- (1.) Present appeal under Section 260A of the Income Tax Act, 1961 has been filed by the department against the judgment and order dated 16.11.2005 passed by the Income Tax Appellate Tribunal, Lucknow in ITA No. 425/Luc/2005 for the assessment year 2001-02. This Court vide order dated 09.08.2011 has admitted the appeal on the following substantial question of law: Whether the Tribunal had correctly held that the Assessee has not contravened the provisions of Section 13(1)(c) and 13(3) of the Income Tax Act, 1961 even though it was conclusively proved by the assessing officer that the loan was given without interest to the person referred to in Section 13(3) which is in contravention to the provisions of Section 13(2)(a) of the I.T. Act, 1961.
(2.) The brief facts of the case are that the Assessee is a society registered under the Societies Registration Act, U.P. The Assessee is also registered under Section 12A of the Income Tax Act, w.e.f. 01.04.1997. For the assessment year under consideration, the Assessee has filed the returned. During the scrutiny, it was noticed by the A.O. that the assesee has given a loan/advance of Rs. 3,25,000/-to Sri C.P. Singh, Manager of the Society, where No. interest was charged on this amount nor any provision for accrued interest was made. The Assessee vide letter dated 20.02.2003 explained that the loan given to Sri C.P. Singh was a personal loan. The Assessee vide letter dated 09.05.2003 stated that as per policy of management, recovery of principal amount has to be made first, then interest shall be charged. However, the Assessee could not furnish the details of mode of recovery of loan, any resolution of society for sanction of loan or sanction letter in this regard. So, the A.O. has made the addition of the interest of Rs. 2,137/-accrued on the loan to Sri C.P. Singh. The A.O. also observed that the Assessee had followed the provisions of Section 13(1) read with Section 13(2)(a) of the Income Tax Act and added the net surplus of Rs. 60,73,146/-as an income of the Assessee-society. The CIT has confirmed the order passed by the A.O. However, in second appeal, the Tribunal has deleted the said additions and allowed the claim of the Assessee. Not being satisfied, the department has filed the present appeal.
(3.) With this background, Sri D.D. Chopra learned Counsel for the Appellant submits that as per the instruction No. 1025 dated 15.11.1976, the CBDT has clarified that since the specific provisions provide with regard to the grant of exemption to the income of Educational institution in Section 10(23B) and 10(23C), so now the Assessee could not claim exemption under Section 11 of the Income Tax Act, 1961. He further submits that the Assessee is following the mercantile system of the accounting and, therefore, it was required to charge the interest on accrual basis. In Form No. 10-B attached with the return, No. details were furnished by the Assessee. He also submits that the Assessee could not furnish any explanation as to why the accrued interest received from Sri C.P. Singh had not been accounted for in its books of accounts. He read out the relevant provision of the Income Tax Act, which are as under: Section 13(1)(c): (c) In the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof (i) If such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income ensures, or (ii) If any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied. Section 13(2): (2) Without prejudice to the generality of the provisions of Clause (c) [and Clause (d)] of Sub-section (1), the income or the property of the trust or institution or any part of such income or property shall for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in Sub-section (3).- Section 13(2)(a): if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in Sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; Section 13(3): (3) The persons referred to in Clause (c) of Sub-section (1) of Sub-section (2) are the following namely: (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, [that is to say, any person whose total contribution up to the end of the relevant previous year exceeds [fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) anytrustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, [member, trustee or manager, as aforesaid; (e) any concern in which any of the persons referred to in Clauses (a), (b), (c) [(cc)] and (d) has a substantial interest.;