TMI Blog2018 (6) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... le Institutions [2014 (2) TMI 1033 - KARNATAKA HIGH COURT] - Decided in favour of assessee. - ITA No. 1389/Del/2015 - - - Dated:- 31-5-2018 - Sh. Pramod Kumar, Accountant Member And Sh. Sudhanshu Srivastava, Judicial Member Asessee by : Sh. Ved Jain Adv., Sh. Ashish Chadha, CA Revenue by : Sh. Ravi Kant Gupta, Sr. DR ORDER Per Sudhanshu Srivastava, Judicial Member This appeal has been preferred by the department against order dated 22/12/2014 passed by the Ld. CIT (A)-40, New Delhi for assessment year 2010-11. 2. The brief facts of the case are that the assessee is a charitable institution in terms of section 25 of the Companies Act, 1956 and is also registered u/s 12AA(1) of the Income Tax Act, 1961 (hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld. CIT (A) had erred in allowing the benefit of exemption to the assessee because the assessee had violated the mandate of section 13(1) read with section 11(5) of the Income Tax Act, 1961. 4. In response, the Ld. Authorised Representative submitted that these shares had been received by the assessee as a donation and the assessee had never purchased these shares. It was further submitted that the assessee is not engaged in any activity or transaction in relation to the equity shares of Angelo Rhodes Ltd. during the year under consideration except receiving the dividend income of ₹ 2,36,000/-. It was further submitted that it is settled law that only income from investments or deposits made in violation of section 11(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be taxed and that the 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 Court in the case reported in DIT (Exemptions) v. Sheth Mafatlal Gagalbhai Foundation Trust [2001] 249 ITR 533 (Bom). The question before the Bombay High Court is Whether violation of section 11(5) read with section 13(1)(d) by the assessee-trust attracts the maximum marginal rate of tax on the entire income of the trust ? The Bombay High Court held that in case of contravention of section 13(1)(d), the maximum marginal rate of tax under section 164(2), proviso is applicable only to that part of income of the trust which has forfeited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate. Therefore, reading the above two phrases shows 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 maxi mum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subjected to the maximum marginal rate of tax. This interpretation is also supported by Circular No. 387, dated 6th July, 1984 ([1985] 152 ITR (St.) 1). Vide the said Circular, it has been laid down in paragraph 28.6 that whore a trust contravenes section 13(1)(d), the maximum marginal rate of Income-tax will apply only to that part of the income which has forfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Karnataka High Court has also been relied upon by ITAT Delhi Bench in the case of Puran Chand Dharmarth Trust vs. ITO in ITA no. 1994/Del/2011 wherein, vide order dated 4th May 2018, Delhi Bench of the ITAT has held that where the whole or part of the relevant income is not held to be exempt u/s 11, by virtue of violation of section 13(1)(d) of the Act, tax is to be levied on the relevant income or the part of the relevant income at the maximum marginal rate but violation of section 13(1)(d) of the Act does not result in denial of exemption u/s 11 to the total income of the assessee. Thus, 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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