Section 13(1)(d) prohibits the exemption of any sum invested or deposited otherwise than any mode specified u/s 11(5)
Income from property held for Charitable or Religious purposes are to be invested in forms and modes on investing or depositing the money referred to in clause (b) of sub-section(2) of Section 12 of the Income Tax Act, 1961.
To understand the difference between, Loan, Investment and Deposit try to read following illustration.
Gandhi Charitable Trust under erroneous belief, had given a loan of Rs.50lakhs to another trust Nehru Charitable Trust having same objects. Trustees of Nehru Charitable Trust was the brother of president of Gandhi Charitable Trust. Assessing officer is of the view that section 13(1)(d) state violation of the terms section 11(5) and denied benefit of Section 11.
Advice Gandhi Charitable Trust.
Section 13(1)(d) of the Act, prohibits the exemption of any sum invested or deposited otherwise than any mode specified u/s 11(5) of the Act.
In the given illustration, Gandhi Charitable trust, had given a loan to Nehru Charitable Trust, whose trustee was the brother of President of Gandhi Charitable Trust. AO was of the view that section 13(1)(d) is violated as the fund is not invested as per section 11(5) of the Act, but given a loan to other trust.
The Income Tax Officer held that there was a violation of Section 13(1)(d) read with Section 11(5) of Act, accordingly, he denied benefit of Section 11 of the Act.
On an appeal, Commissioner of Income Tax(Appeals) deleted the addition and held that there was no violation of Section 13(1)(d) read with Section 11(5) of Act, as both the trust have the similar objects. CIT(A) further held that the assessing officer had not brought anything on record to show that the transaction of loan was a “deposit’ or “investment”
ITAT dismissed the appeal filed by the revenue after holding that there was no infringement of Section 13(1)(d) read with Section 11(5) of the Act, 1961.
In the case of Director of Income Tax Vs. Acme Educational Society the High Court of Delhi ITA 888/2010 dated 28th July, 2010, held that Interest free loan given by society to other educational society does not violate Section 13(1)(d) read with section 11(5) of the Act 1961 as the said loan was neither an “ investment” nor a “ deposit “
The court pointed out that the words “investment”, “deposit”, and “loan” have different meanings. Investment means to lay out money in business with a view to obtain an income or profit. Deposit on the other hand means that which is placed anywhere, as in any one’s hands for safe keeping, something entrusted to the care of another. Section 11(5) refers to pattern of investment by a trust. Section 13(1)(d) as amended by he Finance Act, 1983, provides that the income of any charitable or religious trust or institution will not be entitled to exemption under section 11 and 12, if certain conditions stipulated there in are not complied with. The word deposit does not cover transactions of loan which can be more appropriately described as directed bailment.
Looking to the above facts, there is no violation of the terms u/s 11(5) and denied benefit u/s 13(1)(d) of the Act.
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