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TMI Blog2017 (4) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 10(33) of the Act, on dividend amounting to Rs. 2,76,459/- received on investments in units and mutual funds. The addition made by the learned Assessing Officer be deleted. Ground No.3: On facts and in the circumstances of the case and in law, the learned CIT(A) erred in not adjudicating the Assessing Officer's action of not allowing the current years (A.Y.2010-11) excess application of Rs. 20,93,366/- to be carried forward toe subsequent year(s). The addition made by the learned Assessing Officer be deleted. Ground No.4: On facts and in the circumstances of the case and in law, the learned CIT(A) erred in not adjudicating the Assessing Officer's action of not allowing the brought forward excess application to Rs. 7,41,31,385/- The addition made by the learned Assessing Officer be deleted. 3. The brief facts of the case are that the assessee filed its return of income on 03.09.2010 along with the Income and Expenditure Account, Balance Sheet and Audit Report in Form No.10 B declaring total income to the tune of Rs. (-) 7,62,24,751/-. The case was selected for scrutiny under CASS therefore notice u/s.143(2) of the Income Tax Act, 1961 ( in short "the Act" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that accumulation or setting apart of 15% of income has been allowed by virtue of provision of section 11(1)(a) of the Act when assessee is not able to spend the entire amount and when the entire amount has been spent, there is no surplus left that can be accumulated. Aggrieved, assessee filed appeal before ld. CIT(A). 6. On behalf of assessee, it was submitted that as per section 11(1)(a), the expenditure incurred by a trust or institute on the objects of the trust by way of application of income derived from the property held for religious or charitable purposes is deductible from the income. It was submitted that there is no bar in law and there are no specific provisions in the Act which says that such deduction of 15% for accumulation will not be allowed in case of deficit. Such 15% accumulation is allowable irrespective of whether 85% of the income have been applied to charitable purposes or not. Ld. CIT(A) after considering the submission of the assessee stated that AO is not justified in denying the claim of the assessee for the accumulation of income and, accordingly, allowed the claim of the assessee. Being aggrieved, department is in appeal before the Tribunal. 7. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On appraisal of the above mentioned order it is not in dispute that the matter of controversy has been decided in favour of the assessee by the Hon'ble Income Tax Appellate Tribunal by following the decision of the Hon'ble Supreme Court decision in case of CIT Vs. A.I.N. Rao Charitable Trust (1995) 129 CTR 205. In view of the order passed by the co-ordinate bench we allowed this issue in favour of the assessee and delete the addition confirmed by the CIT(A) in question. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.2:- 7. Under this issue the appellant has challenged the confirmation of the disallowance of dividend income of Rs. 2,76,459/- from investment in UTI units as exempt u/s.10(33) of the Act. The Assessing Officer deleted the said income from the property and applied the provision of section 11 of the Act. The contention of the assessee is that the dividend income was already exempted u/s.10(33) of the Act. Therefore, the same was not require to be considered u/s.11 of the Act. The learned representative of the assessee has argued that this issue has already been decided in favour of the assessee by Hon'ble Income Tax Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes shall not be included in the total income of the trust/institution to extent such income is applied for charitable/religious purpose in India, and in case such income is accumulated or set apart for application to such purpose in India to the extent such accumulation is not in excess of 15% of the total income from such property. Thus if the income derived from the property held under trust is applied to the extent of 85% for charitable/religious purpose in India, such income is exempt. This condition of application of 85% of income is relaxed to the extent that if the same is applied in the immediate subsequent year and the assessee's trust exercise such option in writing before the expire of time allowed u/s 139(1) of Income Tax Act for furnishing the return of income then it would be deemed to be income applied to such purpose during the previous year in which the income was derived. Sub section 2 of section 11 further relaxes the condition of application or deemed application of 85% of income during the relevant previous year if such income is accumulated or set apart either in whole or in part for application to such purpose in India subject to the condition provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting the application of the income the assessee has excluded dividend and long term capital gain as well as short term capital gain and shown the income at Rs. 25.78 crores. Whereas the total income of the assessee including capital gain and dividend income is Rs. 714.42 crores. To meet the requirement of 85% of the income of Rs. 714.42 crores, the assessee was required to apply or deemed to have been applied the income to the extent of Rs. 607.43 crores. As per the details, the assessee has applied Rs. 164.93 crores during the year and nothing has been brought before us to show that the shortfall of more than 446 crores has been applied in the immediate following year. Therefore, apparently the assessee trust has not applied the shortfall of more than 446 crores in the immediate next year in terms of the Explanation to section 11(1) of the Act. Because the assessee has already applied the entire balance amount in the shares of Tata Sons Ltd., therefore, the question of application of shortfall in the immediate next year does not arise. 7 Now we turn to the issue of condition of source of income in terms of section 13 of the Income Tax Act. The AO has disallowed the exemption o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The trusts or institutions will, however, be' required to dispose or convert the assets not conforming to the requirement of section 11(5) into permissible investment within one year from the end of the financial year in which such bonus shares or other assets are received or 31-3-1992, whichever is later." 7.2 Thus it is clear that clause (iia) of the proviso to section 13(1)(d) was inserted with a view that holding of the asset not conforming to the provisions of section 11(5) would not make the trust or institution lose tax exemption is such assets were disposed off or converted into permissible investment within one year form the end of the Financial year in which such assets were received. Due to certain anomalies and hardship arising out of the requirement of the proviso to section 13(1)(d) clause (iia) was further amended vide Finance Act 1992 whereby the period of disinvestment allowed upto 31st March 1993 or within one year form the end of the Financial Year in which the such assets were received whichever is later. 7.3 In the case in hand, though the assessee held the bonus shares of TCS for the duration which is within the time limit prescribed under clause (iia) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the case of Tata Education Trust and Tata Social Welfare Trust (supra) has decided a similar issue in para 13 as under:- "13 We have heard the parties. The assessee is a public charitable trust. During the previous year relevant to the assessment year under appeal, the assessee derived its income from interest and dividend. Since the assessee continued to hold the shares of Tata Sons Ltd. beyond the permitted date prescribed for disinvestment u/s 13(1)(d), the exemption wad denied by the AO and the entire income of the assessee was brought to tax except the dividend income received on shares of Tata Sons Ltd. On appeal, the Ld. CIT(A) has held, following his appellate order dated 20.06.2000 for AY 1996-97, that the entire income of the assessee would not attract disqualification for the purpose of section 11 but only the income derived form the investments falling in prohibited category would be chargeable to tax. In his appellate order for A.Y. 1996-97, the Ld. CIT(A) has followed the decision of this Tribunal in Guru Dayal Berlia Charitable Trust, 34 ITD 489 in which it has been held that only the relevant income derived from impermissible investment would be subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not exempt from tax, except in the cases falling under cl. (a) or cl. (b) of s. 11(4A) of the IT Act. As the maximum marginal rate of tax under the new proviso to s. 164(2) applies to the whole or a part of the relevant income of a charitable or religious trust which forfeits exemption by virtue of the provisions of the IT Act in regard to investment pattern or use of the trust property for the benefit of the settlor. etc., contained in s. 13(l)(c) and (d) of that Act, the said rate will not apply to the business profits of such trust which are otherwise chargeable to tax. In other words, where such a trust contravenes the provisions of s. 13(l)(c) or (d) of the Act, the' maximum marginal rate of income tax will apply only to that art of the income which has forfeited exemption under the said provisions". 8.3 After considering the explanatory note the Tribunal decided the issue by holding that the provision of section 164(2) along with the proviso thereto would come into operation and only such income would be brought to tax at the maximum marginal rate which could not be treated as exemption by virtue of non fulfillment of conditions of investment in specified securities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld under trust for charitable purposes, which is of the nature referred to in Section 11(4A), tax shall be charged on so much of the relevant income as is not exempt under Section 11. Section 164(2) was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989. Earlier it was omitted by the Direct Tax Laws (Amendment) Act, 1987. However, the Legislature inserted a proviso by the Finance Act, 1984, with effect from April 1, 1985. By the said proviso, it is, inter alia, laid down that where the whole or part of the relevant income is not exempt by virtue of Section 13(1)(d), tax shall be charged on the relevant income or part of the relevant income at the maximum marginal rate, The phrase "relevant income or part of the relevant income" 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, then tax shall be charged on the whole of the income in respect of which such person is so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Ground No.2 is regarding denial of exemption u/s 10(34), 10(35) and 10(38). 9.1 The assessee claimed that dividend income on shares and unit and long term capital gain on sale of shares are exempt u/s 10(34), 10(35) and 10(38) respectively. The AO denied the exemption on the ground that the income derived from the property held by the trust and not any other person, section 11 exclusively deals with the income derived from the property held under trust and not section u/s 10(34), 10(35) and 10(38). Hence the AO held that there is a violation u/s 13 and as a result of the same exemption u/s 11 is denied. The assessee cannot claim the alternative claim for exemption u/s 10(34), 10(35) and 10(38) because these sections do not deal with income derived from the property held under the trust. If the income of the trust which is not held exempt u/s 11, 12 and 13 is allowed to exempt under other sub sections of section 10 it will lead to open ground for trust to exercise long term securities income and dividend income and claimed exemption of the same under other sub sections of section 10 of Income Tax Act. 9.2 On appeal, CIT(A) concur with the view of AO. 9.3 Before us, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then general law would not apply. He has put forth the logic that section 13 dehors the applicability of section 11 and in the same manner it would also dehors the applicability of section 10 if there is a violation of section 13 of the Act. 9.6 We have considered the rival submissions as well as relevant provisions of law. The exemption u/s 10 is income specific irrespective of the status/class of person. Whereas the exemption under section 11 is person specific though on the income derived from the property held under the trust. Further the exemption u/s 11 is subject to the application of income and modes or form of deposit and investment. The Hon'ble High Court in the case of CIT Vs. Divine Light Mission (supra) while dealing with an identical issue has held in para 9 as under : "So far as question No.4 of paragraph No. 3 with regard to agricultural income is concerned, section 10(5) of the Act specifically points out that agricultural income shall not be included in computing the total income of a previous year and hence the question is required to be answered in favour of the assessee and against the Revenue. This income is not required to be considered at all even for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /higher education in various universities abroad. The AO noted that the grant is released by the assessee only after obtaining the first semester results of their education outside India from each scholar. The AO was of the view that the application of income as well as charitable purpose, both should be in India and execution of charitable purpose may be inside or outside India. The AO relied upon the decision of Hon'ble Delhi High Court in the case of Director of Income Tax (Exemption) Vs. National Association of Software and Services Companies (345 ITR 362) and held that the amount of Rs. 1,53,50,000/- spent by the assessee for education grant to the students is not application of its income for charitable purpose in India and accordingly disallowed the exemption u/s 11. 10.2 On appeal CIT(A) confirmed the action of the AO. XXXXXXXXX 10.5 We have considered the rival submissions and perused the relevant material. The assessee has given grant to 97 scholars studying in various institutions and universities outside Indian and the total amount of grant is Rs. 1,53,50,000/-. The assessee paid the grant in India and for the purpose of education of Indian students/persons, thus t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is whether the situs of the application of the money and not the place in which the objects of the trust may become effective. It may be pertinent to refer to section I O( 16) which exempts scholarships granted to meet the cost of education where also the CBDT itself does not consider scholarship granted for education abroad as money spent outside India. Similarly, in the present case of such a wide object of propagation of art it would be difficult to confine it to the shores of the land. We are of the considered opinion that the expression "applied to such purposes in India" refers only to the situs of the expenditure and not" to the place 'where the "purposes" are carried out. The fact that the troupe gave the performance abroad is therefore no disqualification for treating he amount actually spent in India as application of the amount for charitable purposes. The Commissioner also referred to collections made for performances given as an activity for profit. We find that such performances do not constitute activities for profit as the collections are in the nature of donations received for the purposes of the trust. Hence this objection also cannot be sustained, It foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT(A) in question. Accordingly, this issue is being decided in favour of the assessee against the revenue. ISSUE NO.3 & 4:- 9. Under these issues the assessee has challenged the confirmation of the order of the Assessing Officer by the CIT(A) in which the Assessing Officer did not carry forward the excess application of Rs. 20,93,366/-. The assessee has excess expenditure over income of Rs. 20,93,366/- (Rs.16,08,208 - 37,01,574/-). The assessee claimed the carry forward of the same which was declined by the Assessing Officer and confirmed by the CIT(A). The learned representative of the assessee has argued that this issue is decided in favour of the assessee, the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Institute of Banking (264 ITR 110). It is also argued that the Hon'ble Income Tax Appellate Tribunal has also decided this issue in favour of the assessee in the decision of ADIT (E) 1(2) Vs. Sayaji Ubakhin Memorial Trust (ITA No.5646/Mum/2011) and in case of ITO(E) Vs. Shri Sadguru Seva Trust (ITA No.3387/Mum/2015). Before going further, it is necessary to advert the case decided by the Hon'ble Bombay High Court in the case of CIT Vs. Institute of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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