TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 1337
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....ct. Subsequently, the case of the assessee was selected for security and notice under section 143(2) of the Act was issued. Details called for were filed by the assessee and after scrutinizing the details filed and after discussion with the AR of the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act on 14.03.2014 determining the total income at Rs..73,94,752/- by rejecting the claim of exemption under section 11 and 12 of the Act as the assessee has violated the provisions of the Act under section 11(5) r.w.s. 13(1)(d) of the Act by investing its funds to the extent of Rs..17,00,000/- in Kumari Chit Fund. 3. On appeal, by considering the submissions of the assessee, but, not accepting the same, the ld. CIT(A) confirmed the order passed by the Assessing Officer. 4. Aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee by strongly relying on the decision in the case of CIT v. Working Women's Forum [2015] 53 taxmann.com 85 (Madras) submitted that only such part of income which was in violative of section 13(1)(d) of the Act can be brought to tax at maximum marginal rate and the entire income of the asses....
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....r this purpose, he relied on the judgment of Bombay High Court in the case of DCIT(E) vs Sheth Mafatlal Gagalbhai Foundation Trust , 249 ITR 533. He also relied on the CBDT Circular No.387 dated 6.4.1984, 152 ITR 1(St.) specifically para 28.6 stating that where 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. He has also relied on the judgment of the Karnataka High court in the case of CIT vs Fr. Mullers Charitable Institutions, 363 ITR 230, for the proposition that whenever there is a violation u/s 11(5), then only income from such investment or deposit which has been made in violation of 11(5) is liable to be taxed and that violation u/s 13(1)(d) does not tantamount to denial of exemption u/s 11 on total income of the assessee. According to the ld. AR, for violating sec. 11(5), the entire income of the assessee-trust cannot be assessed to tax and the assessee is entitled for exemption u/s 11 of the Act. 4. Now, we proceed to examine section 11 which reads as follows: (a) income derived from property held under trust ....
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....shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of June, 1970" ; 6 I.T.A. No.1894/M/15 5. As per sec. 13, the benefit of exemption from income tax is not available if any part of their income or property enures or is, during the previous year, applied, directly or indirectly, for the benefit of the author, founder, substantial contributor or relative aforesaid or for the benefit of any concern in which any such author, founder, substantial contributor or relative has substantial interest. The exemption from tax will be denied only if their income is applied for the benefit of the author, founder etc. otherwise than in compliance with a mandatory term of the trust or a mandatory rule governing the institution. The requirements of sec. 13(1)(c)(ii) is that the trust should apply the funds in a concern in which they themselves are interested, if there was a mandatory provision in the trust deed for such a purpose. Such a mandate in the trust deed sh....
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.... charitable or religious purposes or (ii) in the form of voluntary contribution received by the trust covered by sec. 2(24)(iia), or (iii) the nature referred to in sec. 11(4A). The income of such trust which is not exempt u/s 11 or sec. 12 of the Act shall be charged to tax as if such exempt income is the income of an AOP. The proviso to sec. 164(2) inserted with effect from 1.4.1985 enjoins that where the non-exempt portion of relevant income arises as a consequence of the contravention of the provisions of sec. 13(1)(c) or (d), the said income would be subject to tax at the maximum marginal rate. 8. According to the ld. Representative for the assessee, in view of the judgment of the Karnataka High court in the case of Fr. Mullers Charitable Institutions(supra), the rate applicable as per sec. 112 to be applied. This judgment of Karnataka High Court is delivered in the context of invoking provisions of u/s 263 of the Act and denying benefit u/s 11 of the Act. The High Court adjudicated the issue and observed that the Assessing Officer has taken one possible view that only income from such investment or deposits which has been made in violation of sec. 11(5) is to be taxed and s....