2017 (3) TMI 1476

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....of Rs. 39,22,560/- made by AO on account of denial of benefits of exemption under s.10(23B) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). 3. Briefly stated, the assessee-trust is engaged in the business of manufacturing and marketing of Khadi and allied products. The assessee-trust filed its return of income declaring its income at Rs.NIL. The assessment was completed under s.143(3) of the Act by the AO. The AO observed that interest earned Rs. 39,22,559/- on investments of surplus funds lying in bank Fixed Deposits and Sardar Sarovar Narmada Nigam Ltd. (SSNNL) bonds etc. is not entitled to benefit under s.10(23B) of the Act. The AO treated the interest income as 'income from other sources' and held that the interes....

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....tributable to business of production, sale or marketing of khadi and allied products in terms of section 10(23B) of the Act.. We note the relevant findings of the Coordinate Bench of ITAT in assessee's own case in ITA No.100/Rjt/2008 for AY 2004-05 order dated 19/03/2010 on the issue which reads as under:- "8. We have duly considered the contentions of the A.O. and of the CIT(A)-1, Rajkot and also the argument of the learned DR and the A.R. of the assessee and the paper book filed by the Assessee. We observe the following facts: That the assessee is solely engaged in the business of the manufacturing and marketing of Khadi and allied products is not in dispute; That the assessee applies/accumulates its income for ....

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....sions of sec-35 of the Bombay Public Trust Act which specifically requires the trustees to invest surplus funds in prescribed securities. We are also of the opinion that sec-10(23B) having been brought into the statute to encourage the Khadi and related activities of the concerned institution as such (as explained by the Board in its Circular cited Supra) coupled with the fact that the phrase "attributable to" having been used in the aid section, a wider interpretation is called for especially when the fundamental fact that the assessee if applying the said income solely for the purpose specified in sec-10(23B) is not under dispute. We also note that the provisions under which relief is claimed by the assessee is part of exemption provision....