TMI Blog2018 (5) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and plethora decisions referred to hereinabove, we are of the considered opinion that Ld.CIT(A) erred in denying benefit available to assessee and registration granted u/s 10(23C) of the Act. For withdrawal of exemption u/s 11 on such funds advanced as loan to another trust sum of ₹ 1,54,40,000/- was a loan given to another Trust. Neither the object of assessee before us has been disputed, nor that of the recipient trust by authorities below. CIT(A) has overlooked the applicability of Sec.13(2)(a) to the facts of present case. Admittedly the money has been advanced as a loan to other trust for which assessee has not received any securities or interest. The said sum has been returned by the other trust during financial year ending on 31.03.2008 to assessee. Authorities below are alleging that these are common trustees and therefore s.13(1)(d) of the Act comes into play. But nothing has been brought on record to establish that the common trustees have substantial interest in the other trust. Thus the amount advanced cannot be held to be in violation of Sec.13(1)(d). Sec.11(5) cannot be applied to present facts as the money advanced is not an investment but a loan. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 10 (23C) for assessment year 2007-08 has been withdrawn in terms of 13th proviso to clause 23C of section 10 by worthy Chief Commissioner of Income Tax, Panchkula, vide order dated 19/09/08 by observing that by advancement of loan of ₹ 1,54,50,000/- to another trust, the assessee has violated the terms of section 10 (23C) of the I T. Act, you are requested to show cause as to why the total receipt of ₹ 7,94,14,052/- be not treated as your income for taxation under the income tax act 1961. 5. Ld. AO after considering the submissions advanced by Assessee treated ₹ 1,54,50,000/-advanced as loan to another trust as not an approved investing modes, specified in section 11(5) of the Act and that it was advanced in violation of provisions of section 11(5) of the Act. He accordingly added said sum in the hands of assessee. Aggrieved by order of Ld. AO, Assessee preferred appeal before Ld. CIT (A). 6. Ld. CIT (A) upheld addition made by Ld. AO. Ld.CIT(A) further directed Ld.AO rework the taxable income of the appellant keeping in view the provisions of S.11 to 13 of the Act. 6.1. Aggrieved by the order of Ld. CIT(A) assessee is in appeal before us now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Ld.CIT(A) erred in opining that once Section 11(5) is violated, disability u/s 13(1)(d) comes into play and exemption would not be available u/s 11. In support he placed reliance on the following: CIT vs. FR Mullers Charitable Institution reported in 363 ITR 230 (Kar.) He submitted that in the following decisions corpus donation also cannot be brought to tax even in case of an unregistered society or trust -: Shri Shankar Bhagwan Estate vs. Income Tax Officer 61 ITD 196 (Cal.) Income Tax Officer vs. Gaudiya Granth Anuved Trust 65 SOT 137 (Agra) (Tribu.) ITO (Exemption) vs. Smt. Basanti Devi Shri Chakhan Lal Garg Education Trust [IT Appeal No. 5082 (Delhi) of 2010, dated 30.1.2009] (para 6) and Pentafour Software Employee Welfare Foundation vs. Asstt. CIT [IT Appeal Nos. 751 752 (Mds) of 2007] (para 6). 12. Ld.Counsel submitted that sum advanced as loan to other trust has been subsequently returned back to assessee in assessment year 2009-10 cannot be treated as investments as specified under section 11 (5) of the Act. 13. On the contrary Ld.Sr. DR by placing reliance upon observations of Ld. CIT (A) submitted that assessee as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablished) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) 16. From the aforesaid provisions of section 13(1)(c)(ii), it may be seen that if any part of income or any property of trust is applied directly or indirectly for benefit of any trustee, etc, then the benefit of exemption under section 11 of the Act, will not be available to the trust, in respect of such income. 17. We also refer to Sec.11(5) of the Act, being allowable modes of investment, which is reproduced here under. Section 11(5) in The Income- Tax Act, 1995 (5) The forms and modes of investing or depositing the money referred to in clause (b) of sub- section (2) shall be the following, namely:- (i) investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 3 (46 of 1959 ), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co- operative society engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1964 );] (Xii) any other form or mode of investment or deposit as may be prescribed.] Provisions of section 13(1)(d) of the Act. For the sake of ready reference, the relevant part of section 13(1)(d) of the Act, is reproduced as follows : 13. 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- (d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in subsection (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) any shares in a company, other than- (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by or on behalf of the trust or institution to any person referred to in sub- section (3) during the previous year for consideration which is less than adequate; (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees; (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern in which any person referred to in sub-section (3) has a substantial interest. 18. From the aforesaid provisions of section 13(2), it is observed that in respect of various circumstances referred to in clauses (a) to (h) thereof, the income or property of the trust or institution or any part of such income or property shall, for the purposes of section 13(1)(c) and 13(1)(d), be deemed to have been used or applied for the benefit of the trustee, etc. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee could not be assessed. On appeal by the Revenue before the High Court, one of the substantial question of law admitted was whether the Tribunal was 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 was violation of the provisions of section 11(5) of the Act. It was held by the High Court that a 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 of section 13(1)(d) does not tantamount to denial of exemption under section 11 to the total income of the assessee. Accordingly, the appeals of the IT Department were dismissed. 22. In the aforesaid case, the Karnataka High Court has placed reliance on the judgement of the Bombay High Court, in the case of DIT(E) Vs Sheth Mafatlal Gagalbhai Foundation Trust [2001] 249 ITR 533 (Bom). Besides, a reference has also been made to the judgement of Delhi High Court, in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee trust attracts maximum marginal rate of tax on the entire income of the trust . 24. It was held by the High Court that 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 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 the association of persons. Therefore, a proviso was inserted by the Finance Act, 1984, with effect from 1.4.1985, 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), then tax shall be charged on such income or part thereof, as the case may be, at the maximum marginal rate. In other words, only non-exempt income portion would fall in the net of tax, as if it was the income of an association of persons. It was further held by the High Court that as per proviso to section 164(2), it is, inter alia, laid down that in cases where the whole or part of the relevant income is not exempt by virtue of section 13(1)(d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 163 Taxman 19 (All.) It was, inter alia, held in this case that language used in section 12AA for registration of a trust, only requires activities of trust or institution must be genuine, which, accordingly, would mean that they are in consonance with objects of trust / institution and are not mere camouflage, but are real, pure and sincere and are not against the objects of the trust. The profit earning or misuse of income derived by charitable institution from its charitable activities may be a ground for refusing exemption only with respect to that part of the income, but cannot be taken to be a synonym to the genuineness of the activities of the trust or institution. 26. In the light of the discussion brought out in the preceding paragraphs, the following conclusions are clearly established -: 1. As per provisions of section 13(1)(d), 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 violation under section 13(1)(d) does not result in the denial of exemption under section 11 to the total income of the trust. 2. Similarly, as per the provisions of section 13(1)(c), it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
