1. These appeals by the revenue are directed against the common orders of the AAC granting exemption to the assessee-trust.
2. The assessee is a trust declared by memorandum of association dated 14-3-1946. The objects of the association are: (a) To establish and carry on at Coimbatore schools and other educational institutions and those connected with education as the association shall determine from time to time.
(b) The immediate purpose of the association shall be the starting of a high school and to conduct and manage it. It shall be called the Devanga High School, Coimbatore.
The assessee-trust was running a proprietary school at Coimbatore. In the returns filed by the assessee for the assessment years 1977-78 to 1980-81, the assessee claimed exemption under Section 10(22) of the Income-tax Act, 1961 ('the Act') in respect of fees received from the primary school. With reference to the other income of the assessee, which was interest income, exemption was claimed under Section 11 of the Act. The ITO allowed the exemption claimed under Section 10(22) in respect of the school fees. But, with regard to ths interest income which arose out of loans given by the assessee to Essorps Mills (P.) Ltd. and Sivananda Mills Ltd., he was of the opinion that the loans were without adequate security and violated the condition prescribed in Section 13(2)(a) of the Act. He, accordingly, denied exemption in respect of that income. On appeal, the AAC found that the loans were given by the assessee to the companies on the personal guarantee of the directors who are well-to-do persons and he, accordingly, considered that there was adequate security for the loans. He, therefore, allowed the exemption as claimed.
3. In the appeals before us, the undisputed facts relating to the transaction of loans are as follows: The details relating to the amount given on loan by the assessee-trust can be tabulated below:Assessment Name of the Deposit Amo- Inter- Guaranteed Guarantorsyear company FDRI unt est by gross wealth LR received as per wealth-t1977-78 Sivananda Mills Shri P. Jagath- Ltd. 116 70,000 4,200 esan (HUF) 4,06,109 Sivananda Mills 3,00,203 Ltd. 143 70,000 4,550 -do- (S. HUF)7,06,312 Essorpe Mills (P.) Ltd. 442 56,000 6,720 Shri P. Muru- (652) gesan (HUF) 8,38,675 (Ind.) 2,02,111 Ltd. 146 70,000 4,550 Shri P. Jagathe- esan (HUF) 4,07,199 Ltd. 176 75,000 4,875 (S. HUF) 2,93,151 7,00,350 (P.) Ltd. 652 56,000 7,280 Shri P. Muruge-6,04,752 Sivananda Mills esan (HUF)4,27,507 Ltd. 637 5,000 750 (S. HUF) 3,07,056 (P.) Ltd. 842 56,000 7,280 Shri P. Muruge- san (HUF) 65,135 Essorpe Mills 843 7,000 910 (Ind.) 3,01,366 (P.) Ltd. 20,190 12,66,501 Ltd. 637 5,000 750 (S, HUF) 4,83,550 (P.) Ltd. 1,000 63,000 9,450 Shri P. Muru- gesan (HUF)9,60, (P.) Ltd. 1 8,000 1,200 (Ind.) 2,29,090 11,90,090 The loans are supported by receipts in the case of Sivananda Mills Ltd. styled as 'loan receipts' stating that the amount bad been received by the company as a loan repayable with interest at 12 per cent as per letter of offer of the company and repayable on a stipulated date. In the case of Essorpe Mills (P.) Ltd. the receipts are styled as 'fixed deposit receipts' stating that the amount has been received as fixed deposit for a period stipulated and repayable with interest on the stipulated date, The loans are also supported by personal guarantees of the directors of the companies whose worth has been shown in the tabular statement above and is supported by wealth-tax assessments. It is also not ia dispute that the companies are concerns in which the authors of the trust had a substantial interest and they would be persons within the definition contained in Section 13(3).
4. Section 13(2)(a) states that the income of a trust shail be deemed to have been used or applied for the benefit of a person referred to in Subsection (3) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in Sub-section (3), for any period during the previous year without either adequate security or adequate interest or both. Section 13(1) states that the exemption provided under Section 11 or Section 12 of the Act shall not apply where any part of the income of the trust is used or applied directly or indirectly for the benefit of any person referred to in Sub-section (3). Section 13(2)(h) also denies the exemption in a case where the funds of the trust or institution are, or continue to remain, invested in any concern in which any persons referred to in Sub-section (3) has a substantial interest.
5. The appeal of the revenue is based on the prohibition contained in Section 13(2)(A) even though the ITO applied the prohibition contained in Section 13(2)(a). The contention is that the amounts given to the companies were in fact investments and, therefore, as long as the amounts were kept in deposits of the companies, the prohibition in Clause (h) would apply and the assessee would not be entitled to the exemption. This raised the issue whether a fixed deposit could be considered to be an investment or a loan. The crucial difference between a fixed deposit and a loan is that in the case of a loan, money passes from the payer to the payee at the instance and for the requirement or use of the latter while in the case of a deposit, the payee receives the money at the instance of the payer and the requirement or use of the payee is aot a relevant fact for consideration. In the present case, it is not in dispute that the moneys were given by the assessee at the instance of the companies for their use and clearly, therefore, the transactions were only loans. In fact in one of the receipts of Sivananda Mills it had clearly referred to as loans and in the case of Essorpe Mills (P.) Ltd. also even though it is called a fixed deposit, from the terms of the transaction, it is clear that it was only a loan.
6. The next question that arises is whether the loan which should normally be considered under Section 13(2)(a) could also be considered as an investment for the purpose of applying the prohibition under Section 13(2)(&). When several situations are listed in a section containing certain prohibitions, it is the normal canon of construction that each item in the Section 1s exclusive of the other items and facts which fall in one item could not also fall in another item. Apart from this general conception, it is also clear that a loan cannot be considered to be an investment. This is because in the case of a loan, there is no transfer of property and the person who gives the loan is only having a right to get back the money given on loan. On the other hand, in the case of an investment, there is conversion of the money invested into a different asset and the money can be recovered back only by liquidating that asset. Apart from this consideration, there is also a decision of the Delhi High Court in the case of CIT v. Eternal Science of Man's Society  128 ITR 456 where it was held that loans cannot be treated as investment for the purpose of applying the prohibition contained in Section 13(2)(A), 7. The revenue then sought to justify the action of the ITO by relying on the provisions of Section 13(2)(a) itself. It was contended that a personal guarantee by a guarantor could not be regarded as a security much less an adequate security for the loan and, therefore, the exemption should not be given. We are unable to accept this contention of the revenue because the word 'security' is a word of general import meaning nothing more than an assurance. 'Anything that makes the money more assured in its payment or more readily recoverable', is how Stroud defined it and may range from a mere personal bond or promissory note or guarantee, or even a mere pledge of something of no intrinsic value, to a mortgage of property out of which the money can be realised. It was argued on behalf of the revenue that in the context of the prohibition contained in Section 13, which is a legislative attempt to protect the interest of the public beneficiaries from the squandering of the trust funds, the word 'security' should be strictly construed and limited to property against which recourse could be had directly for the recovery of the loan. We are unable to accept this plea of the revenue because it would have been easy for the Parliament to stipulate in the Section 1tself that only loans secured with mortgage or pledge could be recognised for the purpose of exempting the interest income under Section 11 if the intention was to limit the meaning of security in that manner. On the other hand, the very phrase 'adequate security' indicates that the Parliament intended to take in not only mortgages where the question of adequacy would not loom large but also other forms of security. It is also significant that the Act itself refers to personal bond as a security in rule 88 of Schedule II which provides for recovery from surety which can be related only to Rule 3 which provides for the attachment of the property of the defaulter when he furnishes security to the satisfaction of the TRO. In these circumstances we are satisfied that the word 'security' in Section 13(2)(a) refers also to a personal bond.
8. The next question is whether ttrs personal bond given by the directors of the company can be taken to be adequate or not. This is a matter which depends entirely on the credit-worthiness of the securities. The fact that the net worth of the directors far exceeded the loaus given by the assessee would be sufficieat to indicate that the security is adequate. In the circumstances, we are in entire agreement with the view of the AA that the loans were not given without adequate security and that the exemption cannot be denied by applying Section 13(2)(a).
9. The assessee has argued in the alternative that this discussion with regard to the applicability of Section 13 could well be avoided when it is seen that the entire income of the assessee is exempt under Section 10(22). Reliance was placed on the decisions of the Calcutta High Court in the case of Birla Vidhya Vihar Trust v. CIT  136 ITR 445, the Madras High Court in Addl. CIT v. Aditanar Educational Institution  118 ITR 235 and in CIT v. Paramakalyani Education Society  16 Taxman 235 (Mad.), It is not disputed by the revenue that the only object of the assessee-trust was education and, therefore, the income of the assessee is income arising to an educational institution existing solely for educational purposes within the meaning of Section 10(22). But it was argued that this was a new plea and could not be entertained. We must overrule this objection because income which is admittedly exempt cannot be allowed to be taxed only on the ground that the assessee was not conscious of the exemption and had not claimed it in the return. It was then argued that the facts are to be investigated in each year to find out whether the institution existed for educational purposes and the income was incidental to the purpose of education. la these cases there can be no doubt about the first point when, admittedly, the only object of the trust was education and the institution existed in all the assessment years only for educational purposes. Even with regard to the income, it can be seen from the statement of expenditure and income that there was a sort of deficit financing in the sense that the primary school fees were insufficient to meet the total expenditure which was met only with the aid of interest from the loans. It is clear on the facts of the case that the income from interest from the loans was feeding the educational purposes and was clearly the income of the institution maintained for educational purposes. In the circumstances, we are of the opinion that the assessee should succeed even on the basis of this alternate ground that the entire income is exempt under Section 10(22) even if by any other view of the matter, the assessee were to be denied exemption in respect of interest income on the ground that the conditions contained in Section 13(2)(a) had not been satisfied. We have, therefore, no hesitation in confirming the orders of the AAC. The appeals are dismissed.