|The Tax Publishers2021 TaxPub(DT) 0161 (Chd-Trib)
INCOME TAX ACT, 1961
Where assessee-charitable trust was subject to addition for interest derived from FDs with the interest paid in issue at higher rate to one of its trustee, in terms of section 11(1) to 13(1)(c) read with section 13(3) on allegation that there was no justification to avail the interest bearing funds at such an unreasonable rate without any requirement since assessee itself was maintaining FDRs with the banks, it was held that was no reason to sustain the addition because deposit accounts were deposits in name(s) of affiliating/regulatory bodies rather than fixed deposit investment per se and same were necessary for purpose of carrying out the trust's medical education activities.
Charitable trusts - Exemption under section 11 - Addition in relation to interest paid at higher rate to one of assessee's trustee by comparing interest derived from FDs held by assessee with banks -
Assessee, a charitable trust, was enjoying both section 12A and section 80G registration(s). It paid interest to one of its trustee qua net balance with interest. On explanation asked by AO, assessee contended that there was neither any application of income nor its property was used for the benefit of the specified persons under section 13. Assessee pleaded that no transaction was carried out with related parties except the interest in question paid to the trustee (G) due to shortage of funds and in order to reduce the term loan carrying higher rate of interest. AO made addition by comparing assessee's interest derived from FDs with the interest paid in issue at higher rate in terms of section 11(1) to 13(1)(c) read with section 13(3). On appeal, CIT(A) enhanced the addition by holding that entire income of the assessee should be assessed as AOP and benefit of claim under section 11 was denied. Held: Case of revenue was based on the ground that there was no justification to avail the interest bearing funds at such an unreasonable rate without any requirement since assessee itself was maintaining FDRs with the banks. There was no reason to sustain either of the twin limbs of excessive as well as unjustified interest on aspects in favour of the revenue. It was found that deposit accounts were deposits in name(s) of affiliating/regulatory bodies than fixed deposit investment per se. It was very much justifiable on assessee's part to maintain all said fixed deposits for purpose of carrying out the trust's medical education activities. Regarding alleged excessive interest payments to its trustee, it was noted that revenue itself accepted interest paid to lender banks, in case of secured loans against unsecured loans availed from the trustee (G). That itself suggested that interest rate was not excessive so as to attract disallowance/addition.
Distinguished:Kanahya Lal Punj Charitable Trust v. DIT (Exemption) [ITA No. 1651 of 2006, dated 14-5-2007] : 2008 TaxPub(DT) 0676 (Del-HC)
FAVOUR : In assessee's favour
IN THE ITAT, CHANDIGARH BENCH
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