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2016 (4) TMI 1145 - ITAT JAIPUR

2016 (4) TMI 1145 - ITAT JAIPUR - TMI - Exemption u/s 11 denied - violation of section 13 - whether the entire income of the trust is chargeable to tax at maximum marginal rate as against only that income which has violated section 13 as mandated by provision to section 164(2) of the IT Act, 1961? - Held that:- Where there is violation of section 13, the entire income of the trust is not chargeable to tax at maximum marginal rate and it is only that income which has violated section 13 which sha .....

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the said submissions of the appellant. Thus, there is no income during the year which can be brought to tax at maximum marginal rate in the hands of the trust in a scenario where it is held that there is violation of provisions of section 13. In view of the same, we donít think it would be relevant to examine whether the appellant trust has violated the provisions of section 13 of the Act as the same has become infructious in the facts and circumstances of the present case. The AO is accordingly .....

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ken following grounds of appeal: 1. The Ld. CIT(A) has erred on facts and in law in confirming the action of the AO in holding that the advance of ₹ 20,00,000/- given to M/s Rajkala Industries Private Ltd. violated the provision of section 13(3) and thereby denying the exemption u/s 11 and assessing the voluntary contribution and the corpus donation of ₹ 1,56,31,000/- received by the trust as its total income chargeable to tax. 1.1 The Ld. CIT(A) has erred on facts and in law in hold .....

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ational institutions, hospitals, water supply scheme, dharamshala for public good and do all other public welfare activities from time to time as decided by the trustees. The return of income declaring nil income after claiming exemption u/s 11 was filed on 29.09.2011. The AO in the course of assessment proceedings observed that assessee has advanced ₹ 20 lacs to M/s Rajkala Industries Pvt. Ltd. Smt. Madhu Adukia, the trustee in the assessee trust and w/o Sh. Ajit Kumar Adukia, the settlor .....

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y assessee to M/s Rajkala Industries Pvt. Ltd., it was stated that the assessee has decided to start free meal distribution programme in and around Chirawa for which it require to build a permanent kitchen at appropriate location for seamless supply of the food and thus it has authorised the company to search a suitable land for construction of kitchen and to start manufacturing meal on pilot basis for one month with the recruited staff before handling over the operational infrastructure to the .....

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turned. 2.1 The AO, however, did not accept the above contention of the assessee by giving the following findings:- (i) In both the letters, no amount has been mentioned so it is difficult to believe that the assessee trust has decided to handover a sum of ₹ 20 lacs for the object of the trust. (ii) There appears to be no resolution whereby it was decided to develop any project of this scale involving such substantial sum of money. (iii) There has been no competitive bidding carried out by .....

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erefore, why the amount of ₹ 20 lacs of trust remained with the company. Accordingly, the AO held that the amount given by assessee trust is not an advance given for any purpose but loan which is reflected in the balance sheet of M/s Rajkala Industries Pvt. Ltd., the assessee s contention is an afterthought story just to give colour to the transaction and perusal of balance sheet of assessee trust for year ended 31.03.2012 reveals that the amount remained with the company for subsequent pe .....

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lacs given by the trust to M/s Rajkala Industries Pvt. Ltd. is loan which is in violation of sec.13(1)(c) of the IT Act. Though the appellant has contended that such amount was advanced to M/s Rajkala Industries Pvt. Ltd. in connection with the business to build a permanent kitchen at appropriate location for supply of food for free meal distribution programme in and around Chirawa, however, as regards this transaction, there was no resolution of the trust and it is also a fact that such amount .....

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lants case, provisions of sec. 13(1)(c) are applicable. In the provisions of sec.13(1)(c)(ii), the word any part of such income or property of trust is clearly mentioned which indicate that in case of violation of sec.13, the entire income of the trust would be taxable as sec.11 will not apply. 2.3 The ld. AR submitted that the advance of ₹ 20 lacs was given by the trust to M/s Rajkala Industries Pvt. Ltd. on 27.08.2010 as per the understanding dt. 16.08.2010 as the trust has entrusted M/s .....

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ablish such project as the land was available neither at a suitable place nor at affordable rate and therefore the project was dropped. Accordingly, the amount of ₹ 20 lacs with interest of ₹ 2,16,000/- i.e. ₹ 22,16,000/- was received back on 07.11.2012/26.12.2012. The interest income of ₹ 2,16,000/- was offered in the return for AY 2012-13. The issue raised by the lower authorities in this regard as to the resolution of trustee or selection of person by competitive biddi .....

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ax on the income of the trust which is derived by it from the property held wholly for charitable or religious purpose. The proviso to this section which is relevant for the present purpose reads as under:- Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at .....

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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 ₹ 20 lacs given to M/s Rajkala Industries Pvt. Ltd. out of the income of the trust is chargeable to tax at MMR in as much as out of the total donation received of ₹ 1,56,31,000/-, only ₹ 20 lacs violates the provisions contained in sec. 13(1)(c) or 13(1)(d). Even this amount cannot be subject to tax in view of the principle of law as decided by the Karnat .....

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ttled by the following decisions:- •DIT Vs. Working Women s Forum (2015) 235 Taxman 516 (SC) decision dt. 18.09.2015 •CIT Vs Working Women s Forum (2014) 365 ITR 353 (Mad) •CIT Vs. Fr. Mullers Charitable Institutions (2014) 227 Taxman 369 (SC) decision dt. 19.09.2014 • CIT Vs. Fr. Mullers Charitable Institutions (2014) 363 ITR 230 (Kar.) • CIT Vs. Orpat Charitable Trust (2015) 230 Taxman 0066 (Guj.) (HC) • DIT (Exemption) V. Sheth Mafatlal Gagalbhai Foundation Trust .....

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marginal rate as against only that income which has violated section 13 as mandated by provision to section 164(2) of the IT Act, 1961. The law on the subject is well settled now with Hon ble Supreme Court in case of Working Women s Forum (Supra) and Fr. Mullers Charitable Institutions (supra) case affirming the decision of Hon ble Madras High Court and Hon ble Karnataka High Court respectively by rejecting the SLP filed against the said High Court decisions. The Hon ble Madras High Court in cas .....

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lbhai Foundation Trust (supra) is concerned, it is a similar line, which was applied by the Tribunal. The assessee therein was brought under section 164 to be assessed at the maximum marginal rate of tax on account of contravention of section 13(1)(d). The Bombay High Court held that violation of section 11(5), read with section 13(1)(d) by the assessee would result in the maximum marginal rate of tax only on the dividend income on shares, which was not the recognised mode of investment and that .....

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s, then tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases show that the Legislature has clearly indicated its mind in the proviso to section 164(2) when it categorically refers to forfeiture of exemption for breach of section 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire incom .....

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l difference between eligibility for exemption and withdrawal of exemption/forfeiture of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. It is interesting to note that although the Legislature withdrew section 164(2) by the Direct Tax Laws (Amendment) Act, 1987, which provision was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, the Legislature did not touch the proviso to section 164(2) which has been on the st .....

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ons (supra) has held as under: 11. With regard to second and third substantial questions of law are concerned, reading of Section 13(1)(d) of the Act makes it clear that it is only the income from such investment or deposit which has been made in violation of Section 11(5) of the Act that is liable to be taxed and that violation under Section 13(1)(d) does not tantamount to denial of exemption under Section 11 on the total income of the assessee. An identical question came before the Bombay High .....

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ption and not the entire income. Relevant paragraph reads as under: "Sec. 164(2) refers to the relevant income which is derived from property held under trust wholly for charitable or religious purposes. If such income consists of severable portions, exempt as well as taxable, the portion which is exempt is to be left out and the portion which is not exempt is charged to tax as if it is the income of an AOP. Therefore, a proviso was inserted by the Finance Act, 1984 w.e.f 1st April 1985, un .....

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the phrase 'whole income' under s. 161(1A). This is only by way of comparison. Under s. 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the legislature has clearly indicated .....

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s.13(1)(d), the maximum marginal rate of Income-tax will apply only to that part of the income which has forfeited exemption wider the said provision and not to the entire income. There is a vital difference between eligibility for exemption and withdrawal of exemption/forfeiture of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. In the circumstances, there is merit in the contention of the assessee that in the present cas .....

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e or part of the relevant income is not exempted under Section 11 by virtue of violation of Section 13(1)(d) of the Act, tax shall be levied on the relevant income or a part of the relevant income at the maximum marginal rate. The said analogy is applicable to the facts of the present case. 12. We are in respectful agreement with the views expressed by the Bombay High Court as well as Delhi High Court for violating Section 11(5) of the Act and the entire income of the respondent-Trust cannot be .....

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