COMMISSIONER OF INCOME TAX Vs. AUDH 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 24.03.2006 passed by the Income Tax Appellate Tribunal, Lucknow in ITA No. 424/Luc/2005 for the assessment year 2001-02. This Court vide order dated 13.09.2006 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. w.e.f. 18.12.1990 and is running an educational institution. The Assessee is also registered under Section 12-A of the Income Tax Act, w.e.f. 01.04.1994. During the assessment year under consideration, the A.O. noticed that a loan of Rs. 2,37,500/-was outstanding against Sri Virendra Singh, Treasurer of the society and No. interest had been charged nor any provision for accrued interest was made. Originally, the loan of Rs. 2,50,000/-was taken by Sri Virendra Singh during the assessment year 1999-2000 and thereafter Rs. 12,500/-was paid towards the principal amount. The A.O. mentioned in its order that the Assessee is following the mercantile system of accounting but No. accrued interest on the loan had been accounted for the assessment year 1999-2000; 2000-2001. Thus, the A.O. concluded that the funds of society were diverted for personal benefits of the Treasurer and consequently exemption claimed under Section 11 was denied to the Assessee society in view of provisions contained in Section 13(1)(c) and 13(2)(a) of the Income Tax Act. The Assessee filed an appeal before the First Appellate Authority who has confirmed the order of the A.O. Being aggrieved, the Assessee has filed an appeal before the Tribunal who has 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 the Assessee society is following the mercantile system of accounting not only for the year under consideration but also for the past many years. The Assessee society charged interest @12% on loan/advance given to other employees. However, neither principal amount nor interest on the loan given to Sri Virendra Singh was reflected in the balance sheet and in this regard, the relevant coloumns of Annexure to Form 10B filed along with the return of income, were silent. He also submits that a resolution was passed by the Assessee but it was silent regarding repayment of principal amount. When No. schedule for the repayment of the principal amount has been decided in the resolution, how could the charging of interest be decided. He further submits that so-called resolution was only an afterthought and the Tribunal has wrongly relied upon it, while deciding the issue. Lastly, he justified the order and made a prayer to set aside the impugned order passed by the Tribunal.