COMMISSIONER OF INCOME TAX Vs. VIJETA EDUCATIONAL SOCIETY

JUDGEMENT

(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:

(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: