TaxTMI 
TaxTMI 
2019 (10) TMI 305
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.... trust with DIT(Exemptions), Mumbai under section 12A of the Act vide registration No. TRT 240 dated 28.09.1975. The assessee trust filed its return of income for the relevant AY 2012-13 on 20.09.2012 along with Income and Expenditure Account, Balance Sheet and Audit Report in Form No. 10B. During the course of assessment proceedings, the AO noted that the assessee has received dividend from the shares/ units in the following investment: - Investment No. of shares/ units Amount of investment (Rs.) Dividend received (Rs.) Tata sons Ltd. 16,200 6,75,000 12,96,00,000 Tata Chemicals Ltd. 46,999 1,53,076 4,66,990 Tata Power Co. Ltd. 14,520 15,346 16,500 Tata Motors Ltd. 1,26,336 97,389 4,21,120 CRTs Units of UTI 75,000 85,15,900 4,81,332 Total 94,56,711 13,09,85,942 This income of Rs. 13,05,04,610/- earned as dividend income from above four companies was claimed as exempt u/s 10(34) of the Act by the assessee. The assessee also earned dividend income of Rs. 4,81,332/- from the units of Unit Trust of India held by it, which was claimed as exempt under section 10(35) of the Act. Further, the assessee received interest income an....
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....hat the assessee has violated the provisions of section 13(1)(d) and 13(2)(h) of the Act. Hence, income from these investments is taxable and nothing contains in section 11 or 12 of the Act shall operate, not to include in the total income of the previous year of the assessee. Aggrieved, assessee preferred the appeal before CIT(A). 4. The CIT(A) held that the assessee has violated the provisions of section 13(1)(d) and 13(2)(h) of the Act and denied the claim of exemption under section 11 and 12 of the Act by observing in para 6.3 to 6.3.4 as under: - "6.3 I have considered the facts of the case and also submissions made by the appellant. The assessee is a charitable trust. During the year the AO observed that the assessee had shown investment in 2,04,055/- ordinary shares of TATA Sons Ltd. and other TATA group companies from which it has received dividend of Rs. 13,05,04,610/-. This implies that the assessee had invested in prohibited mode of investment as per the provision of Section 13(I)(d) of the Income Tax Act, 1961. The assessee was specifically asked by the AO vide order sheet noting dated 11.05.2015 as to why the provisions of Section 13(I)(d)(i) should not be invoked a....
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....ted, only income from the prohibited investments i.e. dividend income in this case should be denied the exemption benefits under section 11 of the Act. Furthermore, the appellant has relied on decision of the Hon'ble Supreme Court in the case of Director of Income Tax, Chennai vs Working 6.3.2. I consider the appellant submission and facts of the case, On identical issues in the case of a TATA Group trust viz. Jamsetji Tata Trust (JTT), the JTT had filed appeal against the order of CIT(A) for assessment year 2010-11 before the Hon'ble ITAT Mumbai in ITA No. 7006/Mum/2013 order dated 26.03.2014, where it was held by the Hon'ble Tribunal that "8.4 Following the above decision we hold that the brooch of section 130(d) and 23(2)(h) would lead to forfeiture of exemption of income derived from such investment and not the entire income would be subjected to maximum marginal rate of tax u/s. 164(2). Thus the exemption u/s 11 is available to the assessee Only on the income to the extent the same is derived in conformity of section 11 and applied during the yea' for such purpose of charitable trust.' 6.3.3 Thus, as per the above decision of the Hon'ble ITAT in a group c....
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....these provisions would lead to forfeiture of exemption of income derived from such investment. Even, this year the dividend income received from shares of Tata Sons Limited and other Tata Group of Companies is clearly hit by the provisions of section 13(1)(d) and 13(2)(h) of the Act. I noted the fact that the assessee's trust held investment in the following shares during the year under consideration: - Name of the company Number of shares Tata Motors Limtied - Quoted Shares 1,05,280 Tata Power Limited- Quoted Shares 13,200 Tata Chemicals Limited -Quoted Shares 46,699 Tata Sons Limited -Unquoted shares 16,200 6. The fact stated was that the investment in these shares have been made period prior to the year 01.06.1973 and the assessee's trust fulfill the condition as mentioned in the proviso (i) and (ia) to section 13(1)(d)(iii) of the Act. The learned Counsel for the assessee now drew our attention to the provisions of section 13 (1) of the Act as under: - "Section 11 not to apply in certain cases. 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-....
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....Mar-2012 Sir Dorabji Tata Trust 1,13,067 1,13,067 Sir Ratan Tata Trust 95,211 95,211 Sterling Investment Corporation Private Limited 37,122 37,122 Cyrus Investments Private Limited 37,122 37,122 No of CRPS held Name of the Shareholders 31-Mar-2013 31-Mar-2012 Jamsetji Tata Trust 2,45,00,000 2,45,00,000 Navajbai Ratan Tata Trust 1,50,15,000 1,50,15,000 8. Similarly, the learned Counsel took us through the 67th Annual Report of Tata Motors for the FY 2011-12, wherein the details of shareholding is given from where noted that Shri Ratan Tata is not the investor. Similarly, the learned Counsel for the assessee drew our attention to the 93rd Annual Report of Tata Computer Company for FY 2011-12, wherein top ten shareholders of the Tata Computer Company as on 31.03.2012 is given. In this year also, there is no one in the name of Shri Ratan N Tata. The assessee has also filed the details of Tata Chemicals Limited statement showing the share of shareholders etc. in the category of promoters and promoters group but there is no Shri Ratan N Tata or the assessee of the Trust. I noted that the assessee has submitted various details and the tr....
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....ger (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. 10. The learned counsel for the assessee stated Shri Ratan N. Tata is not the founder of the Tata Sons, whereas founder was Jamshedji Tata. He was chairman of Tata Sons Limited from 1991 to 2012 and after 28.12.2012, he holds the position of chairman of emirates of the group which is honorary and advisory positions no doubt that Shri Ratan N Tata was one of the trustees of the assessee's trust. The learned Counsel for the assessee also drew our attention to the details of investments made by the trust along with year of acquisition, from where it is noted that the investments have been made prior to 1973 and hence, the same along with bonus shares issued therein are permissible of investments as per the clause (i) and (ia) of the proviso of section 13(1)(d)(iii) of the Act. It is also a fact that one of the trustee does not hold substantial interest of 20% or more in any of the companies where the trustees has inv....
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....a). In this regard, it is submitted that the dispute in the case of Jamsetji Tata Trust (supra) was limited to the application of the main part of section 13(i)(d) and the question of the applicability of the proviso was not raised therein as admittedly the benefit of the proviso was not available to that Trust. This was for the reason that the shares held by that Trusts were received by it after 1st June, 1973. As a matter of fact, Jamsetji Tata Trust itself was settled in the year 1974, therefore, the question of receiving any shares prior to 1st June, 1973 did not arise in the facts of that case. Accordingly, the CIT(A) erred in relying on the decision of Jamseiji Tata Trust (supra) to come to the conclusion that the proviso to section 13(1)(d) is inapplicable. In light of the above, I am of the firm view that the assessee's shareholding in the four companies is not in violation of section 13(1)(d) of the Act. 12. The AO alleged that the assessee's shareholding in the four companies is also in violation of section 13(2)(h) of the Act. The AO observed that Mr. Ratan N. Tata, who is one of the Trustees of the assessee was also the chairman of Tata Sons Ltd in the relevant....
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.... light of the above, I am of the view that being a chairman in a company does not amount to holding a 'substantial interest' therein in terms of the clear mandate of Explanation 3 to section 13 of the Act. Hence, I am of the view that the assessee has not violated the provision of section 13(2)(h) of the Act and hence, on both grounds assessee succeeds. 14. The next issue raised by assessee is as regards to the order of CIT(A) confirming the action of AO in holding that assessee trust has violated section 13(3)(b) of the Act. Assessee raised the following additional ground: - "3. On the facts and under the circumstances of the case and in law, the learned Commissioner of income-tax (appeals) [CIT(A)] erred in upholding the factually incorrect finding of income tax officer (exemptions)-2(4) ('the learned AO') that Tata Sons Ltd ('TSL") has made a contribution of more than Rs. 50,000 to the Appellant trust and hence, is a person referred to in clause (b) of sub-section (3) of section 13 of the Income-tax Act, 1961." 15. As regards to admissibility of additional ground, Ld Counsel argued that this additional ground is raised under Rule 11 of the Income-tax (Appellate Tribu....
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.... to assessee trust more than Rs. 50.000/-. In view of the above, the AO disallowed exemption u/s 11 on dividend income of Its. 4,81,332/- and Rs. 13,05,04,610/-. The income of the assessee was charged at Maximum Marginal Rate u/s 164(2) of the Income Tax Act." 17. I noted that this finding is factually incorrect. Tata Sons Ltd. has not made any contribution to the assessee, let alone contributing a sum in excess of Rs. 50,000/-. In the course of the assessment proceedings, no question was ever asked nor was any detail called for in this regard by the AO. Hence, I am of the view that this observation is factually incorrect and reversed. This additional ground is decided in favour of assessee. 18. The first issue in the appeal of Revenue is against the allowances of exemption under section 10(34) and 10(38) of the Act. The CIT(A) allowed the claim of the assessee in respect of claim of exemption of dividend income on mutual funds and long term capital gain on sale of shares under section 10(34) and 10(38) of the Act respectively amounting to Rs. 4,81,352/- i.e. dividend of units only by following the decision of Hon'ble Bombay High Court in the case of Director of Income-tax (Exemp....
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.... to (iii) of section I 1(I)(d).. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in applying the ratio laid down by the Hon'ble Supreme Court in the case of Director of Income Tax, Chennai Vs. Working Women's Forum 12015163 ta.xmann.com 324 (SC) in which the SLP of the department was rejected whereas the Hon tie Apex Court has already held in Bharat Diamond Bourse reported in 259 ITR 280 (SC) that the benefits under section 11 and 12 of the IT Act would be denied totally in the event of any violation of section 13 of the I.T. Act." 19. I have heard rival contentions on this issue. I noted that the AO opined that once the shareholding of the assessee in the four companies is held to be in violation of section 13 of the Act, then, the entire income of the assessee becomes taxable at the maximum marginal rate under section 164 of the Act. According to the AO, in such cases the assessee cannot claim exemption under section 11 of the Act for any income, irrespective of whether such other income has any nexus with the allegedly violative investments or not. Accordingly, it was held that even the interest income of Rs. 3,06,62,484/- ....
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....t. As a matter of fact, the Hon'ble Bombay High Court has specifically dealt with the department's reliance on Bharat Diamond Bourse (supra) in its judgment in the case of Audyogik Shikshan Mandal (supra) and held that this judgment does not deal with the issue of limited versus complete denial of exemption under section 11 of the Act. The relevant observations of the High Court in Audyogik Shikshan Mandal (supra) are extracted hereunder: "7.We find that the impugned order of the Tribunal has placed reliance upon the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra), after having noted that the the decision of the Supreme Court in Bharat Diamond Bourse (supra) does not very clearly specify whether it is only the income diverted as loans to a person specified under Section 13 of the Act, which was denied the benefit of Section 11 of the Act or the entire income was denied the benefit of exemption under Sect ion 11 of the Act. We have closely read the decision of the Apex Court in Bharat Diamond Bourse (supra) and it does not extend the benefit of Section 11 of the Act to the Trust. However, it is not clear whether it is only to the extent ....
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....ssue in this appeal of Revenue is as regards to the allowance of carry forward deficit on account of excess expenditure while granting benefit under of section 11 of the Act by the CIT(A). For this Revenue has raised the following ground No. 3, 4 and 5: - "3. Whether, on the facts of the case and in law, the Ld. CIT(A) erred in allowing the carry forward of deficit of Rs. 11,06,82,874/-, and directing the Assessing Officer to allow carry forward of deficit on account of excess expenditure without appreciating the fact that this would have the effect of granting double benefit to the assessee, first as 'accumulation' of income u/s. 11(1)(a) or as corpus donation u/s 11(1)(d) in earlier years/current year and then as 'application' of income u/s 11(l)a in the subsequent years which was legally not permissible.? 4. Whether, on the facts of the case and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit by relying upon the judgment of Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection, ignoring the fact that the Department has not accepted the sai....
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....CIT (A) has rightly allowed the appeal of the assessee, therefore, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Accordingly, the appeal of the revenue on all the above grounds of appeal are therefore, dismissed." 24. I noted that this issue of denial of carry forward of deficit is covered. I noted facts that during the financial year the relevant income of the assessee which entered the computation under section 11 of the Act and which was to be applied to charitable objects of the Trust was Rs. 2,56,74,090/-, whereas the actual income which was applied by the assessee towards its charitable objects was Rs. 13,63,56,964/-. Therefore, in this year, the assessee applied all sum of Rs. 11,06,82,874/- towards its charitable objects. This excess application or deficit was sought to be carried forward by the assessee to the subsequent years. The same was denied by the AO in his assessment order. But the CIT(A) reversed the findings of the AO and allowed the claim of carry forward of such deficit by relying on several judgments, including those of the Hon'ble Bombay II High Court in the case of Ratan Tata Trust (ITA 158912014) (2017) (Bom) and in....