No Sec. 13 Violation If a Trust Provides Interest-Free Loan to Another Trust with Similar Objects and Trustees | ITAT

Case Details: Income-tax Officer vs. Rajasthan Vikas Sansthan - [2024] 168 taxmann.com 157 (Jodhpur-Trib.)

Judiciary and Counsel Details

• Prashant Maharishi, Accountant Member & Yogesh Kumar U.S., Judicial Member
• P.C. Parwal, CA for the Appellant.
• O.P. Meena, CIT(DR) for the Respondent.

Facts of the Case

The assessee was registered as an educational trust under section 12AA. It entered into a Memorandum of Understanding (MoU) with another trust for the provision of technical and financial assistance in the form of an interest-free loan.

The loan was granted for the development of infrastructure, which would be returned to the assessee after the development or 10 years, whichever was earlier.

The Assessing Officer (AO) observed that there was a common trustee in both the societies, and therefore there was a violation of provisions of section 13(3)(cc) and (e). Accordingly, he charged interest at the rate of 12% per annum and made the addition. On appeal, CIT(A) deleted the addition. The matter reached the Jodhpur Tribunal.

ITAT Held

The Tribunal held that the Delhi High Court in the case of Director of Income Tax (Exemption) v. Acme Educational Society [2010] 326 ITR 146 has held that where advances of temporary interest-free loans are given by one society to another society having similar objects and having the relative of the trustee as the trustee, it does not amount to an investment or deposit attracting the provisions of section 13(1)(d).

Therefore, so far as the issue of section 11(5) and section 13(1)(d) is concerned with respect to the investment with another trust and his wife being the trustee, the provisions of section 13(3)(e) are impacted. Section 13(3)(e) will apply only if there is the right to 20% of the profit of such concern.

As both the trusts are existing not for profit, even the provisions of section 13(3)(e) and 13(3)(cc) are not hit and, therefore, for this reason also it cannot be said that by giving the advance to that trust there is a direct or indirect benefit to the assessee trust.

Therefore, it cannot be said that the assessee violated the provisions of the Income-tax Act when it gave an advance to another trust having the common object and also registered under section 12AA, even though they had common trustees.

List of Cases Reviewed

• Director of Income Tax (Exemption) v. Acme Educational Society 326 ITR 146 (para 21) followed.

List of Cases Referred to

• DIT v. Acme Educational Society [2010] 326 ITR 146 (Delhi) (para 20)
• DIT v. Alarippu [2000] 111 Taxman 511/244 ITR 358 (Delhi) (para 20).