TaxTMI 
TaxTMI 
2019 (10) TMI 305
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....e that the assessee is a registered charitable 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 unde....
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....t this transaction is hit by section 13(2)(h) of the Act. Finally, the AO held that 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....
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.... even if the teamed AO's contention that the Trust is violative of section 13 is to be accepted, 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 s....
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....s of section 13(1)(d) and 13(2)(h) of the Act as the assessee's trust has made investment in the instruments from where it is deriving income and therefore 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 cer....
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....he details of shares in the company held by each shareholders holding more than 5 % of shares but none of the below shareholder is named as Shri. Ratan N Tata. Name of the shareholders No. of Ordinary shares held 31-Mar-2013 31-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 ....
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.... (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (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 wher....
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.... shares are not held in violation of the section. The CIT(A) specifically noted the assessee's arguments regarding its case being covered by the proviso to section 13(1)(d) in paras 6.2, 6.3 and 6.3.1 of his order, yet the benefit of the proviso was not granted and the findings of the AO were confirmed by relying on the Tribunal order in the case of Jamsesji Tata Trust (supra). 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....
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....was made to the schedule containing disclosure of the shareholders holding more than 5% equity shares of the company and it was pointed out that neither Mr. Ratan N. Tata, nor any other persons referred to in sub-section (3) held more than 5% equity/voting power in any of the four companies. Therefore, the question of holding shares carrying more than 20% voting power in the companies does not arise. In 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....
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....arly specify that the trust cannot hold any funds as investment otherwise than in any one or more of the forms or modes specified in the Section 11(5) of the Income Tax Act. Hence, the AO disallowed exemption u/s 11 and 12 of the Income Tax Act. By investing in shares of Tata Sons Ltd., the assessee has also violated Section 13(2)(h) as Tata Sons Ltd. is an interested party in term of section 13(3)(b) as it has contributed 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 allowan....
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....tion 11(5) r. w. s. 13(1)(d) of the LT. Act is to be charged at maximum marginal rate and the entire exemption u/s 11 or 12 cannot be denied despite the clear and unambiguous language of section 13(1)d) according to which nothing contained in section 11 or 12 shall operate so as to exclude total income of the previous year in the case of a trust for charitable or religious purposes, any income thereof, if the investment is in violation of clause (i) 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....
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.... in favour of the assessee, including those of the Hon'ble Bombay High Court in the case of DIT vs. Sheth Mafatlal Gagalbhai Foundation Trust (249 ITR 533) (2001) (Bom) and in the case of CIT vs. Audyogik Shikshan Mandal (261 Taxman 12) (2019) (Bom). The limited issue in that case was whether the objects of that Trust were charitable or not and whether the person to whom a loan was granted in that case, was a person covered under section 13(3) of the Act or not. 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 cl....
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....venue to the Supreme Court and its SLP was dismissed on 19th September, 2014 Fr. Mullers Charitable Institutions (supra)." 21. In view of the above I am of the view even on alternative also the exemption under section 11 of the Act is not to he denied to the entire income of the assessee. However, I have held that the assessee in the present case has not violated any part of section 13 of the Act. Hence, this issue of revenue's appeal is dismissed. 22. The second issue 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 ....
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....me Court in appeal in the case of MIDC(SLP (Civil) 9891 of 2014 dated and in Civil Appeal No. 7186 of 2014 dated December 13,2017 in the case of CIT-III Pune v. Rajasthan And Gujarat Charitable Foundation Poona and others various assessee`s including MIDC (copy of order filed).The learned counsel for the assessee also submitted that similar view was taken in the case of CIT v. Subros Education Society [2018] 7 Supreme Court Cases 548. Therefore, following the ratio of above decision, we held the Ld. 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....