2021 (2) TMI 414 - AT - Income Tax

ITAT Mumbai rules in favor of appellant on appeal, directs AO to rework computation.

The Appellate Tribunal ITAT Mumbai partially allowed the appeal, ruling in favor of the appellant on both issues. The Tribunal directed the Assessing ... Exemption u/s 11 - dividend income receipts - HELD THAT:- We find that this issue is squarely covered in assessee’s favor by the decision of this Tribunal in Jamshedji Tata Trust [2014 (5) TMI 890 - ITAT MUMBAI] wherein coordinate bench drawing analogy from the decision in CIT V/s Divine Light Mission [2004 (4) TMI 25 - DELHI HIGH COURT] held that dividend income being exempt u/s 10(34) could not be brought to tax by applying the provisions of Sec. 11 to 13 . We also note that amendment to Sec.11 by way of insertion of clause (7) by Finance Act, 2014 to nullify the effect of this decision is applicable only with effect from 01/04/2015 and do not apply to this year. Therefore, respectfully following the same, we would hold that dividend income being exempt u/s 10(34) could not be brought to tax by applying the provisions of Sec.11 to 13 of the Act. The amended provision restricting this exemption is applicable only from AY 2015-16. The assessee succeeds on this issue Accumulate or set apart trust income to the extent of 15% for utilization for charitable purposes in subsequent years - HELD THAT:- We find that the assessee had filed Form No.10 for AY 2010-11 wherein an amount of ₹ 410.84 Lacs has been set-apart for subsequent utilization up-to previous year 2014-15. The same is also evident from assessment order u/s 143(3) dated 27/12/2012. The amount of ₹ 410.84 Lacs has been spread by assessee equally over 5 years in the computation of income. However, if the said amount of ₹ 82.16 Lacs is excluded from Ld. AO’s computations, the assessee was required to spend an amount of ₹ 160.48 Lacs (₹ 91.48 Lacs plus ₹ 68 Lacs) during the year. Out of the same, The assessee has already applied the amount of ₹ 103.43 Lacs during the year towards the objects of the trust and the balance amount has been set aside u/s 11(1)(a) as well as under clause (2) of Explanation (renumbered as Explanation-1 by Finance Act, 2017) to Sec. 11(1) to be spent in immediately next year i.e. 2013-14. Hence, there is no underutilization as alleged by Ld.AO. The conclusion stem from erroneous assumption that the amount of ₹ 82.16 Lacs was to be spent in this year as against the correct fact that the amount was set apart for utilization in next 5 years. AO is directed to rework the assessee’s computation in the light of our above observations and re-determine the amounts to be set apart u/s 11(1)(a) as well as under Clause (2) of Explanation (renumbered as Explanation-1 by Finance Act, 2017) to Sec. 11(1). This ground stands allowed for statistical purposes. We find that the assessee had filed Form No.10 for AY 2010-11 wherein an amount of ₹ 410.84 Lacs has been set-apart for subsequent utilization up-to previous year 2014-15. The same is also evident from assessment order u/s 143(3) dated 27/12/2012. The amount of ₹ 410.84 Lacs has been spread by assessee equally over 5 years in the computation of income. If the said amount of ₹ 82.16 Lacs is excluded from Ld. AO’s computations, the assessee was required to spend an amount of ₹ 160.48 Lacs (₹ 91.48 Lacs plus ₹ 68 Lacs) during the year. Out of the same, The assessee has already applied the amount of ₹ 103.43 Lacs during the year towards the objects of the trust and the balance amount has been set aside u/s 11(1)(a) as well as under clause (2) of Explanation (renumbered as Explanation-1 by Finance Act, 2017) to Sec. 11(1) to be spent in immediately next year i.e. 2013-14. Hence, there is no underutilization as alleged by Ld.AO. The conclusion stem from erroneous assumption that the amount of ₹ 82.16 Lacs was to be spent in this year as against the correct fact that the amount was set apart for utilization in next 5 years. AO is directed to rework the assessee’s computation in the light of our above observations and re-determine the amounts to be set apart u/s 11(1)(a) as well as under Clause (2) of Explanation (renumbered as Explanation-1 by Finance Act, 2017) to Sec. 11(1). This ground stands allowed for statistical purposes. Issues:1. Accumulation to be allowed and wrongly taken as income of the current year.2. Dividend Exempt.Analysis:Issue 1: Accumulation to be allowed and wrongly taken as income of the current year.The appeal contested the order of the Commissioner of Income Tax (Appeals) regarding the accumulation amount of the previous year, wrongly taken as income of the current year. The appellant argued that the accumulation had to be utilized within 5 years as per the law of accumulation under section 11 read with Form No.10. The Tribunal found that the appellant correctly utilized the amount within the statutory period. The Tribunal directed the Assessing Officer to rework the computation based on the correct utilization of the accumulated amount, allowing the ground for statistical purposes.Issue 2: Dividend ExemptThe second issue revolved around the claim of the appellant that dividend income of a certain amount should be exempt from tax. The Assessing Officer denied the exemption, stating that the dividend was earned on property held under trust and was available for income application. The Tribunal referred to previous decisions and held that dividend income being exempt under section 10(34) could not be taxed under sections 11 to 13 of the Act. The Tribunal noted that the amendment restricting this exemption was applicable only from Assessment Year 2015-16, thus ruling in favor of the appellant on this issue.In conclusion, the Tribunal partially allowed the appeal, upholding the appellant's contentions regarding the exemption of dividend income and the correct utilization of the accumulated amount. The order was pronounced on January 4, 2021, by the Appellate Tribunal ITAT Mumbai, with detailed reasoning provided for each issue addressed in the judgment.