TaxTMI 
TaxTMI 
2026 (8) TMI 558
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....filed its return of income on 26.09.2012 admitting gross receipts to the tune of Rs. 1,12,73,915/-. Subsequently, the assessee's case was selected scrutiny assessment and notice u/s. 143(2) was issued on 26.09.2013. The assessee is a charitable trust established and running since 1997 and obtained registration u/s. 12A of the Act and approval u/s. 80G of the Act. The primary activities of the trust include providing shelter and care for orphans and destitute children in the city of Chennai. 3. During the course of the scrutiny assessment proceedings, various notices were issued upon the assessee, who responded to the same. The AO found that the assessee has advanced loan to its trustees namely Mr.Paul Moses and Mrs.Grace Moses to the tune of Rs. 2,83,210/- and Rs. 2,98,415/- respectively. The AO further observed that neither the interest paid on the account of loan advanced was shown in the financial statements nor were any security offered by the trustees for availing the loan. Hence, the AO was of the opinion that provisions of Section 13(1)(c) r.w.s 13(2)(a) r.w.s 13(3) of the Act is attracted in the assessee' case. Therefore, the exemption claimed u/s. 11 of the Act is denie....
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.... of a specified person u/s. 13(3) of the Act was introduced vide Finance Act, 2022 and was not existing for the year under consideration. While holding so, the CIT(A), dismissed the appeal of the assessee. 6. Aggrieved by the above order of the ld.CIT(A), the assessee has preferred the present appeal before us. 7. Before us, the ld.AR for assessee submitted that the law is well-settled to disallow exemption only to the amount proportionate to the benefit enjoyed by a specified person. This has been envisaged in Section 164 of the Act. Hence, the addition to the tune of Rs. 1,12,73,915/- is erroneous. The ld.AR relied on various decisions of courts and Tribunals, CBDT Circular and even the amendment brought in by way of Finance Act, 2024 in support of the same in their paperbook, caselaw book and written submissions. 8. The ld.AR drew our attention to Circular No.387 dated 06/07/1984. In the said circular, it has been clearly stated that u/s. 164(2) of the Act if a trust were to act in contravention of Section 13, then the maximum marginal rate will apply only to the extent of income that was received by the trustees. The remaining sum will not be subjected to maximum margi....
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....en's Forum reported in 365 ITR 353 (Madras) as well as the Hon'ble Bombay High Court in the case of Sheth Mafatlal Gagalbhai Foundation Trust 249 ITR 533 (Bom). The Ld.AR also cited the CBDT Circular No.387 dated 06.07.1984 to contend that the AO ought to have taxed only to the extent to which the violation was found by the AO u/s. 13(1)(c) & 13(1)(d) of the Act and not denied the exemption on the part of the income which didn't fall in the teeth of violations stated in section 13 of the Act. 14. We find force in the submissions of the Ld.AR, in the light of the decision of the Hon'ble Jurisdictional High Court in the case of Working Women's Forum (supra) as well as the Hon'ble Bombay High Court decision in Sheth Mafatlal Gagalbhai Foundation Trust (supra) and CBDT Circular (supra), and also take notice of the recent amendment brought in through Finance Act, 2022 w.e.f. 01.04.2023, wherein, the amendment was brought in clause (c) of sub-sec.(1) of sec.13, which recognizes the ratio laid in the judicial precedents cited supra, which reads as follows: s.13(1)(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any....
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.... Court has dismissed the Special Leave Petition filed by the Revenue against the order of the Hon'ble Karnataka High Court, in the case of CIT v Fr, Mullers Charitable Institutions [2014] 51 taxmann.com 378/227 Taxman 369 (SC). And since, in the present case as noted (supra), the levy of interest @ 12% of Rs. 95,15,469/-, [which amount was advanced by the assessee to M/s.SIPL] is confirmed and the same i.e Rs. 11,41,856/- will be chargeable to tax at the maximum marginal rate of tax but not the whole income of the Trust and assessee is entitled to exemption on the other part of income which doesn't fall in the teeth of sec.13 of the Act." 10. Further reliance was also placed on the following cases by the ld.AR: a) CIT(E) V. Maharashtra Academy of Engineering and Educational Research [IT Appeal No.78 OF 2018]: The Hon'ble High Court of Bombay distinguished the decision in Bharat Diamond Bourse (supra) by relying on the decision rendered in the case of Audyogik Shikshan Mandal (supra). Accordingly, the Hon'ble Court held that benefit must be denied to the extent of violation as per Section 13 and the remaining sum must be exempted u/s. 11 of the Act (Para 4 of the....
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....n in respect of the entire income of the trust. According to the assessee, only that portion of income which has been applied or utilised for the benefit of the specified persons can lose the benefit of exemption and be subjected to tax at the maximum marginal rate. In support of this proposition, reliance has been placed upon CBDT Circular No.387 dated 06.07.1984 and a catena of judicial precedents including the decisions of the Hon'ble Bombay High Court in DIT(E) v. Sheth Mafatlal Gagalbhai Foundation Trust, the Hon'ble Karnataka High Court in Fr. Mullers Charitable Institutions v. CIT, the Hon'ble Madras High Court in CIT v. Working Women's Forum, the Hon'ble Bombay High Court in CIT(E) v. Audyogik Shikshan Mandal, as well as the decision of the Co-ordinate Bench of this Tribunal in Silkile Foundation v. DCIT(E). 15. We find considerable force in the submissions advanced by the ld.AR. The controversy involved in the present appeal is no longer res integra. The Hon'ble Madras High Court in the case of Working Women's Forum has categorically held that violation of section 13 does not result in forfeiture of exemption in respect of the entire income o....