9911796707
TMI Blog2017 (3) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... istration u/s. 12A and u/s. 80G of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The assessee filed its return of income for the impugned assessment year on 18-07-2011 declaring total income as Nil. The case of the assessee was selected for scrutiny under CASS and accordingly notice u/s. 143(2) was issued to the assessee on 06-08-2012. During the course of scrutiny assessment proceedings the Assessing Officer observed that the assessee has made investment in various mutual funds. During the period relevant to the assessment year under appeal the assessee made investment in JP Morgan India Equity Fund Rs. 5,00,000/- and Reliance Vision Fund Rs. 4,00,000/-. Both the above said funds were not approved u/s. 10(23D) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition. Now, the Department is in appeal assailing the order of Commissioner of Income Tax (Appeals) directing the Assessing Officer to delete the addition on account of surplus taxed as income when the assessee has violated the provisions of section 11(5) of the Act. 3. Shri C.H. Naniwadekar appearing on behalf of the assessee submitted at the outset that the Commissioner of Income Tax (Appeals) is fully justified in restricting the disallowance to the extent of investment made in mutual funds that is not in accordance with the provisions of section 11(5) of the Act. The ld. AR submitted that the Assessing Officer has erred in withdrawing exemption u/s. 11 and 12 of the Act on the entire surplus generated by the assessee. The ld. AR of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awn by the Assessing Officer. 5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. It is an undisputed fact the assessee has made investment to the tune of Rs. 9,00,000/- in mutual funds i.e. JP Morgan India Equity Fund Rs. 5,00,000/- and Reliance Vision Fund Rs. 4,00,000/- in violation of the provisions of section 11(5) of the Act. The Assessing Officer has denied the benefit of exemption u/s. 11 and 12 of the Act on the entre surplus generated by the assessee merely for the reason that the assessee has made investment in funds not approved u/s. 10(23D) of the Act. It is no more res integra that where the investments or deposits are made by charitable trust are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which has forfeited exemption and not the entire income. The relevant paragraph reads as under : "Section 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 tax able, 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 association of persons. Therefore, a proviso was inserted by the Finance Act, 1984, with effect from April 1, 1985, under which in cases where the whole or any part of the relevant income is not exempt under section 11 or section 12 because of the contravention of section 13(1)(d), the tax shall be charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome which has forfeited exemption under 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 case the maximum marginal rate of tax will apply only to the dividend income from shares held in contravention of section 13(1)(a) and not to the entire income. Therefore, income other than dividend income shall be taxed at normal rate of taxation under the Act." A similar view has been taken by the Delhi High Court in a judgment reported ..... X X X X Extracts X X X X X X X X Extracts X X X X
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