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2016 (3) TMI 73 - ITAT CHENNAI

2016 (3) TMI 73 - ITAT CHENNAI - [2016] 46 ITR (Trib) 80 - Entitlement 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 .....

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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 corre .....

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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 .....

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KUMAR, JUDICIAL MEMBER For The Appellant : Shri Jayaram Raipura, CIT For The Respondent : Shri R. Vijayaraghavan, Advocate ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal of the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-XII, Chennai, dated 29.6.2010, for assessment year 2007-08. 2. The facts of the case are that the assessee is running an Arts College and duly registered u/s 12AA of the Act. During the year under consideration, the assessee sold .....

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f land as income of the assessee and also denied exemption u/s 11 of the Act as the amount advanced to M/s Anna Investment Pvt. Ltd is not an approved investment u/s 11(5) of the Act. The income of the assessee was computed as AOP u/s 164(2) of the Act. On appeal, the CIT(A) gave a finding that the assessee advanced the money out of sale of land to M/s Anna Investment Pvt. Ltd. where the president and his wife of the assessee-trust are directors. According to him, sec. 13(3) of the Act is not fu .....

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s 12AA of the Act and this was not cancelled or withdrawn by the CIT and as such sec. 11 cannot be denied. He directed the Assessing Officer to allow exemption u/s 11 of the Act. Regarding investment of sale proceeds of land in M/s Anna Investment Pvt. Ltd. he observed that making mere advance to third parties cannot be treated as utilization for investment in capital asset within the meaning of sec. 11(5) of the Act. Accordingly, he rejected the argument of the assessee that making advance out .....

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he assessee advanced an amount of ₹ 39,66,50,000/- on 30.6.2006 to M/s Anna Investment Pvt. Ltd. and the capital gain arising on sale of land at Navalur Egattur and Thalambur during the financial year on 31.3.2007. M/s Anna Investment Pvt. Ltd have returned the money on 31.3.2009 and the said amount was not invested in new asset within the previous year, therefore, exemption u/s 11(1)(a) is not available to the assessee. The contention of the ld. A.R of the assessee is that only that amoun .....

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(St.) specifically para 28.6 stating that where a trust contravenes the provisions of sec. 13(1)(c) or (d) of the Act, the maximum marginal rate of income tax will apply only to that part of the income which has forfeited exemption under the said provisions. He has also relied on the judgment of the Karnataka High court in the case of CIT vs Fr. Mullers Charitable Institutions, 363 ITR 230, for the proposition that whenever there is a violation u/s 11(5), then only income from such investment or .....

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ble or religious purposes, to the extent to which such income is applied to such purposes in India ; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent. of the income from such property ; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to .....

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thereof- …… (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year us .....

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iance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the .....

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such author, founder, substantial contributor or relative has substantial interest. 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 s .....

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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, 227 ITR 356 and the judgment of jurisdictional High Court in the case of CIT vs Nagarathu Vaisiyargal Sangam, 246 ITR 164, 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. The assessee relied on the judgm .....

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s follows: (2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause(iia) of clause(24) of section 2, or which is of the nature referred to in sub-section(4A) of section 11, tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant income not so exempt were the income of an association of persons: Provided that .....

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untary 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 .....

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n one possible view that only income from such investment or deposits which has been made in violation of sec. 11(5) is to be taxed and such violation of sec. 11 does not tantamount to denial of exemption u/s 11 of the Act and the entire income of the assessee-trust cannot be assessed for tax. He also relied on the order of the Mumbai Tribunal in the case of Jain Jamshetji Tata Trust vs Jt. DIT(E), 148 ITD 388, wherein observed that when the short term capital gain arising from the sale of share .....

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