Section 13(2)

Section 13(2) — the law in short

What the courts have decided on section 13(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• DIT (Exemption) v Charanjiv Charitable Trust High CourtHelps departmentSuperseded by amendment
  My trust paid an advance to a company in which the trustees are interested, under an agreement to buy land, and the deal was later cancelled. Is that a s.13(1)(c) violation even though no money went out in the year in question?
  Yes, on these facts. The Delhi High Court held that where trust funds remain with a s.13(3) person without interest or security, that is a direct use of the funds for the benefit of a prohibited person, and s.13(2)(a) makes clear that it is enough that the money continues to be lent during the previous year — no fresh advance in that year is needed. The agreements to sell were treated as a device to take the payments out of the word 'lent', and exemption under s.11 was denied for both years.
• Society for Human Transformation and Research v ITO (Exemptions) ITATHelps taxpayerValidity unconfirmed
  My trust gave interest-free or low-interest advances to entities connected with its trustees. The Assessing Officer has treated the interest not charged as a benefit to specified persons, disallowed it under s.40A(2)(a) and denied exemption on the whole income. Can he do that?
  Not on this record. Where the counterparties are themselves institutions registered under s.12A and s.80G and there is no material showing that any specified person derived a personal benefit, the transactions do not establish diversion of charitable funds for private benefit, and s.13(1)(c) is not attracted. Section 40A(2)(a) cannot be used at all: it disallows excessive or unreasonable expenditure paid to a related party in the course of business or profession, and does not authorise an addition for interest the trust failed to charge.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.