Section 11 and 13(1)(c) of income tax act

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Chaithra .S. Adiga (Querist)
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08 February 2013 Dear All,
There is a society Registered under the Karnataka Societies Registration Act, 1960. The President, 3 Vice Presidents, 2 Secretaries and three members (totally 9) Constitute Board of Management of the Society to whom the affairs of the Society is entrusted.
One of the objects of the Society is to establish, provide, endow, equip, furnish, maintain, develop, control and manage schools and colleges whether undergraduate or Post-Graduate with such faculties and at such places as may be decided upon by the Board of Management from time to time.
Society takes up construction of buildings for educational institutions, Hospitals and other organizations run by it. The Society also takes up renovation of the buildings. These works are given as contract or got done inhouse. In either case, construction materials such as cement, steel, R.M.C, tiles, electrical fittings, cables, Bathroom fittings are purchased by the society and supplied to the Contractor on free supply basis or directly used in case of inhouse works. The Society procures these materials from manufacturers and or dealers.
The son of the Vice President of the society is incorporating a Company. He has also been appointed as the Director (Projects) of the society. The Company intends to source these items from manufacturers / main distributors & dealers and supply to the above referred institution, sister concern and totally outside organizations. These transactions will be carried at arm’s length price.
Whether these transactions contravenes the conditions prescribed u/s 13(1)(c) thereby leading to cancellation of exemption under Section 11? Please provide the relevant provisions and case studies for the same.
Thanks in advance.

Chaithra .S. Adiga

Chaithra .S. Adiga (Querist)
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13 February 2013 Dear All,

Its very urgent. Please resolve.

Thanks in advance.