WELFARE IN WHICH IND IA IS INTERESTED TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES OU TSIDE INDIA AND (II) FOR CHARITABLE OR RELIGIOUS PURPOSES CREATED BEFORE THE 1 ST DAY OF APRIL 1952 TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SU CH PURPOSES OUTSIDE INDIA: PROVIDED THAT THE BOARD BY GENERAL OR SPECIAL ORDER HAS DI RECTED IN EITHER CASE THAT IT SHALL NOT BE INCLUDED IN THE TOTAL INCOME O F THE PERSON IN RECEIPT OF SUCH INCOME; (D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS M ADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUS T OR INSTITUTION.] EXPLANATION FOR THE PURPOSES OF CLAUSES (A) AND ( B) -- ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 6 (1) IN COMPUTING THE FIFTEEN PERCENT OF THE INCOME WHIC H MAY BE ACCUMULATED OR SET APART ANY SUCH VOLUNTARY CONTRIBUTIONS AS ARE REFERRED TO IN SECTION 12 SHALL BE DEEMED TO BE PART OF THE INCOME; (2) IF IN THE PREVIOUS YEAR THE INCOME APPLIED TO CHA RITABLE OR RELIGIOUS PURPOSES IN INDIA FALLS SHORT OF EIGHT-FIVE PER CENT OF THE INCOME DERIVED DURING THAT YEAR FROM PROPERTY HELD UNDER TRUST OR AS THE CASE MAY BE HELD UNDER TRUST IN PART BY ANY AMOUNT (I) FOR THE REASON THAT THE WHOLE OR ANY PART OF THE IN COME HAS NOT BEEN RECEIVED DURING THAT YEAR OR (II) FOR ANY OTHER REASON THEN (A) IN THE CASE REFERRED TO IN SUB-CLAUSE (I) SO MUCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING A S DOES NOT EXCEED THE SAID AMOUNT AND (B) IN THE CASE REFERRED TO IN SUB-CLAUSE (II) SO MUCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IMM EDIATELY FOLLOWING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED AS DO ES NOT EXCEED THE SAID AMOUNT MAY AT THE OPTION OF THE PERSON IN RECEIPT OF THE INCOME (SUCH OPTION TO BE EXERCISED IN WRITING BEFORE THE EXPIRY OF THE TIME ALLOWED UNDER SUB-SECTION (1) OF SECTION 139 FOR FURNISHING THE RETURN OF INCOME) BE DEEMED TO BE INCOME APPLIED TO SUCH PURPOSES DURING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED; AND THE INCOME SO DEEMED TO HAVE BEEN APPLIED SHALL NOT BE TAKEN INTO ACCOUNT IN CALCULATING THE AMOUNT OF INCOME APPLIED TO SUCH PU RPOSES IN THE CASE REFERRED TO IN SUB-CLAUSE (I) DURING THE PREVIOUS YEAR IN W HICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING AS THE CASE MAY BE AND IN THE CASE REFERRED TO IN SUB-CLAUSE (II) DURING THE PRE VIOUS YEAR IMMEDIATELY FOLLOWING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED. SECTION 11(5): THE FORMS AND MODES OF INVESTING OR DEPOSITING TH E MONEY REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2) SHALL BE THE FOLLOWING NAMELY:- (I) INVESTMENT IN SAVINGS CERTIFICATES AS DEFINED IN CL AUSE (C) OF SECTION 2 OF THE GOVERNMENT SAVINGS CERTIFICATES ACT 1959 (46 OF 19 59) AND ANY OTHER SECURITIES OR CERTIFICATES ISSUED BY THE CENTRAL GOVERNMENT UN DER THE SMALL SAVINGS SCHEMES OF THAT GOVERNMENT; (II) DEPOSIT IN ANY ACCOUNT WITH THE POST OFFICE SAVINGS BANK; (III) DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED BANK OR A C O-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INC LUDING A CO-OPERATIVE LAND MORTGAGE BANK OR A CO-OPERATIVE LAND DEVELOPMENT BA NK). EXPLANATION IN THIS CLAUSE SCHEDULED BANK MEAN S THE STATE BANK OF INDIA CONSTITUTED UNDER THE STATE BANK OF INDIA ACT 1955 (23 OF 1955) A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDI ARY BANKS) ACT 1959 (38 OF ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 7 1959) A CORRESPONDING NEW BANK CONSTITUTED UNDER S ECTION 3OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS ) ACT 1970 (5 OF 1970) OR UNDER SECTION 3 OF THE BANKING COMPANIES (ACQUISITI ON AND TRANSFER OF UNDERTAKINGS) ACT 1980 (40 OF 1980) OR ANY OTHER BANK BEING A BANK INCLUDED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA AC T 1934 (2 OF 1934); (IV) INVESTMENT IN UNITS OF THE UNIT TRUST OF INDIA ESTA BLISHED UNDER THE UNIT TRUST OF INDIA ACT 1963 (52 OF 1963); (V) INVESTMENT IN ANY SECURITY FOR MONEY CREATED AND IS SUED BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT; (VI) INVESTMENT IN DEBENTURES ISSUED BY OR ON BEHALF OF ANY COMPANY OR CORPORATION BOTH THE PRINCIPAL WHEREOF AND THE INTE REST WHEREON ARE FULLY AND UNCONDITIONALLY GUARANTEED BY THE CENTRAL GOVERNMEN T OR BY A STATE GOVERNMENT; (VII) INVESTMENT OR DEPOSIT IN ANY PUBLIC SECTOR COMPANY: PROVIDED THAT WHERE AN INVESTMENT OR DEPOSIT IN ANY PUBLIC S ECTOR COMPANY HAS BEEN MADE AND SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SECTOR COMPANY -- (A) SUCH INVESTMENT MADE IN THE SHARES OF SUCH COMPANY SHALL BE DEEMED TO BE AN INVESTMENT MADE UNDER THIS CLAUSE FOR A PERIOD O F THREE YEARS FROM THE DATE ON WHICH SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SECTOR COMPANY; (B) SUCH OTHER INVESTMENT OR DEPOSIT SHALL BE DEEMED TO BE AN INVESTMENT OR DEPOSIT MADE UNDER THIS CLAUSE FOR THE PERIOD UPTO THE DATE ON WHICH SUCH INVESTMENT OR DEPOSIT BECOMES REPAYABLE BY SUCH COM PANY; (VIII) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG TERM FINANCE FOR INDUSTRIAL DEVELOPMENT IN INDIA AND WHICH IS ELIGIBLE FOR DEDUCTION UNDER CLA USE (VIII) OF SUB-SECTION (1) OF SECTION 36; (IX) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUED BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CAR RYING ON THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PUR CHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES AND WHICH IS ELIGIBLE FOR DEDU CTION UNDER CLAUSE (VIII) OF SUB- SECTION (1) OF SECTION 36; (IXA) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSU ED BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR URBAN INFRASTRUCTUR E IN INDIA. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE -- (A) LONG TERM FINANCE MEANS ANY LOAN OR ADVANCE WHERE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN FIVE YEARS; (B) PUBLIC COMPANY SHALL HAVE THE MEANING ASSIGNED TO IT IN SECTION 3 OF THE COMPANIES ACT 1956 (1 OF 1956); ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 8 (C) URBAN INFRASTRUCTURE MEANS A PROJECT FOR PROVIDIN G POTABLE WATER SUPPLY SANITATION AND SEWERAGE DRAINAGE SOLID WASTE MANA GEMENT ROADS BRIDGES AND FLYOVERS OR URBAN TRANSPORT; (X) INVESTMENT IN IMMOVABLE PROPERTY EXPLANATION -- IMMOVABLE PROPERTY DOES NOT INCLUD E ANY MACHINERY OR PLANT (OTHER THAN MACHINERY OR PLANT INSTALLED IN A BUILD ING FOR THE CONVENIENT OCCUPATION OF THE BUILDING) EVEN THOUGH ATTACHED TO OR PERMANENTLY FASTENED TO ANYTHING ATTACHED TO THE EARTH; (XI) DEPOSITS WITH THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ESTABLISHED UNDER THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ACT 1964 (18 OF 1964); (XII) ANY OTHER FORM OR MODE OF INVESTMENT OR DEPOS IT AS MAY BE PRESCRIBED. SECTION 13(1)(D): NOTHING CONTAINED IN SECTION11 OR SECTION 12 SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF__ .. (D) IN THE CASE OF A TRUST FOR CHAIRTABLE OR RELIGIOUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION ANY INCOME THEREOF IF FOR A NY PERIOD DURING THE PREVIOUS YEAR (I) ANY FUNDS OF THE TRUST OR INSTITUTION ARE INVESTED OR DEPOSITED AFTER THE 28 TH DAY OF FEBRUARY 1983 OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECTION 11; OR (II) ANY FUNDS OF THE TRUST OR INSTITUTION INVESTED OR D EPOSITED BEFORE THE 1 ST DAY OF MARCH 1983 OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECTION 11 CONTINUE TO REMAIN SO INVESTED OR DEPOSITED AFTER THE 30 TH DAY OF NOVEMBER 1983; OR (III) ANY SHARES IN A COMPANY NOT BEING A GOVERNMENT COM PANY AS DEFINED IN SECTION 617 OF THE COMPANIES ACT 1956 ( 1 OF 1956) OR A CORPORATION ESTABLISHED BY OR UNDER A CENTRAL STATE OR PROVINCIAL ACT ARE HELD BY THE TRUST OR INSTITUTION AFTER THE 30 TH DAY OF NOVEMBER 1983: PROVIDED THAT NOTHING IN THIS CLAUSE SHALL APPLY IN RELATION TO (I) ANY ASSETS HELD BY THE TRUST OR INSTITUTION WHERE S UCH ASSETS FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION AS ON THE 1 ST DAY OF JUNE 1973; (IA) ANY ACCRETION TO THE SHARES FORMING PART OF THE CORPUS MENTIONED IN CLAUSE (I) BY WAY OF BONUS SHARES ALLOTTED TO THE THE TRUST OR INSTITUTION; (II) ANY ASSETS (BEING DEBENTURES ISSUED BY OR ON BEHAL F OF ANY COMPANY OR CORPORATION) ACQUIRED BY THE TRUST OR INSTITUTION B EFORE THE 1 ST DAY OF MARCH 1983; (IIA) ANY ASSET NOT BEING AN INVESTMENT OR DEPOSIT IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECTION 11 WHERE S UCH ASSET IS NOT HELD BY THE TRUST OR INSTITUTION OTHERWISE THAN IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB- SECTION (5) OF SECTION 11 AFTER THE EXPIRY OF ONE YEAR FROM THE END OF THE PREVIOUS YEAR IN WHICH SUCH ASSET IS ACQUIRED OR TH E 31 ST DAY OF MARCH 1993 WHICHEVER IS LATER; ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 9 (III) ANY FUNDS REPRESENTING THE PROFITS AND GAINS OF BUS INESS BEING PROFITS AND GAINS OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSME NT YEAR COMMENCING ON THE 1 ST DAY OF APRIL 1984 OR ANY SUBSEQUENT ASSESSMENT YE AR. EXPLANATION:- WHERE THE TRUST OR INSTITUTION HAS AN Y OTHER INCOME IN ADDITION TO PROFITS AND GAINS OF BUSINESS THE PROVISIONS OF CL AUSE (III) OF THIS PROVISO SHALL NOT APPLY UNLESS THE TRUST OR INSTITUTION MAINTAINS SEP ARATE BOOKS OF ACCOUNT IN RESPECT OF SUCH BUSINESS. EXPLANATION.-- FOR THE PURPOSES OF SUB-CLAUSE (II) OF CLAUSE (C) IN DETERMINING WHETHER ANY PART OF THE INCOME OR ANY P ROPERTY OF ANY TRUST OR INSTITUTION IS DURING THE PREVIOUS YEAR USED OR APP LIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB-SECTIO N (3) IN SO FAR AS SUCH USE OR APPLICATION RELATES TO ANY PERIOD BEFORE THE 1 ST DAY OF JULY 1972 NO REGARD SHALL BE HAD TO THE AMENDMENTS MADE TO THIS SECTION BY SE CTION 7 OTHER THAN SUB- CLAUSE (II) OF CLAUSE (A) THEREOF OF THE FINANCE AC T 1972. 15. THE FIRST ISSUE THAT ARISES FOR ADJUDICATION I S WHETHER THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT ARE APPLICABLE TO THE C ASE OF THE ASSESSEES. BEFORE WE CONSIDER THIS ASPECT WE DISCUSS THE NATURE OF CHIT BUSINESS. THERE ARE A CATENA OF DECISIONS OF VARIOUS COURTS INCLUDING HONBLE SU PREME COURT ON THIS ISSUE. THE HONBLE DELHI HIGH COURT IN THE CASE OF DELHI CHIT FUNDS ASSOCIATION VS. UOI AND ANOTHER W.P.(C) 4512/2012 AT PARA 6 & 7 OF PAGE 6 O F JUDGEMENT DATED 23.4.2013 STATED AS FOLLOWS: 6. IT IS NECESSARY TO GIVE A BRIEF ACCOUNT OF THE O PERATIONS OF A CHIT FUND BUSINESS. SUPPOSING 50 PERSONS COME TOGETHER TO ORG ANISE A CHIT. LET US FURTHER SUPPOSE THAT EACH OF THEM UNDERTAKE TO CONTRIBUTE R S.1 000/-. THE TOTAL CHIT AMOUNT WOULD BE `50 000/-. LET US FURTHER SUPPOSE T HAT THE FUND WOULD OPERATE FOR A PERIOD OF 50 MONTHS. THUS THE MEMBER SUBSCRIB ERS AND THE NUMBER OF MONTHS FOR WHICH THE CHIT WOULD OPERATE WOULD BE TH E SAME. IN THIS EXAMPLE AT THE END OF EACH MONTH AN AMOUNT OF RS.50 000/- (RS .1 000/- X 50) WOULD BE AVAILABLE IN THE KITTY OF THE CHIT FUND. THE SAID A MOUNT WOULD BE PUT TO AUCTION AND THOSE SUBSCRIBERS WHO ARE INTERESTED IN DRAWING THE MONEY EARLY BECAUSE OF THEIR NEEDS MAY PARTICIPATE IN THE AUCTION. THE SUC CESSFUL BIDDER WHO IS NORMALLY THE PERSON WHO OFFERS THE HIGHEST DISCOUNT IS GIVEN THE CHIT AMOUNT. FOR EXAMPLE IF THERE ARE THREE BIDDERS OFFERING TO TAKE THE CHI T OF RS.50 000/- FOR RS.40 000/- RS.37 500/- AND RS.35 000/- RESPECTIVELY THE CHIT WOULD BE GIVEN TO THAT SUBSCRIBER WHO IS WILLING TO TAKE IT FOR RS.35 000/ - SINCE HE HAS OFFERED A DISCOUNT OF `15 000/-. THIS LEAVE A BALANCE OF RS.15 000/- ( RS.15 000 RS.50 000) IN THE KITTY. THE AMOUNT OF RS.15 000/- WHICH REPRESENTS T HE DISCOUNT WHICH THE SUCCESSFUL BIDDER HAS FOREGONE BECOMES THE DIVIDEND WHICH IS TO BE DISTRIBUTED TO ALL THE SUBSCRIBERS AFTER DEDUCTING A FIXED AMOUNT REPRESENTING THE COMMISSION PAYABLE TO THE FOREMAN. A FOREMAN IS NORMALLY A P ERSON WHO ORGANISES THE AUCTION AND CONDUCTS THE PROCEEDINGS. IF IN THE EXA MPLE GIVEN ABOVE THE ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 10 COMMISSION PAYABLE TO THE FOREMAN IS FIXED AT 5% T HEN AFTER DEDUCTING RS.2 500/- (5% OF RS.50 000/- THE CHIT AMOUNT) THE BALANCE OF RS.12 500/- WOULD BE DISTRIBUTED AMONG ALL THE 50 SUBSCRIBERS S O THAT EACH WOULD GET RS.250/-. THIS AMOUNT OF RS.250/- CAN BE SET OFF BY THE SUBSCRIBERS AGAINST THE SECOND MONTH'S INSTALLMENT OF RS.1 000/- PAYABLE BY HIM AND HE CAN GIVE ONLY RS.750/-. THE AUCTION WOULD BE REPEATED IN THE SUBS EQUENT MONTHS AND THE SAME PROCEDURE IS FOLLOWED. ANY SUBSCRIBER WHO DELAYS TH E BIDDING OR DOES NOT BID AT ALL STANDS TO GAIN THE MAXIMUM DISCOUNT. THE CHIT I S THUS SOMEWHAT LIKE A RECURRING DEPOSIT WITH THE BANK. THERE IS NO BAR ON THE FOREMAN OF THE CHIT FUND ALSO PARTICIPATING AS A SUBSCRIBER. 7. THE BUSINESS OF CHIT FUNDS IS STRICTLY REGULATED BY THE CHIT FUNDS ACT 1982. IT CONTAINS DETAILED PROVISIONS RELATING TO REGISTRATI ON OF CHITS COMMENCEMENT AND CONDUCT OF CHIT BUSINESS. RIGHTS AND DUTIES OF FOR EMAN RIGHTS AND DUTIES OF THE SUBSCRIBERS TERMINATION OF CHITS MEETINGS OF GENE RAL BODY OF SUBSCRIBERS PROVISIONS RELATING TO WINDING UP DISPUTES AND ARB ITRATION AND OTHER MISCELLANEOUS PROVISIONS. SUFFICE TO NOTE THAT SECT ION 11 RECOGNISES THAT A CHIT BUSINESS CAN BE KNOWN BY SEVERAL NAMES SUCH AS CHIT CHIT FUND CHITTY KURI ETC. DEALING WITH THE CHIT FUNDS ACT THE SUPREME COURT IN SRIRAM CHITS & INVESTMENT (P) LTD. VS. UNION OF INDIA : AIR 1993 SC 2063 HAS LAID DOWN THE FOLLOWING PROPOSITIONS: - (A) THE ACT IN PITH AND SUBSTANCE DEALS WITH SPEC IAL CONTRACT AND CONSEQUENTLY FALLS WITHIN ENTRY 7 OF LIST III OF THE 7 THE SCHED ULE TO THE CONSTITUTION OF INDIA; (B) A CHIT FUND TRANSACTION IS NOT A CASE OF BORROW ING NOR IS IT A LOAN TRANSACTION. IF A SUBSCRIBER ADVANCES ANY AMOUNT HE DOES SO ONL Y TO ONE OF THE MEMBERS; (C) THE FUNDS OF THE CHIT FUND BELONG TO THE ENTIRE LOT OF SUBSCRIBERS; (D) THE AMOUNTS ARE IN DEPOSIT WHICH THE STAKE HOLD ER ONLY HOLDS IN TRUST FOR THE BENEFIT OF THE MEMBERS OF THE FUND; (E) THE FOREMAN ACTS ONLY AS A PERSON TO BRING TOGE THER THE SUBSCRIBERS AND HE IS SUBJECT TO CERTAIN OBLIGATIONS WITH A VIEW TO PROTE CTING THE SUBSCRIBERS FROM ANY MISCHIEF OR FRAUD COMMITTED BY HIM BY USING THE POS ITION; (F) COMMISSION IS PAYABLE TO THE FOREMAN FOR THE SE RVICE RENDERED BY HIM AS HE DOES NOT LEND MONEY BELONGING TO HIM. ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 11 16. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS . BILAHARI INVESTMENTS PVT. LTD. 299 ITR 1 STATED AS FOLLOWS: THE SUPREME COURT NOTED THAT CHIT FUNDS ARE BASIC ALLY SAVING SCHEMES IN WHICH A CERTAIN NUMBER OF SUBSCRIBERS JOIN TOGETHER AND EACH CONTRIBUTES A CERTAIN FIXED SUM EACH MONTH THE TOTAL NUMBER OF M ONTHS BEING EQUAL TO THE TOTAL NUMBER OF SUBSCRIBERS. THE SUBSCRIPTIONS ARE PAID TO THE MANAGER OF THE FUND BY A CERTAIN PRESCRIBED DATE EACH MONTH AND TH E TOTAL SUBSCRIPTIONS TO THE FUND ARE AUCTIONED EACH MONTH AMONGST THE SUBSCRIBE RS. AT EACH AUCTION THE LOWEST BIDDER IS PAID THE AMOUNT OF HIS BID AND THE BALANCE RECEIVED FROM OUT OF THE TOTAL SUBSCRIPTIONS RECEIVED IS DISTRIBUTED EQU ALLY AMONGST OTHER SUBSCRIBERS AS PREMIUM. THE MANAGER IS PAID A CERTAIN PERCENTAG E OF THE COLLECTIONS EACH MONTH ON ACCOUNT OF EXPENSES AND CHARGES FOR CONDUC TING THE AUCTION. IN THE AUCTION A MAXIMUM AMOUNT WHICH THE HIGHEST BIDDER AGREES TO FORGO IS THE AMOUNT WHICH IS DISTRIBUTED TO THE OTHER MEMBERS SUBJECT TO DEDUCTION OF THE MANAGERS COMMISSION. 17. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAHEB CHITS (DELHI) PVT. LTD. ITA NO.44 OF 2008 JUDGEMENT DATED 24.7.2009 HA S OBSERVED AS FOLLOWS: FURTHER IT WAS OBSERVED BY THE HONBLE SUPREME CO URT IN SRIRAM CHITS AND INVESTMENTS (P) LTD. (SUPRA) THAT IT WOULD NOT BE C ORRECT TO STATE THAT EACH SUBSCRIBER LENT MONEY TO THE PERSON WHO GETS CHITS EARLIER. IT CANNOT ALSO BE CONSTRUED THAT THE PERSON WHO GETS CHIT LATER SHOUL D BE TREATED AS A MONEY LENDER. THE AGREEMENT BETWEEN THE PARTIES THOSE ENTERED AS PER SECTION 6 OF THE ACT ONLY PROVIDES FOR DISTRIBUTI ON OF THE CHIT AMOUNT. THE SUPREME COURT HOWEVER RELIED ON THE JUDGEMENT OF THE KERALA HIGH COURT IN JANARDHANA MALLAN AND OTHERS VS. GANG ADHARAN AND OTHERS AIR 1983 KERALA 178 WHEREIN IT WAS OBSERVED THAT ON EN TERING INTO A CHIT AGREEMENT A DEBT IS NOT INCURRED BY THE SUBSCRIBER FOR THE AM OUNT OF ALL THE FUTURE INSTALMENTS AND IN RESPECT OF SUCH AMOUNT THERE IS NO DEBTORS-CREDITORS RELATIONSHIP. THE HONBLE DELHI HIGH COURT FURTHER OBSERVED AS FO LLOWS: THIS APPROACH IS FALLACIOUS ON THE FACE OF IT AND P ARTICULARLY IN VIEW OF THE PRINCIPLE LAID DOWN IN THE AFORESAID JUDGEMENT OF T HE SUPREME COURT IN SRIRAM CHITS AND INVESTMENT PVT. LTD. (SUPRA) WHEREIN THE APEX COURT OBSERVED THAT THE SUBSCRIPTION RECEIVED FROM THE MEMBERS OF THE CHIT FUND COMPANY IN TERMS OF CONTRACT ARE NOT TREATED AS DEPOSITS FOR THE PURPOS E OF RESERVE BANK OF INDIA DIRECTION. THE AMOUNT CONTRIBUTED BY THE MEMBERS E VERY MONTH IS GIVEN BACK TO THEM IN THE FOLLOWING MANNER. THE SUCCESSFUL BIDDE R TAKES THE ENTIRE AMOUNT (MINUS) THE BID AMOUNT AND THE BID AMOUNT IS DISTRI BUTED EQUALLY AMONG THE MEMBERS. THEREFORE BY NO STRETCH OF IMAGINATION THE AFORESAI D AMOUNT CONTRIBUTED BY THE MEMBERS CAN BE TREATED AS A DEPO SIT WITH THE COMPANY MUCH LESS MONEY BORROWED BY THE ASSESSEE. 18. THE HONBLE SUPREME COURT IN THE CASE OF M/S. S RIRAM CHITS AND INVESTMENTS VS. UNION OF INDIA AND OTHERS AIR 1993 (SC)2063 AT PARA 14 HELD AS FOLLOWS: ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 12 14. THE QUESTION AS TO THE NATURE OF CHIT AGREEMEN T CAME UP FOR CONSIDERATION BEFORE A FULL BENCH OF FIVE JUDGES OF THE KERALA HI GH COURT IN JANARDHANA MALLAN AND ORS. V. GANGADHARAN AND ORS.. THE FULL BENCH THERE WAS CONCERNED WITH THE CHIT AGREEMENT UNDER THE KERALA CHITTIES ACT (A CT 23 OF 1975) WHERE THE KERALA HIGH COURT SPEAKING THROUGH POTI ACTING CHIEF JUSTICE TOOK THE VIEW THAT ON ENTERING INTO THE CHITTY AGREEMENT A DEBT IS NOT INCURRED BY THE SUBSCRIBER FOR THE AMOUNT OF ALL TH E FUTURE INSTALLMENTS AND IN RESPECT OF SUCH AMOUNT THERE IS NO DEBTOR-CREDIT OR RELATIONSHIP. THE CHITTY VARIOLA ONLY EMBODIES A PROMISE TO PAY ON FU TURE DATES. THAT IS NOT A PROMISE TO REPAY AN EXISTING DEBT BUT TO PAY IN DISCHARGE OF A CONTRACTUAL OBLIGATION. FOR SIMILAR REASONS NEITHER THE PRIZING OF THE CHITTY NOR THE EXECUTION OF THE SECURITY BOND WOULD GIVE RISE TO A DEBT FOR THE PRIZE AMOUNT IS NOT RECEIVED AS A LOAN BUT A S OF RIGHT BY VIRTUE OF THE TERMS OF THE CONTRACT BETWEEN THE PARTIES. THEREFORE NO DEBT DUE TO THE FOREMAN ARISES BY REASON OF THE RECEIPT OF THE PRIZ E AMOUNT OR OF THE EXECUTION OF THE SECURITY BOND FOR SECURING FUTURE SUBSCRIPTIONS . THE FULL BENCH IN THIS DECISION OVER-RULED ITS EARLIER DECISION IN THE CASE OF P.K ACHUTAN V. STATE BANK OF TRAVANCORE CALICUT. WHILE RENDERING THE DECISION I N JANARDHANA MALLAN AND ORS. (SUPRA) THE FULL BENCH OF THE KERALA HIGH COURT CON SIDERED A CATENA OF DECISIONS STARTING FROM 1937 IN THE MATTER OF RAMANATHA LYYAR V. NARAYANASWAMI. THE ANDHRA PRADESH HIGH COURT ALSO WHILE DEALING WITH THE TRA NSACTION OF A CHIT FUND ORGANISATION IN THE MATTER OF DHOOSA NARSIMLOO V. YELALA RAJANNA AND ANR. I.L.R. (1958) ANDHRA PRADESH 409 WHERE THE PETITIONER HAD FILED A SUIT IN THE COURT OF THE DISTRICT JUDGE AGAINST THE RESPONDENTS ON A PROMISSORY NOTE EXECUTED BY THEM FOR THE AMOUNT THEY DREW IN A POOL FROM A CHIT FUND ORGANISATION AND WHERE THE DISTRICT JUDGE HAD DISMISSED THE SUIT FOR WANT OF A LICENSE UNDER SECTION 9(2) OF THE HYDERABAD MONEY LENDERS ACT (ACT V OF 1349 F.) AND ON REVISION THE QUESTION THAT CAME FOR CONSIDERATION WAS WHETHER THE CHIT FU ND ORGANISATION COULD BE REGARDED AS A MONEY LENDER WITHIN THE MEANING OF THE SAID AC T AND WHETHER ITS TRANSACTION PARTAKE THE NATURE OF A LOAN. SRINIVASACHARI J. SP EAKING FOR THE COURT HELD THAT THE AMOUNT DRAWN BY A MEMBER OF A CHIT FUND WHO BID AT THE PERIODICAL AUCTION GIVING THE LARGEST DISCOUNT COULD NOT COME WITHIN THE DEFI NITION OF A LOAN WITHIN THE MEANING OF THE MONEY LENDERS ACT NOR COULD SUCH A T RANSACTION BE REGARDED AS A MONEY LENDING TRANSACTION BE AND IN THE CIRCUMSTANC ES SECTION 9 OF THE HYDERABAD MONEY LENDERS ACT (V OF 1349 F.) COULD HAVE NO APPL ICATION TO SUCH A CASE. AT PAGE 415 OF THE AFORESAID REPORT IT HAS BEEN OBSERVED 'IN OUR OPINION THERE IS NOTHING IN THE CHIT FUND TRANSACTION WHICH COULD BE CALLED THE BUSINESS OF MONEY LENDING. IT IS IN ESSENCE AN ORGANISATION FOR MUTUAL BENEFIT.' IT APPROVED THE DECISION OF THE MADRAS HIGH COURT IN R AGHAVAN V. ARMUGHAM: (1934) 38M.L..I. 283. THAT WAS ALSO A CASE OF CHIT FUND TRANSACTION AND THE QUESTION FOR DECISION WAS WHETHER A PROVISION IN THE BOND FO R PAYMENT OF THE WHOLE AMOUNT IN DEFAULT OF ANY ONE INSTALMENT WAS IN THE NATURE OF A PENALTY COMING WITHIN SECTION 74 ILLUSTRATION (G) OF THE CONTRACT ACT. THE LEARNED J UDGES RULED THAT A CHIT FUND TRANSACTION WAS NOT A CASE OF BORROWING AT ALL AND IT WAS ENTIRELY DIFFERENT FROM A LOAN TRANSACTION. THE LEARNED JUDGES FURTHER HELD T HAT 'A LOAN ENVISAGES THE RELATIONSHIP OF A CREDITOR AND DEBTOR IN SO TAR AS THE LENDER AND THE BORROWER ARE CONCERNED. THERE CANNOT BE THE RELATIONSHIP OF A CR EDITOR AND DEBTOR BETWEEN THE STAKE HOLDER AND A SUBSCRIBER IN A CHIT FUND TRANS ACTION. IF THE STAKE-HOLDER ADVANCES ANY AMOUNT HE ADVANCES ONLY TO ONE OF THE MEMBERS THE FUNDS OF THE WHOLE BODY OF THE CHIT FUND AS THE FUNDS BE LONG TO THE WHOLE LOT OF SUBSCRIBERS THE MEMBERS BORROWER IS AS MUCH A CRE DITOR AS A DEBTOR. THE AMOUNTS ARE IN DEPOSIT WITH THE STAKE-HOLDER ON LY AS A TRUSTEE FOR THE BENEFIT OF THE MEMBERS OF THE FUND.' SRINIVASACHARI J. NOTICED THE OBSERVATIONS OF SRINIVASA LYENGAR J. IN TIM-MARSA PAI V. SUBBA RAO : AIR (1928) ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 13 MADRAS 256 WHERE SRINIVASA LYENGAR J. REGARDED THE POSITION OF THE MANAGER OF A KURI CHIT AS A TRUSTEE FOR ALL THE SUBSCRIBERS OF THE CHIT FUND. 19. ON A CONSPECTUS OF THE ABOVE JUDGEMENT IT IS C LEAR THAT THE HONBLE SUPREME COURT HAS APPROVED THE OPINION OF HONBLE ANDHRA PR ADESH HIGH COURT IN THE CASE OF DHOOSA NARASIMLOO VS. YELLALA RAJANNA AND ANOTHE R (SUPRA) THAT IT IS IN ESSENCE AN ORGANIZATION FOR MUTUAL BENEFIT . IT IS FURTHER MADE CLEAR THAT CHIT TRANSACTION IS NOT A MONEY LENDING TRANSACTION AND THAT THERE IS NO RELATIONSHIP OF DEBTOR AND CREDITOR. THE ROLE OF T HE FOREMAN IS THAT OF A TRUSTEE. HE CHARGES COMMISSION FOR HIS SERVICE. THE MONEY C ONTRIBUTED BY THE SUBSCRIBERS TO THE CHIT DOES NOT BELONG TO THE FORE MAN. IT BELONGS TO ALL THE STAKE HOLDERS. UNDER THESE CIRCUMSTANCES IT HAS TO BE C ONCLUDED THAT THE CONTRIBUTION TO CHIT FUND IS A MUTUAL ACTIVITY AND THE FUND BELO NGS TO ALL THE PARTICIPANTS. THERE IS NO MONEY LENT OR KEPT BY ONE PARTY WITH ANOTHER PARTY AS AN INVESTMENT OR DEPOSIT. 20. HONBLE HARYANA HIGH COURT IN THE CASE OF SODA SILICATE & CHEMICAL WORKS VS. CIT 179 ITR 588 (P&H) HELD AS FOLLOWS: 'IN ORDER TO ANSWER THE QUESTION POSED REGARD MUST BE HAD TO THE NATURE AND WORKING OF THE CHIT FUND IN THE CONTEXT OF THE ASSE SSEE WITH PARTICULAR REFERENCE TO THE FACT THAT RUNNING A CHIT FUND OR BEI NG A MEMBER OF SUCH FUND WAS NOT THE BUSINESS OF THE ASSESSEE. THE TRANSACTIONS CONCERNED HERE ARE CONTRIBUTIONS MADE TO THE FUND BY THE ASSESSEE AND THE LUMP SUM RECEIVED BY IT THOUGH AT A DISCOUNT AND THE SUBSEQUENT DISTRIB UTION AND RECEIPT OF AMOUNTS AMONGST THE PARTICIPANTS AS PREMIA OR DIVIDEND. THERE IS CLEARLY MUTUALITY AMONGST THE CONTRIBUTORS AND THE PARTICIPANTS OF TH E CHIT FUND WITH THEIR IDENTITY BEING KNOWN AND ESTABLISHED. WHEN SUCH IS THE CASE CONTRIBUTIONS MADE TO THE CHIT FUND CANNOT BE TREAT ED AS REVENUE EXPENDITURE NOR INDEED COULD THE PAYMENT AND RECEIP T OF ANY AMOUNT TO AND FROM THE CHIT FUND BE TREATED TO BE THE BUSI NESS ACTIVITY OF THE ASSESSEE. THE TEST OF MUTUALITY IN THIS BEHALF AS LAID DOWN IN CIT VS. NATARAJ FINANCE CORPORATION (1988) 69 CTR (AP) 15: (1988)- 169 ITR 732 (AP) IS THAT THE ENTITY WOULD BE A MUTUAL BENEFIT ASSOCIATION IF ALL THE PARTICIPATORS TO THE COMMON FUND ARE ALSO C ONTRIBUTORS AND THEIR IDENTITY IS ESTABLISHED. THE CONTRIBUTORS TO THE COMMON FUND AND THE PARTICIPATORS IN THE SURPLUS MUST BE AN IDE NTICAL BODY. THE COURT WENT ON TO OBSERVE THAT THIS DOES NOT MEAN THAT EACH MEMBER SHOULD CONTRIBUTE TO THE COMMON FUND OR THAT EACH MEMBER SHOULD PARTICIPATE IN THE SURPLUS OR GET BACK FROM THE SUR PLUS PRECISELY WHAT HE HAS PAID. WHAT IS REQUIRED IS THAT THE MEMB ER AS A CLASS SHOULD CONTRIBUTE TO THE COMMON FUND AND PARTICIPAT ORS AS A CLASS MUST BE ABLE TO PARTICIPATE IN THE SURPLUS'. 21. THE SAME JUDGMENT RELIED ON ANOTHER DECISION OF THE MADRAS HIGH COURT IN THE CASE OF BOARD OF REVENUE VS. NORTH MADRAS MUTUA L BENEFIT CO. LIMITED 1922 I ITC 172 (MADRAS) WHEREIN IT WAS HELD THAT TH E OPERATIONS OF CHIT FUND CANNOT BE SAID TO BRING ANY PROFIT TO ITS SUBSCRIBE RS AS A BODY AND THE INCOME REPRESENTED BY PREMIA WAS THUS NOT ASSESSABLE TO IN COME TAX. 22. THE HONBLE HIGH COURT OF ANDHRA PRADESH IN TH E CASE OF CIT (TDS) VS. SUMAN CHIT FUNDS PRIVATE LIMITED HELD THAT THE DISC OUNT PAID BY THE FOREMAN TO THE SUBSCRIBERS TO A CHIF FUND TRANSACTION DOES NOT PARTAKE THE CHARACTER OF INTEREST WITHIN THE MEANING OF SECTION 2(28A) OF THE INCOME TAX ACT. THIS DECISION WAS RENDERED FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE DELHI HIGH COURT IN SAHIB CHITS (DELHI) (P) LIMITED IN IT A NO.44 OF 2008 AND ALSO THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BI LAHARI INVESTMENT PRIVATE ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 14 LIMITED. REFERENCE WAS MADE TO A DECISION OF BANGA LORE BENCH OF ITAT IN THE CASE OF MARGA SOOCHI PRIVATE LIMITED IN ITA NO. 995/BANGALORE/2008. 23. THUS FROM THE ABOVE IT IS CLEAR THAT THE CONTRI BUTION TO A CHIT IS A MUTUAL ACTIVITY AND CANNOT BE HELD AS AN INVESTMENT AS T HERE IS NO QUESTION OF A INDIVIDUAL SUBSCRIBER BEING ENTITLED TO RECEIVE P ROFIT OR INCOME UNDER A SCHEME OF CHIT FUNDS. NO MONEY IS LAID OUT WITH A SECOND P ARTY THAT TOO WITH AN INTENTION TO EARN PROFIT. THE FOREMAN HOLDS THE MONEY RECEIVE D FROM THE CHIT SUBSCRIBERS ONLY AS A TRUSTEE. SECTION 11(5) OF THE ACT ONLY REFERS MONEY THAT IS TO BE INVESTED OR DEPOSITED WITH A PERSON OR ENTITY OR OR GANIZATION OR GOVERNMENT WHICH IS OTHER THAN THE ASSESSEE ITSELF. INVESTMEN T HELD BY SELF I. E. WHERE NO SECOND PARTY IS INVOLVED IS OBVIOUSLY NOT COVERED T O THESE SECTIONS. THUS WE CAN CONCLUDE THAT CHIT FUND BUSINESS IS GOVERNED BY THE PRINCIPLES OF MUTUALITY AND CONTRIBUTING TO A CHIT FUND IS CONTRIBUTION TO ONES ELF ON THE PRINCIPLE OF MUTUALITY AND HENCE IT IS NOT AN INVESTMENT AS CONTEMPLATED BY SEC 13(1) (D) R.W.S. 11(5) OF THE ACT. 24. NOW WE PROCEED TO EXAMINE TO WHAT EXTENT A CHA RITABLE INSTITUTION IS REQUIRED TO INVEST THE FUNDS FOR PURPOSES OF S.13(1 )(D). FOR THIS PURPOSE WE ANALYSE THE FOLLOWING TERMS USED IN SECTION 13(1)(D ): I) ANY FUNDS II) INVESTMENT OR DEPOSIT 25. THE TERM ANY FUNDS WHEN READ WITH THE PHRASE ANY INCOME THEREOF I N OUR OPINION SIGNIFIES INCOME DEFINED U/S 2(24) OF T HE ACT. THUS ANY RECEIPT WHICH FALLS WITHIN THE DEFINITION OF INCOME U/S 2(24) OF THE ACT IS TO BE CONSIDERED. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE AS SESSEE THE RESTRICTION ON UTILIZATION OF FUNDS BELONGING TO A CHARITABLE INST ITUTION HAVE BEEN BROUGHT IN TO CURB THE MISUSE OF TAX EXEMPT FUNDS BY THESE CHARIT ABLE INSTITUTUIONS. THEREFORE ON A HARMONIOUS CONSTRUCTION OF THE PROVISIONS OF S .13(1)(D) WE ARE OF THE CONSIDERED VIEW THAT THE TERM ANY FUNDS REFERS TO ONLY THE INCOME OF A CHARITABLE INSTITUTION. 26. THE TERM ANY FUNDS HAS BEEN EXPLAINED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHREE SRI RAM FOUNDATION 250 IT R 55 WHEREIN IT IS HELD AS FOLLOWS: A SIMILAR ISSUE HAD COME UP BEFORE VARIOUS HIGH CO URTS AND THERE IS UNANIMITY IN THE VIEW AS THAT TAKEN BY THE TRIBUNA L. IN CONSTRUING THE PROVISIONS OF SECTION 13(2)(H) THE EXPRESSION 'FUNDS' HAS TO BE UNDERSTOOD IN THE CONTEXT OF THE PROVISION AND NOT ONLY WITH REFERENCE TO DICTIO NARIES OR TO COMMERCIAL PARLANCE OR TO THE PRINCIPLES OF ACCOUNTANCY. IT IS TO BE NO TED THAT THE EXPRESSION USED IS 'FUNDS' AND NOT 'FUND'. 'FUNDS' MEANS MONEY IN HAND OR CASH ACCORDING TO SOME DICTIONARIES. THIS ACCORDING TO US WOULD BE THE P ROPER MEANING TO BE ATTRIBUTED TO THE EXPRESSION 'FUNDS' AS APPEARING IN THE PROVISIO N. THE FUNDAMENTAL REQUIREMENT OF SECTION 13(2)(H) IS THAT THERE MUST BE INVESTMENT OF FUNDS OF A TRUST. IF ANY EXPANDED MEANING IS GIVEN TO INCLUDE ASSETS OTHER THAN MONEY IN HAND OR CASH OR CREDIT BALANCE IN A BANK ACCOUNT IT IS EVI DENT THAT THEY ARE NOT CAPABLE OF BEING INVESTED AS SUCH. OTHER ASSETS OF THE TRUST A PART FROM MONEY IN HAND OR CASH OR BALANCE IN BANK WILL HAVE TO BE CONVERTED INTO M ONEY OR CASH BEFORE THE SAME CAN BE INVESTED AS WAS OBSERVED BY THE CALCUTTA HI GH COURT IN CJT V. BIRLA CHARITY TRUST [1988] 170 ITR 150. THE EXPRESSION 'I NVEST' CONNOTES A POSITIVE ACT ON THE PART OF THE TRUST WHERE-BY THE FUNDS OF THE TRUST ARE LAID OUT OR COMMITTED IN ANY PARTICULAR PROPERTY OR BUSINESS OR TRANSACTION WITH THE OBJECT OF EARNING A PROFIT OR FINANCIAL ADVANTAGE OR RETURN. WHAT IS CONTEMPLA TED IS THAT THE TRUST HAVING ASSETS IN THE FORM OF MONEY OR CASH OR BALANCE IN A BANK OR ANY OTHER FORM CAPABLE OF BEING INVESTED OR BY A POSITIVE ACT AND PURSUANT TO A DECISION OF THE TRUST WAS ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 15 LAID OUT OR COMMITTED IN A CONCERN OF A NATURE SPEC IFIED BEFORE IT CAN BE HELD THAT SUCH AN INVESTMENT COMES WITHIN THE MISCHIEF OF SEC TION 13(2)(H). THE MEANING OF THE EXPRESSION 'FUNDS' GIVEN IN THE STANDARD DICTIONARIES ARE AS FOLLOWS : 'BLACK'S LAW DICTIONARY FIFTH EDITION : 'FUND'... AN ASSET OR GROUP OF ASSETS SET ASIDE FOR A SPECIFIC PURPOSE . . A GENERIC TERM AND ALL-EMBRACING AS COMPARED WITH T ERM 'MONEY' ETC. WHICH IS SPECIFIC. A SUM OF MONEY OR OTHER LIQUID ASSETS SET APART FOR A SPECIFIC PURPOSE OR AVAILABLE FOR THE PAYMENT OF DEBTS OR CLAIMS. IN TH E PLURAL THIS WORD HAS A VARIETY OF SLIGHTLY DIFFERENT MEANINGS AS FOLLOWS : 'MONEY S' AND MUCH MORE SUCH AS NOTES BILLS CHEQUES DRAFTS STOCKS AND BONDS AN D IN BROADER MEANING MAY INCLUDE PROPERTY OF EVERY KIND . . . MONEY IN HAND ASSETS CASH MONEY AVAILABLE FOR THE PAYMENT OF A DEBT LEGACY ETC. CORPORATE S TOCKS OR GOVERNMENT SECURITIES ; IN THIS SENSE USUALLY SPOKEN OF AS THE 'FUNDS'. A SSETS SECURITIES BONDS OR REVENUE OF A STATE OR GOVERNMENT APPROPRIATED FOR THE DISCH ARGE OF ITS DEBTS. GENERALLY WORKING CAPITAL ; SOMETIMES USED TO REFER TO CASH O R TO CASH AND MARKETABLE SECURITIES.' '(B) DICTIONARY FOR ACCOUNTANTS FOURTH EDITION BY ERIC L. KOHLER : 1. AN ASSET OR GROUP OF ASSETS WITHIN ANY ORGANISATION SEPARATED PHYSICALLY OR IN THE ACCOUNTS OR BOTH FROM OTHER ASSETS AND LIMITED TO SPECIFIC U SES. EXAMPLES : A PETTY CASH OR WORKING FUND ; A REPLACEMENT AND RENEWAL FUND ; AN ACCIDENT FUND ; A CONTINGENT FUND ; A PENSION FUND. EXAMPLE : A TRUST FUND CREATED BY A WILL ; AN ENDOW MENT FUND ; A SINKING FUND. 4. PL. : CURRENT ASSETS LESS CURRENT LIABILITIES (O N AN ACCRUAL BASIS) ; WORKING CAPITAL ; A TERM USED IN CASH FLOW STATEMENTS. 5. PL. : CASH (PP. 204-208).' 'CHAMBERS' TWENTIETH CENTURY DICTIONARY NEW EDITION : FUND : N. A SUM OF MONEY ON WHICH SOME ENTERPRISE I S FOUNDED OR EXPENSE SUPPORTED : A SUPPLY OR SOURCE OF MONEY :' 'THE C ONCISE OXFORD DICTIONARY FIFTH EDITION : FUND N. 1. PERMANENT STOCK OF SOMETHING READY TO BE DRAWN UPON STOCK OF MONEYPECUNIARY RESOURCES.' 'WEBSTER'S SEVENTH NEW COLLEGIATE DICTIONARY-BASED ON WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY (P. 538) : FUND. 1. AN AVAILABLE QUANTITY OR MATERIAL OR INTAN GIBLE RESOURCES ; SUPPLY ; 2. A SUM OF MONEY OR OTHER RESOURCES THE PRINCIPAL OR IN TEREST OF WHICH IS SET APART FOR A SPECIFIC OBJECTIVE.' THE EXPRESSION 'INVEST' I N THE SAID SECTION 13(2)(H) IS USED AS A VERB AND T HE MEANING OF THE SAID EXPRESSION IN THE STANDARD DICT IONARIES IS AS FOLLOWS : 'CHAMBER'S TWENTIETH CENTURY DICTIONARY NEW EDITIO N : ... TO LAY OUT FOR PROFIT AS BY BUYING PROPERTY SHARES ETC.' 'THE CONCISE OXFO RD DICTIONARY FIFTH EDITION: ... LAY OUT MONEY ON AS (INVEST) IN A CAR.' 'WEBST ER'S SEVENTH NEW COLLEGIATE DICTIONARY : VB. VT 1: TO COMMIT (MONEY) IN ORDER TO EARN A FINA NCIAL RETURN ; 2 TO MAKE USE OF FOR FUTURE BENEFITS OR ADVANTAGESVT. TO MAKE AN IN VESTMENT.' 'CORPUS JURIS SECUNDUM VOLUME XXXVII: IN GENERAL.THE WORD HAS A VARIETY OF MEANINGS BUT THE SENSE IN WHICH IT IS EMPLOYED MUST BE GATHERED FROM THE CONTEXT. IT IS N OT A LEGAL TERM WITH A SETTLED MEANING BUT IT IS A TERM IN COMMON USE SUGGESTING MONEY IN COMMON SPEECH ALTHOUGH TECHNICALLY IT MAY BE EMPLOYED TO COVER OT HER ARTICLES OF VALUE FOR THE TERM 'FUND' OR 'FUNDS' IS GENERIC AND ALL-EMBRACING AS COMPARED WITH THE TERM 'MONEY' ETC. WHICH IS SPECIFIC . . IN THE PLURAL 'CAPITAL : CASH MONEY OR MONEYS ; MONEY AND NEGOTIABLE PAPER IMMEDIATELY OR READILY C ONVERTIBLE INTO CASH AVAILABLE PECUNIARY RESOURCES ; MONEY IN HAND OR AV AILABLE FOR THE PAYMENT OF A ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 16 DEBT LEGACY ETC. SPECIE OR A STOCK OF CONVERTIB LE WEALTH; AND 'FUNDS' MAY MEAN OR INCLUDE NOT ONLY MONEY AS THE TERM IS GENERALLY UNDERSTOOD BUT OTHER CIRCULATING MEDIUM OR INSTRUMENT OR TOKENS IN GENER AL USE IN THE COMMERCIAL WORLD AS THE REPRESENTATIVES OF VALUE SUCH AS BANK NOTES BILLS CHEQUES DRAFTS NOTES STOCKS AND BONDS DEPOSITS OR CERTIFICATES O F DEPOSIT EVIDENCES OF MONEY LENT TO THE GOVERNMENT CONSTITUTING A NATIONAL DEBT FO R WHICH INTEREST IS PAID AT PRESCRIBED INTERVALS. ... .' IN R. K. DALMIA V. DELHI ADMINISTRATION [1962] 32 C OMP CAS 699 ; AIR 1962 SC 1821 IT WAS OBSERVED THAT THE WORD 'FUND' MAY MEAN ACTUAL CASH RESOURCES OF A PARTICULAR KIND (E.G. MONEY IN A DRAWER OR IN A BA NK OR IT MAYBE A MERE ACCOUNTANCY EXPRESSION USED TO DESCRIBE A PARTICULA R CATEGORY WHICH A PERSON USES IN MAKING UP HIS ACCOUNTS). A SIMILAR VIEW WAS EXPR ESSED IN AHCHM V. COULLKARD [1942] 2 KB 228. THE EXPRESSION 'FUND' OR 'FUNDS' H AS A VARIETY OF MEANINGS BUT THE SENSE IN WHICH IT IS EMPLOYED MUST BE GATHERED FROM THE CONTEXT. IT WOULD NOT BE CORRECT TO ADOPT A STRICTLY LITERAL OR TECHNICAL ME ANING OF THIS EXPRESSION WHILE CONSTRUING SECTION 13(2)(H). IN OTHER WORDS WE MUST NOT CONSTRUE THAT PROVISION MECHANICALLY. WE MUST CONSTRUE IT HAVING REGARD TO THE OBJECT WHICH THE LEGISLATURE HAD IN VIEW IN ENACTING IT AND IN THE C ONTEXT OF THE SETTING IN WHICH IT OCCURS. THAT PROVISION CAME TO BE INSERTED IN THE ACT BY THE FINANCE ACT 1970. ON A PLAIN READING OF THAT PROVISION IT IS CLEAR T HAT CLAUSE (H) OF SUB-SECTION (2) OF SECTION 15 COVERS INVESTMENT OF THE TRUST FUNDS IN ANY CONCERN IN WHICH ANY OF THE PERSONS SPECIFIED IN SUB-SECTION (3) HAS SUBSTANTIA L INTEREST ('SPECIFIED PERSONS' IN SHORT) AND IF SUCH INVESTMENT OF THE TRUST FUNDS IS MADE AFTER DECEMBER 31 1970 IT WOULD RESULT IN FORFEITURE OF EXEMPTION FROM TAX. H OWEVER IF THE TRUST FUNDS HAVE ALREADY BEEN INVESTED IN ANY CONCERN AS AFORESAID B EFORE JANUARY 1 1971 THE EXEMPTION WOULD BE FORFEITED IF THE FUNDS CONTINUED TO REMAIN SO INVESTED EVEN AFTER DECEMBER 31 1970. THE OBJECT OF THE ABOVE PR OVISION IS TO DISCOURAGE INVESTMENT OF TRUST FUNDS IN THE CONCERNS IN WHICH SPECIFIED PERSONS HAVE SUBSTANTIAL INTEREST AND IF AN INVESTMENT IS ALREAD Y MADE IN SUCH CONCERNS TO DISCOURAGE CONTINUANCE THEREOF AFTER DECEMBER 31 1 970. IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 13(2)(H) WHAT IS ESSENTIAL I S THAT THE FUNDS OF THE TRUST ARE INVESTED IN A CONCERN COVERED BY SECTION 13{2)(C) A ND IF SUCH INVESTMENT IS MADE PRIOR TO JANUARY 1 1971 FUNDS ARE CONTINUED TO BE NOT INVESTED AFTER DECEMBER 31 1970. IT IS ONLY IF THE FUNDS OF THE TRUST ITSE LF ARE UNDER SECTION 11 THE FUNDS HAVE TO BE SUCH AS ARE CAPABLE OF INVESTMENT. THERE FORE IN ORDER TO ATTRACT SECTION 13(2)(H} IT HAS TO BE ESTABLISHED THAT THE FUNDS O F THE TRUST WHICH ARE CAPABLE OF BEING INVESTED HAVE BEEN UTILISED FOR MAKING INVEST MENT AS PROVIDED THEREIN. WHEN THE FUNDS OF THE TRUST ARE SO INVESTED AND SUC H INVESTMENT IS CONTINUED AFTER DECEMBER 31 1970 THE TRUST WHOSE FUNDS ARE SO INVESTED WILL NOT BE ENTITLED TO CLAIM EXEMPTION UNDER SECTION 11. THE A BOVE POSITION HAS BEEN ELABORATELY DEALT WITH BY THE GUJARAT HIGH COURT IN CIT V. INSANIYAT TRUST [1988] 173 ITR 248. THE WORD 'INVESTMENT' MEANS TO LAY OUT MONEY IN BU SINESS WITH A VIEW TO OBTAIN INCOME OR PROFIT. IN ORDER TO CONSTITUTE AN INVESTM ENT THE AMOUNT LAID DOWN SHOULD BE CAPABLE OF RESULTING IN AN INCOME OR RETU RN OR PROFIT TO THE INVESTOR AND IN EVERY CASE OF INVESTMENT THE INTENTION AND POSI TIVE ACT ON THE PART OF THE INVESTOR SHOULD BE TO EARN SUCH INCOME RETURN OR P ROFIT TO THE INVESTOR. IN ORDER TO CONSTITUTE AN INVESTMENT THE MONEY SHALL BE LAI D OUT IN SUCH MANNER AS TO ACQUIRE SOME SPECIES OF PROPERTY WHICH BRINGS IN AN INCOME TO THE INVESTOR. AN INVESTMENT POPULARLY MEANS EVERY APPLICATION OF MON EY WHICH IS INTENDED TO FETCH RETURN BY WAY OF INTEREST INCOME OR PROFIT. THUS ON LY EMPLOYED AS CAPITAL IN A BUSINESS IS MONEY INVESTED IN BUSINESS. (VIDE EDWAR DS ]. IN TAX COMMISSIONER V. AUSTRALIAN MUTUAL PROVIDENT FUND SOCIETY [1902] 22 NZLR 445). IN ARNAJLD V. GRINSTEAD (21 WR ENG 155) IT WAS OBSERVED THAT IN ITS MOST COMPREHENSIVE SENSE IT IS GENERALLY UNDERSTOOD TO SIGNIFY THE LAYING OU T OF MONEY IN SUCH A MANNER THAT ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 17 IT PRODUCES A REVENUE. AN ILLUMINATING OBSERVATION WAS MADE IN IRC V. DESOUTTER BROS LTD. [1946] 1 ALL ER 58 (CA) ABOUT WHAT 'INVE STMENT' MEANS. IT WAS OBSERVED THAT THE WORD 'INVESTMENT' IS NOT A WORD OF ART BU T HAS TO BE INTERPRETED IN A POPULAR SENSE. IT IS NOT CAPABLE OF LEGAL DEFINITIO N BUT A WORD OF CURRENT VERNACULAR. THE WORDS 'INVEST' AND 'INVESTMENT' ARE TO BE TAKEN IN THE BUSINESS SENSE OF LAYING OUT OF MONEY FOR INTEREST OR PROFIT . A PLEA SIMILAR TO THE ONE TAKEN BY LEARNED COUNSEL FOR THE REVENUE WAS RAISED BEFORE THE KERALA HIGH COURT IN CIT V. CHANDRIKA ED UCATIONAL TRUST [1994] 207 ITR 108. THERE ALSO IT WAS PLEADED THAT THE EXPRES SION CONTINUED TO REMAIN QUALIFIES THE EXPRESSION IN ANY CONCERN WHETHER I T WAS AN INVESTMENT OR NOT. THE PLEA WAS REJECTED BY THE KERALA HIGH COURT. IT WAS OBSERVED THAT IT WOULD BE DOING VIOLENCE TO THE PLAIN LANGUAGE OF THE PROVISI ON. SECTION 13(2)(H) REQUIRES THAT THE FUNDS OF THE TRUST ARE OR CONTINUE TO REM AIN INVESTED IN ANY CONCERN OF THE NATURE MENTIONED THEREIN. (UNDERLINED FOR EMPH ASIS). 27. IN THE CASE OF DIT (EXEMPTION) VS. ALARIPPU 244 ITR 358 IT IS HELD AS FOLLOWS: THE EXPRESSIONS USED IN BOTH THE PROVISIONS QUOTED ABOVE ARE INVESTMENT AND DEPOSIT. THE FORMER EXPRESSION MEANS TO LAY OUT MONEY IN BUSINESS WITH A VIEW TO OBTAIN AN INCOME OR PROFIT. DEPOSIT ON THE OTH ER HAND MEANS THAT WHICH IS PLACED ANYWHERE AS IN ANY ONES HANDS FOR SAFE-KEE PING SOMETHING ENTRUSTED TO THE CARE OF ANOTHER. THESE TWO EXPRESSIONS HAVE BE EN USED IN A COGNATE SENSE AND HAVE TO BE UNDERSTOOD AS SUCH. IN ORDER TO CONSTITUTE AN INVESTMENT THE AMOUNT LAID DOWN SHOULD BE CAPABLE OF AND RESULT IN ANY INCOME RETURN OR PROFIT TO THE INVESTOR AND IN EVERY CASE O F INVESTMENT THE INTENTION AND POSITIVE ACT ON THE PART OF THE INVEST OR SHOULD BE TO EARN SUCH INCOME RETURNS PROFIT IN ORDER TO CONSTITUTE AN INVESTMENT THE MONIES SHALL BE LAID OUT IN SUCH A MANNER AS TO ACQ UIRE SOME SPECIES OF PROPERTY WHICH WOULD BRING IN AN INCOME TO THE INVE STOR. A LOAN ON THE OTHER HAND IS GRANTING TEMPORARY DEPOSIT AND LO AN ARE CERTAINLY DIFFERENT. SECTION 11(5) REFERS TO PATTERN OF INVESTMENT BY TH E ASSESSEE. SECTION 11(5) WAS INTRODUCED BY THE FINANCE ACT 1983 WITH EFFECT FR OM APRIL 1 1983 I.E. FOR AND FROM ASSESSMENT YEAR 1983-84. IT PRESCRIBES THE FO RMS AND MODES OF INVESTING AND DEPOSITING MONEY REFERRED T IN SECTION 11(2)(B) . SUBSEQUENTLY NEW FORMS AND MODES HAVE BEEN ADDED. SECTION 13(1)(D) AS AME NDED BY THE FINANCE ACT 1983 PROVIDES THAT THE INCOME OF ANY CHARITABLE OR RELIGIOUS TRUST OR INSTITUTION WILL NOT BE ENTITLED TO EXEMPTION UNDER SECTION 11 AND 12 IF CERTAIN CONDITIONS STIPULATED THEREIN ARE NOT COMPLIED WITH. THE WORD DEPOSIT DOES NOT COVER TRANSACTION OF LOAN WHICH CAN BE MORE APPROPRIATELY DESCRIBED AS DIRECT BAILMENT. THE ESSENCE OF DEPOSIT IS THAT THERE MUST BE A LIAB ILITY TO RETURN IT TO THE PARTY BY WHOM OR ON WHOSE BEHALF HAS BEEN MADE ON FULFILLMEN T OF CERTAIN CONDITIONS. IN THE COMMERCIAL SENSE THE TERM IS USED TO INDICATE THE AFORESAID TRANSACTION AS DEPOSIT OF MONEY FOR EMPLOYMENT IN BUSINESS DEPOS ITS FOR VALUE TO INITIATE SECURITY FOR DEPOSIT OF TITLE DEEDS SIMILAR DOCUME NTS AS SECURITY FOR LOAN DEPOSIT OF MONEY BILLS IN A BANK IN THE ORDINARY COURSE OF BUSINESS OF CURRENT ACCOUNT AND DEPOSITS OF A SUM AT INTEREST AT A FIXED DEPOSIT IN A BANK. THE AMOUNT GIVEN TO MAHILA HAAT WAS NEITHER FOR THE PURPOSE OF INVESTME NT NOR FOR DEPOSIT MORE PARTICULARLY IN THE FACTUAL BACKGROUND AS HIGHLIGHT ED ABOVE. THE TRANSACTION WITH WHICH THE PRESENT DISPUTE IS LINKED CANNOT BE TREAT ED AS AN INVESTMENT OR DEPOSIT AS HAS BEEN FACTUALLY FOUND BY THE TRIBUNAL. THE C ONCLUSION BEING ESSENTIALLY FACTUAL NO QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL. ACCORDINGLY THE PETITION IS DISMISSED. ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 18 28. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF INCOME TAX OFFICER VS. DR. VIKHE PATEL FOUNDATION (SUPRA) HELD AS FOLLOWS: IT IS WELL SETTLED THAT THE DEPICTION IN BOOKS OF ACCOUNTS IS NOT A DETERMINATIVE TEST BUT THE FACTUAL NATURE OF THE TRANSACTION WHIC H HAS TO BE CONSIDERED FOR THE PURPOSE OF TAXATION. IN THIS CASE THE INVESTMENT IN THE SHARES OF COOPE RATIVE BANK WAS A PRE CONDITION FOR RAISING LOANS AND IT WAS THEREFORE NO T AN INVESTMENT AS NORMALLY UNDERSTOOD. THE TRIBUNAL HAS RECORDED A FINDING OF FACT THAT THE SHARES WAS SUBSCRIBED ONLY FOR PURPOSES OF OBTAINING THE LOAN AND THE AMOUNTS SO OBTAINED WERE USED FOR FURTHERANCE OF THE OBJECTS OF THE TRU ST. THERE IS NO DISPUTE ABOUT THE FACTS THAT LOANS TAKEN FROM THE SAID TWO COOPER ATIVE BANKS WERE NOT COMPLETELY REPAID IN THE ASSESSMENT YEAR 2008-09 AN D THEREFORE THE ASSESSEE WOULD BE REQUIRED TO HOLD SHARES TO CONTINUE AS MEM BER OF THE COOPERATIVE SOCIETY RUNNING THE BANKING BUSINESS. 29. THE `C BENCH OF THE ITAT DELHI IN THE CASE OF ADIT (EXEMPTION) VS. INDIA FRINGE CENTRE FOR THE PROMOTION OF ADVANCED RESEARC H ITA NO.3065 AND 6164 DELHI 2012 ASSESSMENT YEARS 2008-09 AND 2009-10 HEL D AS FOLLOWS: THE EXPRESSION INVESTMENT IMPLIES TO LAY OUT MON EY IN BUSINESS WITH A VIEW TO OBTAIN INCOME ON PROFIT. THE TERM DEPOSIT INDICA TES THE TRANSACTION AS DEPOSIT OF MONEY FOR EMPLOYMENT IN BUSINESS DEPOSIT OF TIT LE DEEDS SIMILAR DOCUMENT AS SECURITY FOR LOAN DEPOSIT OF MONEY IN A BANK IN TH E ORDINARY COURSE OF BUSINESS OF CURRENT ACCOUNT AND TO DEPOSIT A SUM OF INTEREST AT A FIXED DEPOSIT IN A BANK. THUS BOTH INVESTMENT AND DEPOSIT REQUIRE A POS ITIVE ACT ON THE PART OF THE ASSESSEE WITH AN INTENTION TO EARN INCOME/INTEREST. 30. THE MADRAS `C BENCH OF THE TRIBUNAL IN ITA NO. 1445/MADRAS/2012 IN THE CASE OF M/S. SETHU VALLIAMMAL EDUCATIONAL TRUST (SU PRA) ORDER DATED 10.1.2013 AT PARA 8 AND 9 HELD AS FOLLOWS: 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT ASSESSEE HAD DURING THE RELEVANT PREV IOUS YEAR SUBSCRIBED TO TWO CHITS ONE CONDUCTED BY M/S TERN CREDITS & CHITS PR IVATE LIMITED AND THE OTHER BY M/S K.R. PALANIAPPAN (CHIT). LEARNED D.R. HAS ALSO NOT DISPUTED THE AVERMENT THAT BOTH THESE WERE REGISTERED CHIT FUNDS RUNNING CHITS. ASSESSEE HAD PLACED MONEY WITH THESE CHIT COMPANIES BY WAY OF SUBSCRIPT IONS. THE 9 I.T.A. NO. 1445/MDS/12 AMOUNTS WERE PAID ON A MONTHLY BASIS TO THE TWO CHIT COMPANIES. THIS IS CLEAR FROM PAPER-BOOK PAGES 14 TO 17 WHICH ARE COPIES OF RELEVANT LEDGER FOLIOS IN THE BOOKS OF THE ASSESSEE. THE TOTAL AMOU NT PLACED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR WITH M/S TERN CR EDITS & CHITS PRIVATE LIMITED WAS RS.2 08 456/- AND WITH M/S K.R. PALANIAPPAN (CH IT) WAS RS.96 230/-. THE ANNUAL INCOME OF THE TRUST CAME TO RS.7 35 19 954/- AGAINST WHICH UTILIZATION FOR CHARITABLE PURPOSE CAME TO RS. 6 98 07 198/- WHICH WAS WELL ABOVE THE LIMIT OF 85% PRESCRIBED UNDER SECTION 11(1)(A) OF THE ACT. A S PER THE ASSESSEE SUBSCRIPTIONS PAID TO CHIT FUNDS WERE NOT DEPOSITS NOR INVESTMENTS AND IT COULD NOT HAVE BEEN A REASON FOR DENYING IT THE EXEMPTION CLAIMED UNDER SECTION 11 OF THE ACT. SUBSCRIPTION PAID BY A SUBSCRIBER OF A CHI T TO A CHIT COMPANY ACTING AS THE FOREMAN OF THE CHIT IN OUR OPINION CANNOT BE CONSIDERED AS AN INVESTMENT. SUBSCRIBING TO A CHIT FUND IS NOT WITH AN INTENTION TO EARN INTEREST OR DIVIDEND. THE ONLY INTENTION IS TO PRIZE THE CHITS EITHER BY COMPETITIVE BIDDING OR WHEN LOTS ARE DRAWN. IF THERE WAS NO BIDDING DONE IN A GIVEN MONTH THERE WILL BE NO INCOME WHATSOEVER DERIVED. THE INCOME THAT CAN BE D ERIVED WAS ONLY THE AMOUNT ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 19 FORGONE BY THE BIDDERS IN AN AUCTION. THUS A CHIT F UND IS PRIMARILY INTENDED TO OPERATE AS A SCHEME FOR ADVANCING LOANS FROM A COMM ON FUND 10 I.T.A. NO. 1445/MDS/12 CREATED BY THE SUBSCRIBERS AND THEIR T URN FOR GETTING SUCH LOAN IS DECIDED EITHER BY AUCTION OR BY DRAWING LOTS. THE N ATURE OF CHIT AS AFORESAID HAS BEEN VIVIDLY DESCRIBED IN THE JUDGMENT OF KERALA HI GH COURT IN THE CASE OF KOTTAYAM CO-OPERATIVE BANK LTD. (SUPRA). 9. AMRITSAR BENCH OF THIS TRIBUNAL IN THE CASE OF O NKAR CAPITAL GROWTH (P) LTD. (SUPRA) HAS CLEARLY HELD THAT THE SUBSCRIBERS TO A CHIT FUND WERE ENTITLED ONLY FOR PRIZING THE CHITS AND THE MONEY PLACED BY A SUBSCRI BER TO A CHIT FUND COULD NOT BE EQUATED WITH DEPOSITS. THE FOREMAN OF A CHIT FUND I S ONLY ACTING AS A CONDUIT FOR THE SUBSCRIBERS TO POOL THEIR MONEY EVERY MONTH FOR THE BENEFIT OF ONE OF THEM. CHIT FUNDS ACT 1982 REQUIRES THE CONCERN RUNNING A CHIT TO A SUBSCRIBER OF THE CHIT ALSO. WE CANNOT SAY THAT PERSONS WHO ARE SUBS CRIBERS TO A CHIT ARE MAKING ANY INVESTMENT IN THE CONCERN RUNNING THE CHIT FUND . WE CANNOT SAY THAT SUBSCRIBER TO A CHIT FUND IS PLACING ANY DEPOSIT IN THE CONCERN RUNNING THE CHIT FUND. POOLING OF MONEY BY A GROUP OF PERSONS FOR TH E BENEFIT OF ONE OF THEM THROUGH CHITS CANNOT BE EQUATED WITH INVESTMENTS O R DEPOSITS. THEREAFTER IT HELD AS FOLLOWS: IT IS CLEAR FROM THE ABOVE CONSEQUENCE THAT THE INT ENTION OF LEGISLATURE IS TO REGULATE THE MANNER OF INVESTMENT OF THE MONEY LEFT WITH THE ASSESSEE TRUST AFTER UTILIZATION FOR CHARITABLE PURPOSE. 11. THEREFORE IN OUR OPINION THE LOWER AUTHORITIE S FELL IN ERROR IN CONCLUDING THAT SUCH SUBSCRIPTIONS WERE INVESTMENTS WHICH VIOLATED THE MODES SPECIFIED UNDER SECTION 11(5) OF THE ACT. THE QUESTION OF DENIAL OF EXEMPTION UNDER SECTION 11 WOULD ARISE ONLY IF INVESTMENTS WERE THERE. WE ARE THEREFORE OF THE OPINION THAT ASSESSEE COULD NOT HAVE BEEN DENIED EXEMPTION CLAI MED BY IT UNDER SECTION 11OF THE ACT FOR A REASON THAT IT HAD SUBSCRIBED TO THE CHIT FUNDS. THERE IS NO CASE FOR THE REVENUE THAT ANY OF THE TRUSTEES MANAGERS CON TRIBUTORS OF RELATIVES OF SUCH PERSONS WERE HAVING INTEREST IN THE TWO CHIT COMPAN IES. WE ARE THEREFORE OF THE OPINION THAT ASSESSEE WAS ELIGIBLE FOR EXEMPTION UN DER SECTION 11 OF THE ACT AND ITS CLAIM WAS DENIED UNJUSTLY. WE THEREFORE SET A SIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE A.O. TO GRANT THE ASSESSEE ITS CLAIM OF EXEMPTION UNDER SECTION 11 OF THE ACT FOR THE IMPUGNED ASSESS MENT YEAR. 31. THE KOLKATA HIGH COURT IN THE CASE OF CIT VS. B IRLA CHARITY TRUST (1988) 170 ITR 150 GUJARAT HIGH COURT IN CIT VS. INSANIYAT TR UST (1988) 173 ITR 248 AND THE BOMBAY HIGH COURT IN TRUSTEES OF MANGALDAS N. V ERMA CHARITABLE TRUST VS. CIT 203 ITR 322 HAVE TAKEN A VIEW THAT THE TERM FU NDS MEANS MONEY OR CASH AND THE TERM INVEST CONNOTES A POSITIVE ACT ON THE PART OF THE TRUST WHEREBY THE FUNDS OF THE TRUST ARE LAID OUT OR COMMITTED IN AN Y PARTICULAR PROPERTY OR BUSINESS OR TRANSACTION WITH A VIEW OF EARNING A PROFIT OF F INANCIAL ADDITION OR RETURN. THE COURTS THEREFORE HELD THAT SECTION 13(2)(H) DID NOT APPLY TO ASSETS RECEIVED AS A DONATION SINCE NO FUNDS WERE INVESTED. IN OUR VIEW THESE PROPOSITION THOUGH GIVEN IN A CONTEXT OF SECTION 13(2)(H) WOULD EQUALL Y APPLY TO SECTION 13(1)(D) OF THE ACT AS THE LANGUAGE AND PURPOSE OF THE SECTIONS ARE THE SAME. 32. WE NOW CONSIDER THE FACTS OF THIS CASE. A PERU SAL OF THE ORDER OF THE FIRST APPELLATE AUTHORITY REVEALS THAT THERE IS NO DISPUT E ON THE LEGAL PRINCIPLE THAT IF THE CHIT FUND CONTRIBUTION IN QUESTION IS NOT MADE AS AN INVESTMENT THEN THE PROVISIONS OF SECTION 13(1)(D) ARE NOT ATTRACTED. I N OTHER WORDS IT IS AN ACCEPTED POSITION THAT SEC 13(1)(D) IS ATTRACTED ONLY IF ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CONTRIBUTION TO CHIT IS HELD TO BE AN INVESTMENT. THE LEARNED ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 20 CIT(DR) PLACED RELIANCE IN THE CASE OF PRIYADARSHIN I EDUCATIONAL ACADEMY VS. DGIT (SUPRA) . HONBLE A.P. HIGH COURT IN THAT CAS E WAS CONSIDERING IN A WRIT PETITION A CASE WHERE EXEMPTION WAS DENIED U/S 10( 23C)(VI) OF THE ACT. THE ARGUMENT OF THE LD. COUNSEL IN THIS CASE ARE AT PAR A 4. THESE ARE EXTRACTED FOR READY REFERENCE: THE SURPLUS INCOME IF ANY AND ALL THEIR FUNDS ST OOD INVESTED IN ACQUISITION OF ASSETS AND IN THE MODES AND FORMS SPECIFIED IN SEC TION 11(5) FOR THE ASSESSMENT YEAR 2008-09 I.E. THE YEAR FOR WHICH APPROVAL WAS SOUGHT; THE LEGAL INFIRMITY ON THE BASIS OF WHICH EXEMPTION WAS DENIED TO THE SOCI ETY IN THE PAST ASSESSMENT YEARS WAS BECAUSE OF ITS CONTRIBUTION TO A CHIT FU ND SCHEME WHICH WAS CONSIDERED BY THE ASSESSING OFFICER AS A CONTRAVENT ION OF SECTION 13(1)(D) OF THE ACT; THE SAID INFIRMITY DID NOT EXIST IN THE ASSESS MENT YEAR 2008-09 INASMUCH AS THE INSTALLMENT HAD BEEN FULLY PAID IN THE EARLIER YEAR ITSELF; IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2008-09 ALL THE PE TITIONERS FUNDS STOOD INVESTED IN THE FORMS APPROVED UNDER SECTION 11(5) OF THE AC T. 33. THE HONBLE HIGH COURT AT PARA 8 & 9 HELD AS FO LLOWS: 8. THE THIRD PROVISO TO SECTION 10(23C) OF THE ACT REQUIRES THE EDUCATIONAL INSTITUTION REFERRED TO IN SUB-CLAUSE (VI) NOT TO INVEST OR DEPOSIT ITS FUNDS FOR ANY PERIOD DURING THE PREVIOUS YEAR OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SECTION 11(5) OF THE ACT. SEC TION 11(5) PRESCRIBES THE FORMS AND MODES OF INVESTING OR DEPOSITING MONEY AS THOSE SPECIFIED IN CLAUSES (I) TO (XII) THEREUNDER. INVESTMENT/DEPOSIT IN A CHIT FUND IS NO T ONE OF THE MODES OF INVESTMENT OR DEPOSIT OF MONEY REFERRED TO IN CLAUS ES (I) TO (XII) OF SECTION 11(5) OF THE ACT. AS SECTION 10(23C)(VI) OF THE ACT REQUIRES THE INCOME RECEIVED BY ANY PERSON ON BEHALF OF THE EDUCATIONAL INSTITUTION EX ISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PROFIT TO BE EXCLUDED WHILE C OMPUTING THE TOTAL INCOME OF THE PREVIOUS YEAR OF SUCH A PERSON THE THIRD PROVI SO THERETO STIPULATES THAT THE INVESTMENT OR DEPOSIT OF FUNDS OF THE EDUCATIONAL I NSTITUTION OTHERWISE THAN IN ANY ONE OF THE FORMS OR MODES SPECIFIED IN SECTION 11(5) FOR ANY PERIOD DURING THE PREVIOUS YEAR WOULD RESULT IN DENIAL OF THE BE NEFIT OF EXCLUSION OF SUCH INCOME FROM THE TOTAL INCOME OF THE PREVIOUS YEAR O F THE SAID PERSON. EVEN IN CASES WHERE APPROVAL WAS GRANTED EARLIER UNDER SECT ION 10(23Q(VI) OF THE ACT FAILURE OF THE SOCIETY (EDUCATIONAL AGENCY) TO INVE ST IN THE MODES AND FORMS SPECIFIED IN SECTION 11(5) OF THE ACT WOULD DISENTI TLE THEM FROM CLAIMING THE BENEFIT OF EXCLUSION OF THE INCOME RECEIVED ON BEH ALF OF AN EDUCATIONAL INSTITUTION FROM THEIR TOTAL INCOME FOR THE PREVIO US YEAR. IN C ASES WHERE INITIAL APPROVAL OR EXTENSION OF THE APPROVAL GRANTED EARL IER IS SOUGHT THE PRESCRIBED AUTHORITY WOULD BE ENTITLED TO EXAMINE THE ANNUAL A CCOUNTS OF THE APPLICANT-SOCIETY FOR THE PREVIOUS THREE YEARS TO ASCERTAIN WHETHER I NVESTMENT/DEPOSITS MADE IN ANY OF THE PREVIOUS THREE YEARS ARE IN THE FORMS AND MO DES OTHER THAN THOSE SPECIFIED IN SECTION 1.1(5) OF THE ACT. IT IS ONLY IF THE PRESCR IBED AUTHORITY IS SATISFIED THAT THE APPLICANT HAS APPLIED ITS INCOME EXCLUSIVELY FOR TH E PURPOSE OF EDUCATION AND HAS ADHERED TO THE MODES SPECIFIED IN SECTION 11(5) OF THE ACT THAT HE WOULD GRANT APPROVAL OR RENEW THE APPROVAL GRANTED EARLIER UN DER SECTION 10(23C)(VI) OF THE ACT. 9. ACCEPTING THE SUBMISSION OF THE LEARNED COUNSEL FOR THE PETITIONER THAT SINCE THE PETITIONER'S INVESTMENT IN A CHIT FUND (WHICH IS NOT ONE OF THE MODES AND FORMS SPECIFIED IN SECTION 11(5) OF THE ACT) WAS IN THE ASSESSMENT YEAR 2007-08 PRIOR TO THE ASSESSMENT YEAR 2008-09 FOR WHICH APPROVAL WAS SOUGHT SUCH INVESTMENT OR DEPOSIT CANNOT RESULT IN DENIAL OF GRANT OF EXEMPTI ON WOULD RENDER THE REQUIREMENT OF FURNISHING THE AUDITED ANNUAL ACCOUNTS FOR THE P REVIOUS THREE YEARS AS STIPULATED IN FORM 56D WHOLLY UNNECESSARY. A LOGICAL COROLLAR Y OF THE AFORESAID SUBMISSION WOULD BE THAT ONLY THE INCOME OF THE PREVIOUS FINAN CIAL YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION WOULD BE REQUIRED TO B E EXAMINED BY THE PRESCRIBED AUTHORITY AND NOT THE TWO PREVIOUS YEARS PRIOR THE RETO. ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 21 34. ON PERUSAL OF THE ABOVE JUDGMENT IT IS CLEAR T HAT THE ISSUE WHETHER THE CONTRIBUTION MADE BY THE ASESSEE TO A CHIT FUND AS AN INDIVIDUAL SUBSCRIBER EITHER ON THE FACTS OF THE CASE OR UNDER THE SCHEME OF TH E CHIT FUND ACT CAN BE CONSIDERED AS AN INVESTMENT OR NOT OR WHETHER SUCH CONTRIBUTION WAS A DEPOSIT OR NOT WAS NOT THE ISSUE BEFORE THE HONBLE HIGH C OURT. THE ISSUE AS TO WHETHER THE CONTRIBUTION TO THE CHIT FUND IS AN INVESTMENT/ DEPOSIT WAS NOT CONTESTED BY THE PARTIES. HENCE THIS JUDGEMENT OF THE JURISDICT IONAL HIGH COURT CANNOT BE APPLIED TO THE CASE ON HAND WHERE THE ISSUE IS WHET HER A CONTRIBUTION TO A CHIT BY A INDIVIDUAL SUBSCRIBER CAN BE CONSIDERED AN INVEST MENT OR A DEPOSIT AS CONTEMPLATED U/S 13(1)(D) R.W.S. SEC 11(5) OF THE A CT. THE VARIOUS JUDGMENTS OF THE HONBLE SUPREME COURT AND THE HIGH COURTS AS WE LL AS THE TRIBUNAL CLEARLY LAY DOWN THAT CONTRIBUTION TO A CHIT FUND BY AN INDIVID UAL SUBSCRIBER IS GOVERNED BY THE PRINCIPAL OF MUTUALITY AND HENCE IT IS NEITHER AN INVESTMENT NOR A DEPOSIT. 35. EVEN OTHERWISE IN THE CASE OF THE ASSESSEE TH E UNDISPUTED FACT IS THAT ASSESSEE REQUIRES MONEY FOR ITS EXPANSION. THIS FA CT IS NOT DISPUTED BY THE LD. CIT(DR). IT IS ALSO CLEAR THAT THE ASSESSEE SOCIET IES HAVE TAKEN HUGE LOANS FROM VARIOUS BANKS FOR UNDERTAKING EXPANSION AND TO CRE ATE INFRASTRUCTURE. THESE LOANS WERE TAKEN BY THE SOCIETIES AS THEY DID NOT H AVE SURPLUS FUNDS TO UNDERTAKE EXPANSION AND CREATE INFRASTRUCTURE. ON THE BASIS OF THESE FACTS WE COME TO THE CONCLUSION THAT THE CONTRIBUTION MADE BY THE ASSESS EES TO A CHIT IS NOT A POSITIVE ACT TO LAY OUT MONEY FOR BUSINESS WITH A VIEW TO O BTAIN AN INCOME OR PROFIT. IT IS NOT AN INVESTMENT AS THE AMOUNT LAID OUT IS NOT A POSITIVE ACT ON THE PART OF THE ASSESSEES TO EARN ANY RETURNS PROFIT OR INCOME. T HE MONEY HAS NOT BEEN LAID OUT IN SUCH A MANNER AS TO ACQUIRE SOME SPECIES OF PROP ERTY WHICH WOULD YIELD INCOME OF THE ASSESSEE. 36. IN THIS CASE CONTRIBUTION TO THE CHIT FUND WAS MADE TO ENABLE THE ASSESSEE SOCIETY TO RAISE FUNDS FOR EXPANSION. THIS IS CLEA R FROM FUNDS FLOW STATEMENT AND THE PROJECTED INVESTMENT REQUIRED BY THE ASSESSEE. WHEN THE ASSESSEE IS PAYING HUGE AMOUNT OF INTEREST TO VARIOUS BANKS IT IS WRO NG TO CONCLUDE THAT ASSESSEE HAS WITH AN INTENTION TO EARN PROFIT OR INCOME MADE A CONTRIBUTION TO THE CHIT FUND. 37. THE ALLEGATION OF REVENUE THAT THE ASSESSEE HAS NOT WITHDRAWN THE CHIT AMOUNT HAS BEEN ANSWERED BY THE ASSESSEE BY POINTI NG OUT THAT EVERY MONTH THE WINNER OF THE CHIT IS DETERMINED BY DRAW OF LOT S AND ASSESSEE SOCIETY WAS NOT LUCKY TO WIN THE DRAW ON EACH OF THE OCCASION. THE ALLEGATION THAT THE ASSESSEE HAS SURPLUS FUND KEPT AS DEPOSITS IS ALSO WRONG FOR THE REASON THAT THESE FIXED DEPOSITS WERE JOINTLY HELD IN THE NAME OF THE ASSES SEE AND THE GOVERNMENTAL AUTHORITY AS IS WAS COMPULSORY AS PER RULES FOR G RANT OF PERMISSION TO RUN EDUCATIONAL INSTITUTION. THUS FOR ALL THESE REASO NS WE UPHOLD THE CONTENTION OF THE ASSESSEE THAT THE CONTRIBUTION TO CHIT IN THE CASE ON HAND IS NOT AN INVESTMENT NOR A DEPOSIT AND HENCE SECTION 13(1)(D) OF THE ACT IS NOT ATTRACTED. 38. THE TERM FUND USED IN SECTION 13(1)(D) OF THE ACT IN OUR OPINION HAS TO BE R.W.S. 11(5) OF THE ACT. UNDER SECTION 11(5) THE WORDING IS FORMS AND MODES OF INVESTING AND DEPOSITING THE MONEY REFERRED TO IN C LAUSE (B) OF SUB-SECTION (2) IS AS FOLLOWS: SEC.11 (2) (B) READS AS FOLLOWS: THE MONEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITED IN THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5). ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 22 39. THUS THE REQUIREMENT OF INVESTING OR DEPOSITING U/S 11(5) OF THE ACT IS CONFINED TO MONEY IN HAND OR CASH. WHEN THE ENTIRE INCOME OF THE YEAR HAS ALREADY BEEN SPENT TOWARDS THE OBJECTS OF THE SOCIE TY THERE CANNOT BE SAID TO BE ANY FUNDS REMAINING OUT OF THE FUNDS RECEIVED BY WA Y OF INCOME. A PERSON CAN INVEST ONLY THE MONEY WHICH IS IN HIS HANDS. IF TH E ENTIRE MONEY IN HAND IS ALREADY SPENT FOR A PARTICULAR PURPOSE THEN THE QUE STION OF SPENDING THE SAME AMOUNT FOR ANOTHER PURPOSE AS WELL DOES NOT ARISE. THUS THE INTERPRETATION OF THE TERM ANY FUNDS BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SRI SRIRAM FOUNDATION 250 ITR 55 THOUGH MADE IN THE CONTEXT O F SECTION 13(2)(H) IS ON ALL FOURS APPLICABLE WHILE INTERPRETING SECTION 13(1)( D) OF THE ACT. EVEN THE CBDT CIRCULAR NO.335 DT.13.4.1982 EXPLAINS THE SAME POSI TION. THE EXAMPLE GIVEN THEREIN CLEARLY EXPLAINS THAT IN A CASE WHERE THE T RUST DERIVES INCOME OF RS.40 000 IN A YEAR AS PER S.11(1)(A) IT HAS TO SPEND AT LEA ST RS.30 000 ON CHARITABLE PURPOSE AND THE BALANCE OF RS.10 000 WILL HAVE TO B E INVESTED IN THE FORMS OR MODES PRESCRIBED U/S 13(5)(NOW S.11(5)). THEREFORE IN A CASE WHERE THE ENTIRE INCOME OF RS.40 000 IS SPENT FOR CHARITABLE PURPOSE S EXEMPTION U/S 11(1)(A) HAS TO BE GRANTED AND THERE IS NO NEED TO FURTHER EXAMI NE WHETHER ANY INVESTMENTS WERE MADE IN VIOLATION OF S.11(5) OF THE ACT IN AS MUCH AS THE TRUST IS LEFT WITH NO MORE FUNDS OUT OF THE INCOME OF RS.40 000 RECEIVED. IN THE CASE OF BOTH THE ASSESSEES AS PER THE CHARTS SUBMITTED BY THE ASSES SEES IT IS EVIDENT THAT THEY HAVE INCURRED DEFICIT IN EVERY YEAR AND THUS ENTIRE INCOME OF EACH ASSESSMENT YEAR WAS FULLY SPENT TOWARDS THE CHARITABLE OBJECTS . 40. AS WE HAVE HELD THAT CONTRIBUTION TO CHIT FUND IN THIS CASE IS NOT AN INVESTMENT AND MUCH LESS AN INVESTMENT WITH SOMEON E ELSE AND FURTHER THAT THE PROVISIONS OF S.11(1)(A) HAVE BEEN COMPLIED BY INVE STING THE ENTIRE INCOME OF THE YEAR TOWARDS CHARITABLE PURPOSES WE CONCLUDE THAT THERE IS NO VIOLATION OF SECTION 13(1)(D) R.W.S. 11(5) OF THE ACT. 41. AS WE HAVE UPHELD THE CONTENTION OF THE ASSESSE E IN THIS ASPECT WE DO NOT EXPRESS ANY OPINION ON THE OTHER ARGUMENTS RAISED B Y BOTH PARTIES AS IT WOULD BE IN ACADEMIC EXERCISE. 42. IN THE RESULT THE APPEALS OF THE ASSESSEES ARE ALLOWED. 10. CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE CAS E WE HOLD THAT CONTRIBUTION TO THE CHIT IN THE CASE OF THE ASSESSE E AS WELL IS NOT VIOLATIVE OF THE PROVISIONS OF S.11(5) R.W.S. 13(1)(D) OF THE AC T AND THEREFORE THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN DENYING THE EXEMPT ION U/S 11(1) IN RESPECT OF SURPLUS EARNED BY THE APPELLANT. WE ARE COMPLETELY IN AGREEMENT WITH THE LEARNED AR THAT THE RATIO OF DECISION IN THE CASE O F GURAJADA EDUCATIONAL SOCIETY IS ALSO APPLICABLE TO THE FACTS ON HAND AS THE ASSESSEE HAS WITHDRAWN ITA NOS.386 TO 391/VIZAG/2012 LITTLE ANGELS EDUCATIONAL SOCIETY VSKP 23 THE CHITS BY SUCCESSFULLY BIDDING FOR THE SAME. IN THE RESULT APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28 TH APR14 SD/- SD/- ( SAKTIJIT DEY ) ( J. SUDHAKAR REDDY ) JUDICIAL MEMBER ACCOUNTANT MEMBER VG/SPS MANGA/SPS VISAKHAPATNAM DATED 28 TH APRIL 2014 COPY TO 1 LITTLE ANGELS EDUCATIONAL SOCIETY C/O C. SUBRAHM ANYAM FCA FLAT NO.102 LAKSHMI APTS. FACOR LAYOUT WALTAIR UPLANDS VISAK HAPATNAM. 2 ITO WARD-3(2) 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