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2020 (9) TMI 458 - AT - Income TaxExemption u/s 11 - assessee society is registered u/s 12AA - Assessee trust has provided undue benefit in lieu of salary and allowances to the persons specified u/s 13(3) - whether there is a violation of section 13(1)(c) or 13(1)(d) of the Act and whether exemption u/s 11 and 12 of the Act is to be denied in toto or only the relevant part of the income is to be charged to tax u/s 11 in view of Section 164(2) ? - HELD THAT:- Where the whole or any part of the relevant income is not exempt u/s 11 or 12 because of the provisions of the section 13(1)(c) or 13(1)(d), tax is chargeable on the relevant income or part of 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. 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. - Decided against revenue. Disallowing travelling expenses, staff expenses, staff welfare expenses, social welfare expenses and student welfare expenses to the extent of 95% - no proper bills & vouchers were maintained by assessee - CIT-A restricted the addition to 5% - HELD THAT:- As during the course of assessment proceeding, the assessee had filed complete ledger account of these expenses alongwith bills and vouchers and the affidavit of temporary staff to whom salary has been paid but debited under the head social welfare and student welfare expenses. In the vouchers, complete details of the nature of expenses are mentioned. In social and staff welfare expenses the assessee had debited mainly the salary of the temporary employees in respect of which no PF was deducted. Since the assessee could not produce some of the documents of the employees as they were working in different schools of the society. Therefore, the ld. CIT(A) considering the details mentioned in the vouchers and facts & circumstances of the had rightly restricted the disallowance out of these expenses at 5% - Decided against revenue.
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