2023 (11) TMI 80 - AT - Income Tax

Trust Exemption Under IT Act Section 11 Upheld; Partial Taxation on Investment Violations Confirmed for 2014-15.

The HC upheld the CIT(A)'s decision allowing the trust exemption under Section 11 of the IT Act for the assessment year 2014-15, despite the revenue's ... Assessment of trust - Benefit of exemption u/s 11 - investment made in Prakash hospital - As contended that the entire investment has been received back by the trust, therefore, no benefit is derived by Prakash Hospital Private Limited - CIT(A) allowing benefit of exemption to assessee - HELD THAT:- CIT(A) was of the opinion that even if the entire investment has been received back by the assessee the fund which was utilized by Prakash Hospital Private Limited saved interest in as much as if the assessee trust had not given the loan fund Prakash Hospitals would have borrowed the loan and paid interest thereon. The appellant has worked out interest @ 12% over the fund utilized by the hospital - The above findings of the CIT(A) are in line with the relevant provisions of the Act, therefore, called for no interference. Denial of benefit of exemption claimed u/s. 11 - HELD THAT:- We are of the considered view that any violation u/s. 13 does not result in denial of exemption u/s. 11 of the Act to the total income of the assessee meaning thereby that only that income is denied exemption which is in violation of section 13 of the Act. For this proposition we draw support from case of Mullers Charitable Institutions [2014 (2) TMI 1033 - KARNATAKA HIGH COURT] wherein as held that “it is only the income from such investment or deposit which has been made in violation of Section 11(5) of the Act that is liable to be taxed”. Revenue appeal dismissed. Issues involved:The issues involved in this case are:1. Whether the CIT(A) was justified in allowing benefit of exemption u/s 11 of the IT Act to the assessee when the activities carried out by the society were not found to be covered by any limb of charitable purpose as defined in section 2(15) of the IT Act, 1961.2. Whether the allowability of exemption and violation of prescribed Law can coexist as the assessee was found to be engaged in activities that vitiate the sanctity of trust.Issue 1: Benefit of exemption u/s 11 of the IT Act:The assessee, a trust registered u/s. 12AA of the Act, was engaged in providing Medical Relief, Education, Training, and running a medical college. The revenue challenged the benefit of exemption claimed u/s 11 of the Act for the assessment year 2014-15. The CIT(A) held that any violation u/s. 13 does not result in denial of exemption u/s. 11 of the Act to the total income of the assessee. Only income in violation of section 13 is denied exemption. Citing the decision of the Hon'ble Karnataka High Court in Mullers Charitable Institutions, it was established that only income from investments made in violation of Section 11(5) is liable to be taxed. Consequently, the deletion of the addition of Rs. 2,16,06,656/- was upheld, and the appeal by the revenue was dismissed.Issue 2: Investment and denial of exemption:The assessment for the year 2014-15 resulted in an assessed income of Rs. 556,06,660/-, with additions made on account of investments in Prakash hospital and denial of exemption claimed u/s 11 of the Act. The CIT(A) upheld the addition related to the investment by stating that even if the investment had been received back by the assessee, the fund utilized by Prakash Hospital Private Limited saved interest, which would have been paid if the hospital had borrowed the funds. The interest was calculated at 12% over the fund utilized by the hospital, resulting in a total interest of Rs. 41,88,312/- to be taxed at the Maximum Marginal Rate without exemption. The remaining amount was to be taxed for the subsequent year. The CIT(A) found the AO's action partly correct and partly allowed the appellant's ground of appeal. The findings were deemed in line with the relevant provisions of the Act, and no interference was warranted.Separate Judgment by the Judges:The order was pronounced by N. K. Billaiya, Accountant Member, and the appeal by the revenue was dismissed based on the above considerations.