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2022 (3) TMI 565 - AT - Income TaxExemption u/s 11 - violation under Section 13(1)(d) and 13(2)(h) - income earned from non-prohibited investments - HELD THAT:- It is only when shares of the concern carrying not less than 20% of voting power are owned by authors / founders of the trust, such person shall be deemed to have a substantial interest in the concern. It is evident from the facts of the present case, as also noted by the Assessing Officer, that Shri Ratan N. Tata, founder trustee of the assessee, was holding 3,368 ordinary shares of Tata Sons Ltd. constituting only 0.83% of the aggregate paid–up ordinary share capital of Tata Sons Ltd., which was much less than the threshold requirement of provision of Explanation–3 to section 13 of the Act. Therefore, Shri Ratan N. Tata cannot be held to be having ‘substantial interest’ in Tata Sons Ltd. Accordingly, the investment by the assessee trust in shares of Tata Sons Ltd. is not affected by the vice of section 13(2)(h) of the Act. In the present case, the only basis for invoking the provisions of section 13(2)(h) of the Act by the AO was that Shri Ratan N. Tata, being the Chairman of Tata Sons Ltd., could have influenced the decision of Tata Sons Ltd. as well as of the assessee trust at the time of investment, is nothing but conjectures/surmises which is not even supported by the statutory requirements of section 13(2)(h) read with Explanation 3 to section 13 of the Act. As in a recent decision in the case of Sir Dorabji Tata Trust v. DCIT (Exemption) [2020 (12) TMI 1121 - ITAT MUMBAI] held that observation made in the said decision of Jamsetji Tata Trust [2014 (5) TMI 890 - ITAT MUMBAI] is a sweeping observation based on conviction rather than material available on record, as it observes that “As far as the violation of clause(h) of section 13(2) is concerned we find that the author of the assessee trust and its relative definitely have a substantial interest in the Tata Sons Ltd., therefore, the investment in the shares of Tata Sons Ltd. is clear violation of clause(h) of section 13(2)”. We hold that by making investment in shares of Tata Sons Ltd., assessee trust didn’t violate provisions of section 13(2)(h) of the Act. Accordingly, ground no.1 raised in assessee’s appeal, insofar as it pertains to violation of section 13(2)(h) of the Act, is allowed. Denial of benefits of section 11 of the Act only in respect of the income from prohibited investments - HELD THAT:- In the present case, the assessee had made investment in redeemable preferential shares of Tata Sons Ltd. which the AO, inter-alia, held to be in violation of provision of section 13(1)(d) of the Act. The income that could be derived from such an investment would be dividend income or the capital gains on sale of such investment. However, due to violation of provisions of section 13, income derived from property held under trust is not exempted under section 11 of the Act. The issue which arises in the present case is whether the entire income of the trust shall become ineligible for exemption under section 11 of the Act or it is restricted to only the income derived from prohibited investments. Hon’ble Jurisdictional High Court in the case of CIT v. Audyogik Shikshan Mandal[2018 (12) TMI 1344 - BOMBAY HIGH COURT]held that on a plain reading of sections 11 and 13 of the Act, it is clear that the legislature did not contemplate the denial of benefit of section 11 of the Act to the entire income of the Trust. Thus we direct the AO to only consider income from prohibited investments while denying the benefits of section 11, and, at the same time, grant the exemption under section 11 of the Act on interest income and income earned from non-prohibited investments by the assessee. Accordingly, ground nos. 2 to 4 raised in assessee’s appeal are allowed. Levy of interest under section 234C - HELD THAT:- Under the provisions of section 208 or section 209 of the Act, advance tax is to be computed on the estimated current income of the assessee and in case such income is not taxable, there is no liability imposed on the assessee to pay any advance tax. In the present case, as the assessee trust at the relevant time of deposit of advance tax had NIL taxable income, there was no liability to deposit any advance tax. Consequently, no default can be attributed to the assessee for non-deposit of advance tax while estimating its income - it is pertinent to note that section 234C refers to the term ‘returned income’ in comparison to section 234B which refers to the term ‘assessed tax’ for imposing interest. In the present case, it is not in dispute that returned income in case of assessee trust was NIL. As only in the case of default / shortfall in payment of advance tax as compared to tax due on returned income, interest is chargeable under sections 234C of the Act. Thus, we hold that no interest is chargeable under section 234C of the Act in the present case. The AO is directed to delete the interest levied under section 234C of the Act. Accordingly, ground no. 7 raised in assessee’s appeal is allowed. Levy of interest under section 234B / 234D - HELD THAT:- While ground no. 9 in assessee’s appeal pertains to addition of interest received under section 244A of the Act. During the course of hearing, learned counsel submitted that all these grounds are consequential in nature. Thus, the AO is directed to compute the interest under sections 234B and 234D, if leviable, in accordance with law. Further, the AO may grant the interest under section 244A of the Act in accordance with law. Accordingly, ground nos. 6, 8 and 9 in assessee’s appeal are allowed for statistical purpose. Exemption under section 10(34) of the Act on dividend income received on shares by the assessee - HELD THAT:- It is pertinent to note that vide Finance (No.2) Act, 2014, sub-section (7) was inserted in section 11 of the Act whereby it has been provided that benefits of exemption provided in section 10 shall not be available to any Trust/Institution registered and claiming the benefit of section 11 of the Act. This amendment was brought w.e.f. 1st April, 2015 and therefore, is only applicable to assessment year 2015-16 and onwards. Thus, respectfully following the aforesaid decision of M/S. JASUBHAI FOUNDATION [2015 (4) TMI 305 - BOMBAY HIGH COURT], order passed by the CIT(A), inter-alia, granting benefit of exemption under section 10(34) of the Act in respect of dividend income received by assessee is upheld. Accordingly, ground nos. (i) to (iii) raised in Revenue’s appeal are dismissed. Claim of depreciation by the assessee trust - HELD THAT:- As decided in RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA [2017 (12) TMI 1067 - SUPREME COURT] in case of charitable institution registered under section 12A, even though expenditure incurred for acquisition of capital assets was treated as application of income for charitable purpose under section 11(1)(a), yet depreciation would be allowed on assets so purchased. Vide Finance (No.2) Act, 2014, sub-section (6) was inserted in section 11 of the Act whereby it has been provided that benefits of depreciation shall not be available to any Trust/Institution registered and claiming the benefit of section 11 of the Act. This amendment was brought w.e.f. 1st April, 2015 and therefore, is only applicable to assessment year 2015-16 and onwards. In view of the above, respectfully following the aforesaid decision of Hon’ble Supreme Court, we, inter-alia, upheld the order passed by the CIT(A) allowing the claim of depreciation on fixed assets to the assessee. Accordingly, ground no. (iv) raised in Revenue’s appeal is dismissed. Carry forward of excess application/ deficit to subsequent assessment year - HELD THAT:- We find that on similar issue Hon’ble Supreme Court in the case of CIT(Exemption) v. Subros Education Society [2018 (4) TMI 1622 - SC ORDER] held that any excess expenditure incurred by trust/charitable institution in earlier assessment year would be allowed to be set off against income of subsequent years by invoking section 11 of the Act - we, inter-alia, upheld the order passed by the CIT(A) allowing the carry forward of deficit. Accordingly, ground no. (iv) raised in Revenue’s appeal is dismissed.
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