Section 13(1)(c) violation does not automatically cancel full trust exemption; tax applies only to the offending benefit.

A registered trust claiming exemption under section 11 was found not to suffer total forfeiture of exemption merely because section 13(1)(c) was alleged to have been violated through benefits to a specified person. The ITAT applied the settled principle that contravention of section 13 does not withdraw sections 11 and 12 exemption in full; tax consequences, if any, are confined to the offending benefit or income attributable to the violation, generally at the maximum marginal rate. On the facts, the vouchers and transport-related material were insufficient to justify denial of the entire exemption, so the trust retained section 11 relief.

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Issues: Whether the assessee-trust was entitled to exemption under section 11 of the Income-tax Act, 1961 in full notwithstanding the alleged violation of section 13(1)(c), or whether exemption could be denied only to the extent of the income/value of the alleged benefit extended to a specified person.

Analysis: The assessee was a trust registered under section 12AA and had claimed exemption under section 11. The revenue treated certain vouchers and use of transport-related facilities as giving a benefit to the managing trustee and invoked section 13(1)(c). The order under challenge proceeded on the footing that any violation under section 13 should lead to total denial of exemption. The Tribunal, however, followed the settled view that the consequence of contravention under section 13 is taxation only of the offending benefit or income attributable to the violation at the maximum marginal rate, and not wholesale withdrawal of exemption under sections 11 and 12 from a registered trust. On the facts, the material concerning vouchers of the trustee's separate transport business was found insufficient to justify denial of the entire exemption.

Conclusion: The assessee was entitled to exemption under section 11, and any tax consequence, if at all, could arise only to the extent of the specific benefit found to be in violation of section 13(1)(c).

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