Aravind Kumar, J.
1. The Revenue is in appeal challenging the order passed by the Income Tax Appellate tribunal in ITA No. 1217/Bang/2003 dated 14.1.2004 whereunder the Tribunal confirmed the order passed by the first appellate authority. The assessee filed return of income on 15.2.2002 declaring nil income and claimed exemption under Section 10(23C)(vi) of the Income Tax Act, 1961 (in short the Act').
2. The assessing officer, on verification of the record found that assessee is not recognised under Section 10(23C)(vi) of the Act since assessee's application for recognition under Section 10(23C)(vi) filed on 21.9.99 was pending before the authorities and rejected the claim of the assessee for grant of exemption under Section 10(23C)(vi) for the assessment year 2000-01 of the Act and the said income was also brought to tax under the Act. The assessing officer also noted in the said Assessment order with regard to claim of the assessee regarding registration under Section 12A which reads thus:
(1) The provisions of Section 11 and Section 12 shall not apply in relation to income of any trust or institution unless the following conditions are fulfilled, namely:(a) the person in receipt of income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973 or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under Section 12AA.
3. Aggrieved by the same, the assessee went in appeal before the CIT, (Appeals-V), Bangalore. The appellate authority confirmed the order passed by the assessing officer. Aggrieved by the same, the assessee went in further appeal before the Tribunal in ITA No. 1217 (Bang) 2003. The Tribunal, vide order dated 14.1.2004 allowed the appeal filed by assessee on the ground that the assessee had invested the amounts which was not contrary to the provisions of Section 10(23-C)(vi) read with Section 11(5) of the Act It is against this order of the Tribunal Revenue is in appeal. At the time of admission of appeal on 15.9.04, the following substantial questions of law were framed.
1. Whether the Tribunal was correct in holding that the assessee was entitled to exemption under Section 11 of the Act.?
2. Whether the Tribunal was correct in ignoring the finding recorded by the Appellate commissioner that the assessee had violated Section 11(5) of the Act by making investment in Chit Funds and debentures of Sriram Group of Companies by drawing an analogy from one other sale transaction of M/s. Classic Developers and recorded a perverse finding by taking into consideration irrelevant circumstances and ignoring the cogent evidence examined by the Appellate commissioner.?
3. Whether the Tribunal was correct in proceeding to hold that the income of the assessee was exempt from tax under Section 11 of the Act despite the assessee having no recognition under Section 10(23C)(vi) of the Act and the same having been held not eligible by the Assessing Officer and confirmed by the Appellate Commissioner.?
4. We have heard Sri. K.V. Aravind for Sri. M.V. Seshachala and Ms. Nitya, learned Counsel appearing for appellant and respondent respectively.
5. Sri K.V. Aravind, Adv. for the Revenue contends that it is no doubt true that the competent authority vide order dated 12.5.2004 in exercise of powers conferred by Sub-clause (vi) of 23C of Section 10 of the Act has approved the assessee for the purpose of said sub-clause for the assessment years 1999-2000 and 2001-2002 but it is for the assessing officer to examine the claim of the assessee an to whether it has made the disinvestment as required under Clause (ii) of the said provision and for this purpose the assessing officer will have to examine the claim on merits and accordingly prays that appeal be remanded to Assessing officer for examination of claim of assessee.
6. On the contrary, Ms. Nithya, Adv. for the respondent contended that the Act itself permits the assessee to dis-invest the amount within a period of two years and the same has been done as stated by them in their reply dated 1.12.2003 which reads as follows:
As regards contribution in Model Chit Corp. Limited at Rs. 2,00,000/- per month (not Rs. 2,00,000/- p.a. as stated in your letter) it is submitted the petitioner society joined the chit in June 1997 and the chit ended in May 2000. A copy of the agreement of Model Chit Corp. Limited in enclosed. Clause 13 on Model Chit is given following effect:
13. Repayment of contributions to the Chit on the termination of the Chit to non-prized and unpaid prized Subscribers.:
1) On the termination of every chit, the non-prized, non-defaulted subscribers shall be paid the chit amount after deducting Foreman's commission.
2. An unpaid prized subscriber who becomes a defaulter subsequently is eligible to receive only the balance of any sum remaining out of his prized amount after deducting the amount in arrears of further subscriptions after he has been declared prized subscriber.
3. A subscriber removed from the Chit before termination, for any reason, is entitled for a refund of only the net amount of subscription, deposited by him/her less five percent of the chit amount towards damages for breach of contract The refund will be made after the substituted subscriber draws the prize amount or at the close of the series whichever occurs first.
7. As regards contribution in model chit fund group is to the following effect:
The entire money was got back on 13.9.2000 earlier to (details enclosed) 30th March 2001 and therefore this has been dis-invested in terms of the proviso to Section 10(23C)(vi). The society wanted to disinvest by contributing to it upto May 2000 as the period for disinvestment i.e. 30.3.2001 was to expire 10 months after the period of maturity in May 2000. The contribution to chit is a contractual obligation entered into before the provisions of Section 10(23C)(vi) came into force. As per the terms of the Model Chit Corp.Limited if a subscriber wants to foreclose and if he insists on repayment it would be done only on the expiry chit period in May 2000. Therefore, the petitioner, in the best interests of public educational institution did not want to forefeit the larger amount by discontinuing the contribution immediately after the Finance (No. 2) Act 1998 came into force as such foreclosure without further contribution would result in a larger loss.
8. She also further contends that in view of clause 10(23C)(vi) of the Act and proviso (v) thereunder they have dis-invested the same and the issue would be only academic in nature if it is required to be examined by the assessing officer and thus it would serve no purpose. She also further contends that they have also obtained registration certificate as contemplated under Section 12A of the Act and in view of this prays for dismissal of the appeal.
9. The issue that arise for our consideration would be as to whether the assessee has dis-invested as contended in their reply dated 1.12.2003 and this is a matter of fact which requires to be examined by the assessing officer. Hence, we clarify that the assessing officer shall only examine the said issue as to disinvestment said to have been made by the assessee as per reply dated 1.12.2003.
10. In view of the above, we pass the following:
(i) The Assessing Officer shall examine the issue regarding whether the assessee has dis-invested the amounts contributed to chit fund as contended in the reply dated 1.12.2003
(ii) The Assessing Officer is also at liberty to examine as to whether the assessee has satisfied the ingredients of Sub-section (5) of Section 11 of Income Tax Act 1961 with regard to purchase of immovable property for the assessment year in question.
11. Accordingly, the appeal is disposed off without answering the substantial questions of law.