AI Drafter 
TaxTMI 
TaxTMI 
2018 (5) TMI 630
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.... 13(1)(c) read with section 13(2)(a) and section 13(1)(d) and that too disregarding the Hon'ble Tribunal's decision in appellant's own case and has further erred in giving direction to Ld. AO to rework the taxable income of the appellant." 2. Brief facts of the case are as under: Assessee filed its return of income for year under consideration on 31/10/07 declaring nil income. Assessee claimed income of the trust exempt under section 11 of the Act amounting to Rs. 9,39, 04, 141/-. The case was processed under section 143 (1) of the Act and statutory notices were issued to assessee, in response to which representatives of the assessee appeared before Ld. AO. 3. Assessee was granted exemption under section 10 (23C) (vi) for assessment years 2005-06 to 2007-08 vide order dated 26.02.2007 which was withdrawn vide order dated 19.09.08 in terms of violation of 13th proviso to sub section 23 of section 10 of the income tax Act, as assessee had advanced loan of Rs. 1,54,50,00,000/- to another trust namely Hare Krishna Dharmarth Trust which was as per revenue was not specified form of investment or deposit as per section 11 (5) of the Act. 4. During assessment proceedings, Asses....
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....anations - 2 are applicable only to clause (a) or clause (b) of section 11(1) of the Act. Ld. Counsel submitted that loan advanced to other trust was covered under section 11(1)(d) of the Act being, income in the form of voluntary contributions made with specific directions, that they shall form part of the corpus of the other trust. He further submitted that trust to which the loan was advanced, was engaged in running of engineering College and was registered trust under section 12 A. 10. He placed reliance upon following decisions wherein it has been held that loan given by a trust constitutes application of income in furtherance of objects of the assessee trust and the same cannot be treated as investment or deposit in view of provisions of section 13(1)(d) of the Act. Reliance is placed on following judgments :- "1. Alarippu vs. ITO 60 ITD 478(Del) 2. Director of Income-tax (Exemption) vs. Alarippu 224 ITR 358 (Del) 3. Income-tax Officer vs. Devanga Educational Association 8 ITD 490 ITAT (Madras) 4. ITO vs. Ramlalji Dhapidevi Golchha Charity Trust 42 ITD 312 ITAT (Calcutta) 5. Director of Income Tax (Exemption) vs. Acme Educationa....
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....he issues that arises out of the impugned order is as under: "Whether there is any violation of Sec.11(5) of the Act? Whether violation of section 11(5) read with section 13(1)(c) or 13(1)(d) results in denial of exemption under section 11 & 10(23C). Whether violation of section 11(5), read with section 13(1)(d), by assessee trust attracts maximum marginal rate of tax on the entire income of the trust". 15. In the present context, the provisions of sections 13(1)(c), 13(1)(d) and 13(2) of the Act, are relevant. The same are discussed as follows : Provisions of sections 13(1)(c) of the Act, for the sake of ready reference, the relevant part of section 13(1)(c) of the Act, is reproduced as follows : "13. ................... (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the t....
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....a State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both the principle whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; (vii) investment or deposit in any 6 public sector company]; (viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long- term finance for industrial development in India and which is approved by the Central Government for the purposes of clause (viii) of sub- section (1) of section 36; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long- term finance for construction or purchase of houses in India for residential purposes and which is approved by the Central Government for the purposes of clause (viii) of sub- section (1) of section 36; (x) investment in immovable property. Explanation.-" Immovable property" does not include any machinery or plant (other than machinery or plant installed in a building for the convenien....
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....income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub- section (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate re....
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.... the non-exempt income, in view of the provisions of section 13(1)(c) / 13(1)(d) would fall in the tax-net and the other income of the charitable trust / institution would remain exempt under the provisions of section 11 of the Act. 20. Now coming to the decisions relied upon by Ld. counsel, we shall deal with the decision as under: CIT Vs Fr.Mullers Charitable Institutions [2014] 363 ITR 230 (Karn) In this case, the assessee, a charitable trust, for the AYs 2000-01 and 2001-02 claimed exemption under section 11. The AO noticed that the assessee had advanced a sum of Rs. 30 lakhs during the AY 2000-01 and a sum of Rs. 50 lakhs during the AY 2001-02, respectively, to a company which was running a Kannada daily. According to the AO, advancing of such a huge amount was in violation of section 11(5). Further, as per section 13(1)(d), the trust shall not be entitled for exemption under sections 11 and 12 of the Act. Accordingly, the AO assessed the aforesaid advances to tax. However, the CIT was of the opinion that in view of violation of section 11(5), the entire income of trust ought to have been assessed, as the trust was not entitled to any exemption under sections 11 and 1....
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.... Foundation Trust [2001] 249 ITR 533 (Bom). 23. In this case, according to the AO, on account of violation of section 11(5) of the Act, the assessee forfeited exemption under section 11, in respect of its entire income, viz. dividend income plus interest income, whereas according to the assessee, they were entitled to claim exemption and they were entitled to continuance of exemption in respect of interest income, though they had forfeited the right to claim exemption vis-a-vis the dividend income, as the assesses continued to hold the shares in a non-Government company even after 31.3.1993. On appeal, the CIT(A) came to the conclusion that the assessee was not entitled to the benefit of exemption under section 11, in respect of the entire income. On further appeal, the Tribunal came to the conclusion that in view of section 164(1), the income receivable by the trust was the relevant income. That a portion of such relevant income only would suffer tax because of the violation of the condition of investment prescribed under section 11(5). The Tribunal found that non-fulfilment of such condition could not deprive the trust of the exemption of its other income, which had been grant....
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....ximum marginal rate of tax only to that part of income, which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax. This interpretation is also supported by Circular No.387, dt.8.7.1984 [152 ITR (St)1]. It was also held that in law, there is a vital difference between eligibility for exemption and withdrawal of exemption / forfeiture of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. 25. In the circumstances, it was held that there was merit in the contention of the assessee that in the present case, the maximum marginal rate of tax would apply only to the dividend income from shares in Mafatlal Industries Ltd and not to the entire income. Accordingly, the aforesaid question was answered in the negative, that is, in favour of the assessee and against the Department. It is, therefore, clearly established that the Bombay High Court approved the judgement of the Tribunal to the effect that non-fulfilment of condition of investment prescribed under section 11(5) of the Act, could not deprive the trust of the exemption of its other income, which had bee....