TMI Blog2016 (3) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd. According to him, the view of the Assessing Officer that there is no violation of sec. 13 is far fetching and he was of the view that the Assessing Officer is incorrect in this regard. Regarding denying the exemption u/s 11 and assessing the assessee u/s 164(2) of the Act, he has given a finding that there is valid registration u/s 12AA of the Act and this was not cancelled or withdrawn by the CIT and as such sec. 11 cannot be denied.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 of sale proceeds of capital asset for purchase of another asset as investment in new capital asset. Further, he observed that the capital gain arising out of transfer of capital asset to be assessed as per sec. 48 of the Act and the rate is to be applied as per sec. 112 of the Act and not at the maximum marginal rate suggested by the Assessing Officer. Agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which such income is applied to such purposes in India ; and where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent. of the income from such property ; Sec. 13(1)(c) of the Act reads as follows: Section 11 not to apply in certain cases (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt 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 (whene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 judgment of Bombay High Court in the case of Sheth Mafatlal Gagalbhai Foundation Trust (supra) which cannot be considered in view of the jurisdictional High Court judgment which is against the assessee. 6. The next contention of the assessee is that 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. In our opinion, this argument of the assessee is misplaced. Sec. 164(2) of the Act reads as follows: (2) In the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein observed that when the short term capital gain arising from the sale of shares subjected to STT is chargeable to tax at 15% then the maximum marginal rate on such income cannot exceed the maximum rate provided under the Act. Accordingly, the Tribunal observed that short term capital gain on sale of shares already subjected to STT, is chargeable to tax at maximum marginal rate which cannot exceed the rate provided u/s 111A of the Act Income-tax Act. This decision was followed by the Mumbai Bench in the case of Mahindra Mahindra Employees Stock Option Trust vs Addl. CIT, I.T.A.No. 2389/Mum/2015 dated 21.10.2015, and observed that 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. Further, we find that in both these decisions, the Mumbai Bench has not considered the meaning of maximum marginal rate as defined in sec. 2(29C) of the Act which reads as follows: 2(29C) maximum marginal rate means the rate of income-tax( including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual[association of persons or, as the case may be, body of in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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