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2020 (9) TMI 458
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....essee without appreciating the fact that assessee trust has provided undue benefit in lieu of salary and allowances to the persons specified u/s 13(3) of the Act and thus provisions of section 13(1)(c)(ii) r.w.s. 13(2)(g) of the Act were clearly attracted in this case. 2. On the facts and circumstances of the case and in law the ld. CIT(A) erred in allowing exemption u/s 11 of the Act to the assessee without appreciating the fact that assessee trust has made interest free advances against the provision of section 11(5) and thus provisions of section 13(1)(d) r.w.s. 13(2)(g) of the Act were clearly attracted in this case. 3. On the facts and circumstances of the case and in law the ld. CIT(A) erred in not applying the provisions of section 164(2) of the Act notwithstanding the fact that the benefit of exemption of section 11 was disallowed by the AO on account of violation of provisions of section 13(1)(c) and 13(1)(d) r.w.s. 13(2) & 13(3) of the Act. 4. On the facts and circumstances of the case and in law the ld. CIT(A) erred in allowing travelling expenses, staff expenses, staff welfare expenses, social welfare expenses and student welfare expenses to t....
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....me Tax vs Bharat Diamond Bourse (2013) 126 Taxman 365 (SC). 2. Director of Income Tax (Exemption) vs Charanjiv Charitable Trust 92014) 43 Taxmann.com 300 (Delhi High Cour) 3. CIT-II, Lucknow vs Audh Educational Society (2011) 13 Taxmann.com 235 (Allahabad High Court) 4. CIT vs Gurukul Ghatkeswar Trust (2011) 13 Taxmann.com 68 (Andhra Pradesh High Court) 5. Hyderabad Stock Exchange Ltd vs ADIT(Exemptions) (2011) 10 taxmann.com132 (ITAT Hyderabad Bench 'B') 6. DDIT (Exemptions)-1, Chennai vs India Cements Educational Society (2016) 67 Taxmann.com 236 (ITAT Chennai Bench 'C') 7. Little Flower Educational Society vs ITO, Company Ward-1, Coimbatore (2016) 71 taxman.com 153, ITAT Chennai Bench'A' 8. Free Trade Union Multipurpose Project Trust vs ITO (Exemptions)-1(3), Mumbai (2018) 95 taxmann.com 297, ITAT Mumabi Bench 'F' 9. Little Tradition vs DDIT (Exemption), Trust Circle- IV,New Delhi (2009) 119 ITD 127 (ITAT Delhi Bench 'B') 10. LD. CIT vs Fr. Mullers Charitable Institutions (2014) 44 Taxmann.com 275 [Kerala High Court - relied upon by ld. CIT(A)] 2.8 On the contrary, the ld.AR appearing on behalf o....
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....to one issue as to the applicability of section 164(2) vis-à-vis denial of exemption u/s 11, all these grounds are dealt together. Submission:- 1. The only issue in the grounds taken by the department is where there is a violation of section 13(1)(c) or 13(1)(d), whether the exemption u/s 11 or 12 is to be denied in toto or whether the only relevant part of the income is charged to be tax u/s 11 of the Act in view of section 164(2) of the Act. 2. From the factsstated above it can be noted that the AO has denied the exemption u/s 11 of the Act on account of alleged unreasonable payments of salary and allowances to the persons covered u/s 13(3), thereby violating section 13(1)(c) and investment of funds in the mode other than that specified u/s 11(5), thereby violating section 13(1)(b). It may be noted that the salary/ allowance paid to the persons specified u/s 13(3) is reasonable as held by CIT(A) considering the qualification and the duties performed by these persons as discussed in Para 5.2 & 5.3 of the order.The disallowance so deleted by the Ld. CIT(A) as such has not been challenged by the department. Thus, there is no violation of section 13(....
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....pecified u/s 13(3) out of the income of the trust is chargeable to tax at MMR. Hence, the action of AO in taxing the surplus at maximum marginal rate without considering the provisions of section 11 & 12 is bad in law. 2.9 The ld.AR of the assessee relied on the following decisions:- 1. DIT vs Working Women's Forum 235 Taxman 516 (SC). 2. CIT vs Fr. Mullers Charitable Institution 227 Taxman 369 (SC) 3. DIT(E) vs Sheth Mafatlal Gagalbhjai Foundation Trust , 249 ITR 533 (Bombay High Court) 4. DCIT(E) vs Mahatma Gandhi Charitable Society for Education and Research (ITA No. 359/JP/2019 date of order 23-01-2020 ITAT Jaipur Bench) 5. Global Institute of Technology Society vs DCIT(E) (ITA No. 1066/JP/2018 date of order 5-11-2018 ITAT Jaipur Bench) 6. M/s. Rajkala Charitable Trust vs ACIT (ITA No.140/JP/2015 date of order 28-04-2016 ITAT Jaipur Bench) 7. CIT vs Rajasthan & Gujarat Foundation , 402 ITR 441 (SC) 2.10 We have heard the ld. counsels for both the parties and we have perused the materials available on record, deliberated and through every judgement cited by the parties as well as the orders passed by the Revenue auth....
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....f the relevant income at the maximum marginal rate (MMR). Therefore, in case there is violation of sec.13 of the Act then the entire income of the trust is not liable to tax at MMR, but only the relevant part of the income which violates sec.13 attracts the MMR. In the present case, even if it is held that there is violation of sec.13, then only the amount of benefit given to the persons specified u/s 13(3) out of the income of the trust is chargeable to tax at MMR. Hence, the action of AO in taxing the surplus at maximum marginal rate without considering the provisions of section 11 & 12 is bad in law. For reaching the above conclusion, we also draw the strength from the following decisions. (1) DCIT Vs. Working Women's Forum (2015) 235 Taxman 516 (SC) :-Assessee was a trust registered under section 12AA and was providing employment to poor women, assisting weaker sections of the society for personal development, maintaining destitute homes, rehabilitation of victim of national calamities, etc. It invested a sum of Rs. 20,000 in the share of MIOT Hospitals Ltd. AO denied the exemption u/s 11 and 12 on ground that since section 13(1)(d) recognizes investment only in specif....
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....ng a Kannada daily known as "Janavahini. In the balance sheet of the respondent- trust, the said amounts were mentioned under the head known as "loans and advances". The Charitable Institution, advancing loan amount to M/s JanamadhyamaPrakashana Limited and obtaining exemption in payment of income tax is in violation of Section 11(5) of the Act. As per Section 13(1)(a), income of the trust shall not be entitled for exemption under sections 11and 12 of the Act. Accordingly, the Assessing Officer assessed the advance made to M/s. JanamadhyamaPrakashana Limited for tax. Being aggrieved by the said assessment order, the respondent assessee preferred an appeal before the Commissioner of Income Tax. The Commissioner of Income Tax, after verification of the records of the Assessing Officer found that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Accordingly, he initiated the proceedings under section 263 of the Act. The Commissioner was of the opinion that in view of violation of Section 11(5), the entire income of the respondent-trust ought to have been assessed and they are not entitled for any exemption under Sections 11 and 12 o....
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....ay of comparison. Under s. 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the legislature has clearly indicated its mind in the proviso to s. 164(2) when it categorically refers to forfeiture of exemption for breach of s,13(l)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has for 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. 6th July, 1984. Vide the said Circular, it has been laid down in para 28,6 that where a trust contravenes s,13(l)(d), the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provision and not to the entire income. There is a vital difference between eligibility for exemption and withdrawal of exemption/forfei....
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....e income from such investment or deposit which had been made in violation of sec.11(5) that was liable to be taxed and violation u/s 13(1)(d) does not result in denial of exemption u/s 11 to total income of assessee. Where whole or part of relevant income was not exempted u/s 11 by virtue of violation of sec.13(1)(d),tax should be levied on relevant income or part of relevant income at maximum marginal rate. Revenue's appeal dismissed. (5) DIT(E) Vs. Sheth Mafatlal Gagalbhai Foundation Trust 249 ITR 533 (Bom.) (HC) :-In this case at para 6 of the order it was held as under:- "Sec. 164 does not create a charge on the income of a discretionary trust. The word 'charge' in s. 164 means 'levy'. Sec. 164(2) refers to the relevant income which is derived from property held under trust wholly for charitable or religious purposes. If such income consists of severable portions, exempt as well as taxable, the portion which is exempt is to be left out and the portion which is not exempt is charged to tax as if it is the income of an AOP. Therefore, a proviso was inserted by the Finance Act, 1984 w.e.f. 1st April, 1985, under which in cases where the whole or any part of t....
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....use, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the legislature has clearly indicated its mind in the proviso to s. 164(2) when it categorically refers to forfeiture of exemption for breach of s. 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax. This interpretation of ours is also supported by Circular No. 387, dt. 6th July, 1984. Vide the said circular, it has been laid down in para 28.6 that where a trust contravenes s. 13(1)(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 provision and not to the entire income. We may also add that in law there is a vital difference between eligibility fo....
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....s (2014) 227 Taxman 369 (SC). No new facts or circumstances have been brought before us in order to controvert or rebut the findings so recorded by the ld. CIT(A). Therefore, we find no reason to interfere in the order of the Ld. CIT(A). Hence, the ground Nos. 1 and 2 of the Revenue are dismissed." (7) Global Institute of Technology Society Vs. DCIT(E) ITA No. 1066/JP/2018order dt. 05.11.2018 (Jaipur) (Trib.) :-The Hon'ble ITAT held that even if any part of the income or property which is found to be used or applied for the benefit of the persons specified to in sub- section (3) of section 13 of the Act, the benefit of Sections 11 and 12 is not available only to that extent and the claim of the assessee cannot be denied in toto. Accordingly, it is held that the denial of exemption to the assessee u/s 11 and 12 of the Act is not justified except to the extent where the specific part of the income or property is found to be used or applied for the benefit of specified persons. (8) M/s Rajkala Charitable Trust Vs. ACIT ITA No.140/JP/15 dt. 28.04.2016 (Jaipur) (Trib.) :- In this case it was held that where there is violation of section 13, the entire income of the tru....
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....avention of Section 13(1)(c) or 13(1)(d) of the Act, that part of income which is in violation of this Section attracts the tax at MMR and not that the entire surplus is charged to tax at MMR. The ld. DR also relied on the decision of Hon'ble Allahabad High in the case of CIT (Exemptions) vs Army Wives Welfare Association, Lucknow (2020) 116 Taxmann.com 215 (All.). However, in the said decision, the applicability of Section 164(2) has not been discussed but only reference has been made to this Section, whereas the provision of Section 164(2) lays down that where relevant income or part of the income is not exempt u/s 11 due to violation of Section 13(1)(c ) or 13(1)(d) of the Act, then in that eventuality tax shall be charged on the relevant income or part of the relevant income at MMR and not that entire income of the trust would be charged to tax at MMR. Therefore, this decision in the case of CIT (Exemptions) vs Army Wives Welfare Association, Lucknow (supra) without considering the proviso to Section 164(2) is not applicable to the facts of the present case. The ld.AR had relied on various decisions of Hon'ble High Courts and Hon'ble Supreme Court which have alre....
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....Rs. 8,85,620/-, being 5% of the total expenses holding that disallowance made by AO is excessive and without basis. He further held that such disallowance is to be reduced from application of income. 3. It is submitted that during the assessment proceedings assessee had filed complete ledger account of these expenses along with bills and vouchers and the affidavit of temporary staff to whom salary has been paid but debited under the head social welfare ad student welfare expenses. In the vouchers complete details of the nature of expenses are mentioned. In social and staff welfare expenses the assessee has debited mainly the salary of the temporary employees in respect of which no PF is deducted. In support of the same affidavits of few employees were filed. They could not be produced as they were working in different schools of the society. The Ld. CIT(A) has therefore, considering the details mentioned in the vouchers and the facts and circumstances of the case has rightly restricted the disallowance out of these expenses at 5%. The same be upheld by dismissing the ground of department.'' 3.6 We have heard the ld. counsels for both the parties and we have also perused....