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2016 (3) TMI 73 - AT - Income TaxEntitlement to exemption u/s 11 - as per revenue amount advanced to M/s Anna Investment Pvt. Ltd is not an approved investment u/s 11(5) - violation of sec. 13(1)(c) - Held that:- 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 should have existed and could not have been brought in by amending the trust deed at a later stage after that crucial date, even if the trust deed authorized the trustees to amend the trust deed to bring in the mandatory condition or requirement for them to invest funds of the trust in a concern in which they might be interested. In is admitted fact in this case that there is a violation of sec. 13(1)(c) of the Act as the assessee invested funds in a limited company where the trustee is the Managing Director and his wife is a Director. Being so, placing reliance on the judgment of Supreme Court in the case of CIT vs Rattan Trust, [1997 (7) TMI 11 - SUPREME Court ] and CIT vs Nagarathu Vaisiyargal Sangam, [1998 (8) TMI 6 - MADRAS High Court ], we hold that the Assessing Officer was correct in invoking the provisions of sec. 13(1)(c) of the Act and denying exemption to the assessee u/s 11 of the Act. - Decided against assessee Benefit of sec. 112 - only that portion of income i.e capital gain to be considered for tax in terms of sec. 112 of the Act at maximum marginal rate as proposed by the Assessing Officer - Held that:- The provision of section 164(2) is concerned with taxability of income (i) which is derived from property held under trust wholly for 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 nonexempt 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. Capital gain is to be assessed by applying the provisions of sec. 112 even if the income is assessed as per sec. 164 of the Act The benefit of sec. 112 of the Act so as to assess the gain from the transfer of the capital asset cannot be given to the deemed AOP. - Decided in favour of revenue
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