2017 (1) TMI 935

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....r public good and do all other public welfare activities from time to time as decided by the trustees. Return declaring nil income after claiming exemption u/s 11 was filed on 01.10.2012. The AO in the course of assessment proceedings observed that assessee has advanced Rs. 17,76,000/- to Smt. Madhu Adukia and Rs. 22,16,000/- to M/s Rajkala Industries Pvt. Ltd., Smt. Madhu Adukia is the trustee in the assessee trust and w/o Shri Ajit Kumar Adukia , the settler of the trust. She is also one of the director of M/s Rajkala Industries Pvt. Ltd. Accordingly, the AO, vide show cause notice dated 05.03.2015 required the assessee to show cause as to why it should not be deemed that income of the trust has been applied for the benefit of prohibited category of persons referred u/s 13(2)(a). In response to same, the assessee submitted its reply vide letter dated 23.03.2015 which is reproduced at page 3 to 6 of the assessment order. Not accepting the assessee's submission, the AO disallowed the assessee's claim of exemption u/s 11 and held that the income amounting to Rs. 1,46,09,448/- as the assessee's total income chargeable to tax at maximum marginal rate by giving the following findings: ....

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....ssessee to M/s Rajkala Industries Pvt. Ltd. in last year i.e. A.Y. 2011-12. This advance was treated by the lower authorities as a loan in violation of section 13(1)(c) of the IT Act. However, the Hon'ble ITAT vide order dated 28.04.2016 in ITA No. 140/JP/15 and page 12 & 13 of the order held as under: "Respectfully following the above decisions, it is held that were there is violation of section 13, the entire income of the trust is not chargeable to tax at maximum marginal rate and it is only that income which has violated section 13 which shall suffer maximum marginal rate as per proviso to section 164(2) of the Act. Further the appellant has submitted that the amount of Rs. 20,00,000/- with interest of Rs. 2,16,000/- i.e. Rs. 22,16,000/- was received back by the trust and the interest income of Rs. 2,16,000/- offered in the return for A.Y. 2012-13 and there is no income generated on amount of Rs. 20,00,000/- advanced to M/s Rajkala Industries Pt. Ltd. during the year. There is nothing on record to controvert the said submissions of the appellant. Thus, there is no income during the year which can be brought to tax at maximum marginal rate in the hands of the trust in a scen....

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.... to provide her premises and she agreed to the proposal. Accordingly an advance of Rs. 10 lacs was given to Smt. Madhu Adukia for construction of class room on her premises which was given by her free of charge to the assessee. The advance was given with an understanding that the same will be repaid and it was repaid by Smt. Madhu Adukia in F.Y. 2012-13. Thus, the advance so given was for the object of the trust and not for any benefit to the trustee or an investment/deposit otherwise than the modes prescribed u/s 11(5). Therefore there is no violation of section 13(1)(c)/13(1)(d) of the Act. 2.5 The ld AR further submitted that Sec. 164 deals with the charge of tax where the shares of the beneficiary is unknown. Section 164(2) deals with the charge of tax on the income of the trust which is derived by it from the property held wholly for charitable or religious purpose. The proviso to this section which is relevant for the present purpose reads as under: "Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax sh....

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.... dated 5.11.2014. * Jamsetji Tata Trust vs. JDIT (Exemption)(2014) 101 DTR 305/148 ITD 388 (Mum.)(Trib.) 2.6 The ld. DR is heard who has vehemently argued the matter and submitted that there is clear violation of provisions of section 13(3) of the Act deserving disallowance of exemption claimed by the assessee u/s 11(1)(d) of the Act. The Ld. DR further submitted that in respect of advance of Rs. 17,76,269/- to Smt. Madhu Adukia who is trustee in the assessee trust, the matter is not identical to the facts before the Hon'ble ITAT in A.Y.2011-12 and therefore, the same needs to be decided afresh. 2.7 We have heard the rival contentions and perused the material available on record. The Co-ordinate Bench in assessee's own case in A.Y 2011-12 has examined the matter at length and held that where there is a violation of section 13, the entire income of the trust is not chargeable to tax at maximum marginal rate and it is only that income which has violated section 13 which shall suffer taxation at maximum marginal rate as per proviso to section 164(2) of the Act. No subsequent authority has been brought to the notice of the Bench which lays down a different proposition in law. Hence....