Section 11 of the Income-tax Act, 1961 – Charitable or religious trust – Subscription to the chits is nothing but the investment which is not one of the prescribed mode of investment u/s.11(5), therefore it is a clear case of violation of provisions of Section 11(5), hence assessee trust not entitled for exemption u/s.11.

Facts: The only issue in the present appeal relates to whether or not there is violation of provisions of Section 11(5).

Held, that , assessee trust is duly registered u/s.12AA. It is mandatory in order to avail exemption u/s.11, the funds of the trust should be invested in one of the modes prescribed u/s. 11(5). During the previous year relevant to assessment year under consideration, the assessee trust had subscribed to chit with Sree Gokulam Chit and Finance Co. Ltd. Undisputedly, investment in chit is not one of the prescribed mode of investments. Therefore we need to examine the transaction from point of view of the activities of the assessee trust. The explanation of the assessee that subscription to the chits was made in order to mobilize the resource to meet repayment of loans availed from same party, has no bearing on the issue. The transaction of subscription to the chits is independent of the earlier transaction of loans borrowed and there is nothing on record to show that the both transactions are interconnected. Subscription to the chits is nothing but the investment which is not one of the prescribed mode of investment u/s.11(5). Therefore it is a clear case of violation of provisions of Section 11(5), hence assessee trust is not entitled for exemption u/s.11. As regards to the contention that only that part of income which is in violation of Section 11(5) alone should be taxed but not entire tax cannot be accepted deserves consideration in view of Section 11(3) which provides so. Therefore, we direct AO to restrict the taxable income to the extent of violation of Section 11(5). In the result, the appeal filed by the Revenue is partly allowed – ASSTT. DIT Vs. SREE GOKULAM EDUCATIONAL & MEDICAL TRUST [2020] 181 ITD 572 (ITAT-CHENNAI)