Benefit u/s 11 when there is a violation of section 13 of the Income Tax Act, 196

Last updated: 15 October 2021

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This judgement concerns an educational society's claim for exemption under Section 11 of the Income Tax Act, 1961. The revenue department argued against the exemption, citing violations of Section 13 regarding interest-free advances to members and excessive salary payments. However, the tribunal ultimately dismissed the revenue's appeals, allowing the exemption.

Court :
ITAT Chandigarh

Brief :
The present appeals have been preferred by the revenue against the order dated 24.04.2017 and 15.02.2019 passed u/s 250(6) of the Income Tax Act, 1961.

Citation :
ITA No. 1135/CHD/2017

IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH ‘A’, CHANDIGARH

BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER

ITA No. 1135/CHD/2017

Assessment Year : 2014-15

The Dy.CIT,
Circle-1 (Exemptions),
Chandigarh.

vs'

M/s C.T. Educational Society,
Greater Kailash Maqsudam,
Jalandhar.

VIRTUAL HEARING

Order

That theLd. CIT(A)-2, Jalandhar has erred in law as the findings recorded are perverse and contrary to the evidence/material available on record & facts of the case and duly considered by the Assessing Officer.

2. A perusal of the above grounds of appeal reveal that the revenue is aggrieved by the action of the CIT(A) in allowing
exemption u/s 11 of the Income Tax Act,1961 ( in short ‘the Act’ ) to the assessee society on two grounds. Firstly that the
assessee society had made the interest free advances to its Members which transaction was covered under the provisions of Section 13(1) (c) and 13(1) (d) read with Section 13(3) of the Act and further that the assessee Society had paid excessive salary to its Members having contravened the provisions of Section 13(2) (c) of the Act. The ld. Assessing Officer ( in short ‘AO’ ) made the addition of Rs. 1,98,48,600/- on account of notional interest @ 12% P.A.

3. In the course of appellate proceedings, the AR of the appellant was asked vide note sheet entry dated 23.03.2017 as to whether any TDS under the provisions of sect ion 194- IA was made by the society on part payment of sale consideration to Smt . Parminder Kaur, in whose case the sale deed has not yet been executed. The appellant has in response to this in the written reply filed stated that TDS will be deducted at the time of full payment and registration as was done in the other two cases as well . The appellant is under a bonafide belief that TDS is to be made at the
time of execution of sale deed payment .

4.In the result, both the appeals of the Revenue are dismissed.
Order pronounced on 4th October, 2021.

Please find attached the enclosed file for the full judgement

FAQ :

The judgement suggests that even with alleged violations of Section 13, an organisation might still be able to claim exemption under Section 11, as the revenue's appeals in this case were dismissed.

The revenue department cited violations related to making interest-free advances to members, which they considered covered under Section 13(1)(c) and 13(1)(d) read with Section 13(3). They also cited excessive salary payments to members, contravening Section 13(2)(c).

The Assessing Officer made an addition of Rs. 1,98,48,600/- on account of notional interest at 12% per annum due to the alleged violations.

The society was questioned about TDS on part payments for a sale where the deed was not yet executed. The society stated they believed TDS was only required at the time of full payment and registration, a practice followed in other cases.

The Income Tax Appellate Tribunal dismissed both appeals filed by the revenue department.