TaxTMI 
TaxTMI 
2012 (8) TMI 422
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.... The return filed by the assessee was processed initially u/s 143(1) of the Act and subsequently, a notice u/s 143(2) was issued to the assessee and in response to the notice issued by the Assessing Officer, the a representative appeared before the Assessing Officer and filed details from time to time. 3. During the course of assessment proceedings, the Assessing Officer has observed that the assessee, a foundation, invested 2 lakh shares at face value of Rs. 10/- per share in the company 'Jagannatha Financial Services Limited' [JFSL]'. The shares of JFSL are not listed in any recognized Stock Exchange. During the financial year2006-07, the company had not commenced its business. The company was issued certificate of registration to commence its business as a non-banking financial company [NBFC] on 2.4.2007. The Assessing Officer further observed that the assessee M/s KAS Foundation invested in shares of a company which is not a public company and hence it is not covered by section 11(5) of the Act and the same was pointed out to the representative who appeared on behalf of the assessee on 24.8.2009 and pointed out that the assessee foundation has violated the provisions of sect....
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....decisions and not to withdraw the exemption granted to us." 4. The Assessing Officer, after considering the above reply of the assessee, has observed that the assessee was also director of JFSL and had substantial interest in the company. Hence the investment was not only a violation u/s 13(1)(d) but also u/s 13(2)(h) r.w.s 13(4) of the Act. The Assessing Officer had asked the assessee to clarify in this aspect. In response to the above, the assessee, vide letter dated 10.12.2009 submitted a reply which is as under: "In this respect we hereby bring to your kind notice that investment in shares of Jagannath Financial Services Ltd. was due inadvertence and lack of awareness of the law on the subject on the part of the company management and it is on account of bona fide error. We hereby inform your goodself that we have already taken fruitful steps in realizing the investment in shares without any loss to the trust. We have entered into agreement for sale of shares on knowing that it is not a permissible investment. We also bring to your kind notice the Delhi High Court in the DIT(E) v. Agrim Charan Foundation [2002] 253 ITR 593 (Del.), where it was held that a bona fide err....
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....served that the assessee has borrowed loan from ICICI Bank @ 14% p.a. No dividend was received from the company on which the assessee made investment of Rs. 20 lakhs whereas JFSL has received a capital of Rs. 20 lakhs without any interest or dividend payment. The assessee-foundation has paid interest @ 12% p.a. on the funds borrowed from the founders. The Assessing Officer further examined the above facts in the light of section 13(1)(d)(iii) of the Act and held that the investments of M/s KAS Foundation in the shares of JFSL, a non-banking financial company whose shares are unlisted and are not covered by the provisions of Rule 17C and accordingly applied section 13(1)(d) of the Act and also further observed that the assessee has violated section 11(5)of the Act. 7. The Assessing Officer further observed at page 7 of the assessment order that the trustees of M/s KAS Foundation, M/s Saratha Kathiresan and K.T. Alamelu Abirami held 500 shares each out of a total of 1000 shares. Smt. Saratha Kathiresan and her family members own 7,23,870 shares out of the total 20,21,620/- shares in M/s JFSL. Dr. V. Prasanna Bhatt, Director, KAS Foundation also held 20,000 shares of JFSL. Hence th....
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....trust are concerned, their business profits are not exempt from tax, except In the cases failing under Cl. (a) or Cl. (b) of Sec. 11(4A) of the IT Act. As the maximum marginal rate of tax under the new proviso to Sec. 164(2) applies to the whole or a part of the relevant Income of a charitable or religious trust which forfeits exemption by virtue of the provisions of the IT Act in regard to Investment pattern or use of the trust! property for the benefit of the settlor etc., contained in Sec. 13(1)(c) and (d) of that Act, the said rate V will not apply to the business profits of such trusts which are otherwise chargeable to tax. In other words, where such a trust contravenes the provisions of Sec. 13(1)(C) or (d) of the Act, the maximum marginal rate of income tax will apply only to that part of the income which has forfeited exemption under the said provisions". In other words, where such a trust contravenes the provisions of Sec. 13(1)(c) or (d) of the Act, the maximum marginal rate of income tax will apply only to that part of the income which has forfeited exemption under the said provisions. A similar view is taken by the Hon'ble Bombay High Court in the light of the abo....
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....ering the facts of the case, simply followed the CBDTs Circular No. 387 dated 6.7.1984 issued by the Board which is not at all relevant to the present case and therefore, the order passes by the ld. CIT(A) has to be reversed. 11. On the other hand, the ld. Counsel for the assessee has submitted that section 13(2)(h) has no application once the assessee borrowed money and invested it. Alternatively, he relied on the decision of the Hon'ble Mumbai High Court in the case of Sheth Mafatlal Gagalbhai Foundation Trust (supra) wherein it has been held that maximum marginal rate of tax under the proviso to section 164(2) is applicable only to that part of income of the trust which has forfeited exemption and not to the entire income. 12. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. The assessee-foundation is a company registered under the Companies Act and accordingly registration u/s 12AA of the Act was granted on 31.5.2004. The main activity of the foundation of the assessee is micro financing to the people residing in rural areas. During the year under consideration, the assessee foundation has borrowed R....
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....le or religious institution, any income thereof, if for any period during the previous year": (i) and (ii)** ** ** (iii) any shares in a company other than A. Shares in a public sector company B.** ** ** C. Shares prescribed as a form or mode of investment under clause (Xii) of sub-section (5) of section 11 are held by the trust or institution after the 30th day of November, 1983." As per the above provision of law, to get exemption u/ss 11 and 12 of the Act, the assessee has to invest the shares in a public sector company as per section 11(5) of the Act. It is an undisputed fact that the assessee neither invested in a public sector company nor as provided u/s 11(5) of the Act. Therefore, it is clear violation of section 13(1)(d)(iii) of the Act. On this count alone, the assessee is not eligible for exemption u/ss 11 and 12 of the Act. In so far as section 13(d)(h) is concerned, the Assessing Officer has already given a specific finding that the investment made by the assessee foundation amounting to 10% [approx.] of the subscribed and paid up capital in M/s JFSL. Therefore, it has also violated section 13(2)....