Tribunal grants exemption under Section 11, dismisses Revenue's appeal. Order pronounced on 11/01/2017.

The Tribunal directed the AO to allow the exemption under Section 11 and deleted the additions made by the AO. The appeal by the Revenue was dismissed, and the order was pronounced in the open court on 11/01/2017.

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Issues Involved:
1. Deletion of addition made by AO treating voluntary contributions and corpus donations as taxable income.
2. Violation of provisions of Section 13(3) of the Income Tax Act.
3. Applicability of maximum marginal rate of tax under Section 164(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by AO Treating Voluntary Contributions and Corpus Donations as Taxable Income:
The Revenue contested the deletion of Rs. 1,46,09,448/- made by the AO, arguing that the receipts of voluntary contributions and corpus donations were taxable due to a violation of Section 13(3). The AO observed that the assessee, a public charitable trust, had advanced Rs. 17,76,000/- to a trustee and Rs. 22,16,000/- to a company where the trustee was a director. The AO deemed this as income applied for the benefit of prohibited persons under Section 13(2)(a), leading to disallowance of exemption under Section 11.

2. Violation of Provisions of Section 13(3) of the Income Tax Act:
The AO's findings were based on:
- An advance of Rs. 17,76,269/- to Smt. Madhu Adukia, a trustee, for building rooms on her land, which was not directly transferred to "Gyan Sindhu Girls College."
- An advance of Rs. 22,16,000/- to M/s Rajkala Industries Pvt. Ltd., where Rs. 20,00,000/- was an opening balance from the previous year, already considered a violation under Section 13, and the remaining Rs. 2,16,000/- was interest earned on the advance.

The CIT(A) deleted the addition, noting that the advance of Rs. 20,00,000/- was from the previous year and already held for trust purposes by ITAT in A.Y. 2011-12. The Rs. 2,16,000/- was interest earned and offered in the return for A.Y. 2012-13. Similarly, the Rs. 10,00,000/- advance was for classroom construction, and any violation should only tax the income generated from such advances, not the entire trust income.

3. Applicability of Maximum Marginal Rate of Tax under Section 164(2) of the Income Tax Act:
The AR argued that even if there was a violation of Section 13, only the income that violated the section should be taxed at the maximum marginal rate (MMR) per the proviso to Section 164(2). The AR cited several judicial precedents supporting this view, including decisions from the Supreme Court and various High Courts.

The Tribunal agreed with the AR, stating that the Coordinate Bench in A.Y. 2011-12 had already ruled that only the income violating Section 13 should be taxed at MMR. The Tribunal found no new material to deviate from this ruling. Regarding the advance to M/s Rajkala Industries Pvt. Ltd., the Tribunal noted that the Rs. 20,00,000/- was an opening balance, and the Rs. 2,16,000/- interest was already taxed. For the advance to Smt. Madhu Adukia, the Tribunal accepted that the advance was for constructing classrooms for charitable purposes, and the amount was refunded, with no benefit to the trustee.

Conclusion:
The Tribunal directed the AO to allow the exemption under Section 11 and deleted the additions made by the AO. The appeal by the Revenue was dismissed, and the order was pronounced in the open court on 11/01/2017.

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