TMI Blog2017 (3) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... Act that would attract maximum marginal rate of tax as per the provisions of law. As decided in Commissioner of Income Tax Vs. FR. Mullers Charitable Institutions [2014 (2) TMI 1033 - KARNATAKA HIGH COURT] 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 . Where the whole 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. - Decided in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, therefore, in terms of section 13(1)(d) of the Act, the assessee shall not be eligible to claim the benefit of sections 11 and 12 in the assessment year under appeal. The Assessing Officer further observed that the assessee trust is accepting donations from students which is in the nature of capitation fees, therefore, the assessee trust cannot be said to be existing solely for education purposes. The assessee is not eligible for accumulation of income and hence, not eligible for deduction / exemption u/s. 11 of the Act. The Assessing Officer treated the assessee as AOP and made addition of the entire surplus i.e. ₹ 1,44,42,360/- as income of the assessee. Aggrieved by the assessment order dated 25-03-2013, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the case of Commissioner of Income Tax Vs. FR. Mullers Charitable Institutions reported as 363 ITR 230. The ld. AR pointed that one of the questions of law before the Hon ble High Court for adjudication was: (ii) Whether the Tribunal is correct in holding that when a part of income is held to be violative of the provisions of section 13(1)(d) only to the said extent maximum marginal rate of tax is to be levied and not for the whole income more particularly when there is violation of the provisions of section 11(5) of the Act ? The Hon ble High Court following the ratio laid down by the Hon ble Bombay High Court in the case of Director of Income Tax (Exemptions) Vs. Sheth Mafatlal Gagalbhai Foundation Trust reported as 249 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the entire income of the assessee. It is only the investments or deposits made in violation of provisions of section 11(5) of the Act that would attract maximum marginal rate of tax as per the provisions of law. 6. The Hon ble Karnataka High Court in the case of Commissioner of Income Tax Vs. FR. Mullers Charitable Institutions (supra) while dealing with the similar issue has held : 11. With regard to the second and the 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 the violation under section 13(1)(d) does not tantamou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, only the non- exempt income portion would fall in the net of tax as if it was the income of an association of persons . . . The phrase 'relevant income or part of the relevant income' in the proviso is required to be read in contradistinction to the phrase 'whole income' under section 161(1A). This is only by way of comparison. Under section 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to section 142 is very clear that the Legislature has clearly contemplated that in a case, where the whole 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 the Delhi High Court for violating section 11(5) of the Act and the entire income of the respondent-trust cannot be assessed for the tax. [Emphasized by us] 7. We do not find any infirmity in the order of Commissioner of Income Tax (App ..... X X X X Extracts X X X X X X X X Extracts X X X X
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