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2025 (4) TMI 915 - AT - Income TaxDenial of Exemption u/s 11 - addition received on rent a violation of 13(1)(c)/13(1)(d) of the I.T. Act. - Sole reason that in charging of rent in reduced rate AO has opined that the assessee trust has applied income of the trust for the benefit of assessee trustee - whether entire income of trust will be stripped of entire exemption u/s 11 of exemption will be denied only to the extent of the violation of provisions of section 13(1)(c)(ii) ? - HELD THAT - The section 164(2) is statute provides application of Maximum Marginal rate only on the relevant income and not on the entire income. The computation section clearly stated that the denial of exemption under section 11 should be limited only to the amount which was connected in violation of section 13. Therefore the statute has unambiguously stated that only relevant income which is not exempt under section 11 can be brought to tax as the income of an AOP and the balance income of the charitable trust will be entitled to exemption. CIT(A) rightly relied on the CBDT Circular No.387 dated 06/07/1984 152 ITR (St)1 issued by the CBDT under the heading Levy of income-tax at the maximum marginal rate in the case of charitable and religious trusts which forfeit tax exemption is relevant. The aforesaid Circular clarifies the stand of the CBDT as to where such a trust contravenes the provisions of section 13(1)(c) or 13(1)(d) of the Act the maximum marginal rate of income-tax will apply only to that part of income which has forfeited exemption under the said provisions. If the interpretation sought by the Revenue is accepted it would lead to grave injustice as any mistake minor or contravention of provisions will lead to complete denial of the benefit of exemption which otherwise a trust registered under section 12A is legally allowed to claim. The maximum marginal rate shall be levied to the extent of relevant income which has contravened provisions of section 13 and in the present case as contravention is of Rs. 1, 80, 000 only. AO erred in denying entire claim of exemption under section 11 and 12. Therefore we uphold the impugned order passed by the learned CIT(A) and the grounds no.1 and 2 raised by the Revenue are dismissed. Addition of interest income as unexplained income u/s 69A - We are of the opinion that impounded documents which were found in the possession of third party are neither signed nor authenticated by anyone cannot be simply relied to make an addition under section 69A of the Act. Insofar the application of provisions of section 69A of the Act is concerned the addition was based on the impounded documents marked as Annexure B/4 which is in our opinion is not a sufficient material to make an addition in the absence of any independent corroborative evidence. Provisions of section 69A of the Act being a special provision can be invoked only when in any financial year the assessee is found to be owner of any money bullion jewellery or any other such valuable articles and there is doubt about source of same and the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory. In the given case it is the case of the Assessing Officer that the assessee trust has received interest income. Therefore as the source is known provisions of section 69A cannot be invoked. Therefore invoking provisions of section 69A of the Act is unwarranted. Even though we held that the document on the basis of which addition is made is not a speaking or dumb document and worthy of making an addition however the assessee has not challenged the addition by way of cross appeals confirming the addition by the learned CIT(A) was indeed justified and it is rightly allowed as interest income to the tune of Rs. 43, 50, 000. Such addition shall be subject to normal rate of taxation and need not be governed by the provisions of section 115BBE of the Act. Accordingly ground no.3 raised by the Revenue is dismissed. Exemption under section 11 allowed. Allowance of depreciation - submissions of the assessee trust that it only claimed depreciation as an application of income and has not claimed the capital as an application of income - HELD THAT - The assessee trust during the year has only claimed depreciation as an application of income and the capital expenditure towards fixed assets were not claimed as an application of income. The statute provides allowance of either depreciation or application of income towards capital expenditure. Therefore if the AO disallows depreciation he is duty bound to allow benefit of allowance towards application of income vis- -vis capital expenditure. CIT(A) was absolutely correct in in allowing the depreciation in holding that the assessee trust cannot be devoid of claiming at least one as an application of income doing so will defeat the mandate of the Act which provides either capital investment or depreciation as an application of income.
ISSUES PRESENTED and CONSIDERED
The legal questions considered in the judgment primarily revolve around the eligibility for exemption under section 11 of the Income Tax Act, 1961, and the applicability of section 69A concerning undisclosed income. The core issues include:
ISSUE-WISE DETAILED ANALYSIS 1. Exemption under Section 11 and Alleged Violations of Section 13(1)(c) and 13(1)(d) Relevant Legal Framework and Precedents: Section 11 provides exemptions for income derived from property held for charitable or religious purposes. Section 13 outlines conditions under which such exemptions are forfeited, particularly when income is used for the benefit of specified persons. Court's Interpretation and Reasoning: The Tribunal found that the reduced rent charged to a trustee did not warrant a complete denial of exemption under section 11. The provisions of section 164(2) were interpreted to apply the maximum marginal rate only to the income portion violating section 13, not the entire income. Key Evidence and Findings: The Assessing Officer noted a discrepancy in rent charged versus fair market value. The CIT(A) allowed exemption except for the disputed amount, referencing CBDT Circular No.387. Application of Law to Facts: The Tribunal upheld the CIT(A)'s decision to limit tax to the disputed amount, emphasizing that only the income portion violating section 13 should be taxed at the maximum marginal rate. Treatment of Competing Arguments: The Revenue's argument for complete exemption denial was rejected, aligning with precedents that support limited application of section 164(2). Conclusions: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to uphold the exemption for the trust, except for the specific income portion. 2. Addition of Undisclosed Income under Section 69A Relevant Legal Framework and Precedents: Section 69A pertains to unexplained money, requiring evidence of ownership and lack of satisfactory explanation for the source. Court's Interpretation and Reasoning: The Tribunal found that the impounded documents from a third party were insufficient to justify additions under section 69A, as they lacked corroborative evidence. Key Evidence and Findings: The documents were deemed "dumb" without independent corroboration, and the source of alleged income was known. Application of Law to Facts: The Tribunal concluded that the documents did not meet the evidentiary threshold required for section 69A application. Treatment of Competing Arguments: The assessee's argument that the documents were unreliable was accepted, leading to dismissal of the Revenue's appeal. Conclusions: The Tribunal upheld the CIT(A)'s decision, rejecting the addition of Rs. 43.50 lakh as undisclosed income. 3. Depreciation as Application of Income under Section 11(6) Relevant Legal Framework and Precedents: Section 11(6) prevents double application of income by disallowing depreciation if capital expenditure is already claimed. Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A) that the trust could claim either depreciation or capital expenditure, not both, as an application of income. Key Evidence and Findings: The assessee claimed only depreciation, not capital expenditure, as an application of income. Application of Law to Facts: The Tribunal found the CIT(A)'s decision consistent with statutory provisions, allowing depreciation as claimed. Treatment of Competing Arguments: The Revenue's objection was dismissed, as the CIT(A)'s interpretation aligned with legal provisions. Conclusions: The Tribunal upheld the CIT(A)'s decision to allow depreciation, dismissing the Revenue's appeal. 4. Advances for Land Purchase and Section 11(5) Compliance Relevant Legal Framework and Precedents: Section 11(5) outlines permissible investment modes for trusts to maintain exemption eligibility. Court's Interpretation and Reasoning: The Tribunal found no violation of section 11(5) as the advances were for property purchase, a permissible mode. Key Evidence and Findings: The transaction was documented in the balance sheet and supported by an agreement to sell. Application of Law to Facts: The Tribunal concluded that the advances did not contravene section 11(5) or affect exemption eligibility. Treatment of Competing Arguments: The Revenue's argument for exemption denial was rejected due to lack of evidence of statutory violations. Conclusions: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to grant exemption under section 11. SIGNIFICANT HOLDINGS The Tribunal's significant holdings include:
In conclusion, the Tribunal dismissed the Revenue's appeals for all assessment years, upholding the CIT(A)'s decisions.
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