TMI Blog2000 (10) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... so as also, the effect of contravention of section 11(5) and section 13(1)(d)(iii). Facts : The assessee-trust came into existence after June 1, 1973. The assessee-trust was a holder of equity shares of Mafatlal Industries during the assessment year 1994-95. They were the holders of the shares even after March 31, 1993. In this group of appeals, we are only concerned with the effect of the violation of section 13(1)(d). There is no dispute about the contravention. The assessee, during the relevant assessment year, received dividend income from Mafatlal Industries of Rs. 15,103. The assessee also received interest income of Rs. 2,095. These facts are taken from Income-tax Appeal No. 267 of 2000. The facts are common to all other appeals. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. Hence, the Tribunal allowed the appeal. It directed that only the dividend income in the present case should be taxed at the maximum marginal rate and the income, other than the dividend income, viz., interest income, be taxed at the normal rate of taxation as applicable under the law. Arguments : Mr. Desai, learned senior counsel appearing on behalf of the Department, contended that section 11(5) provides for various forms and modes of investing or depositing the money by the trust. He contended that violation of section 11(5) results in forfeiture of exemption given to the trust. He contended that under section 11(2) of the Act, it is provided that where 70 per cent. of the income referred to in clause (a) or clause (b) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities under section 11(5) results in an income to the trust which is receivable by the trustees and it is called relevant income under section 164(1). He contended that a portion of such relevant income, in the present case, would suffer tax because the condition of investment, as prescribed under section 11(5), had not been fulfilled, but non-fulfilment of such condition cannot deprive the trust of the exemption of its other income which had been granted in the earlier years. He contended that in this connection, the proviso to section 164(2) is very important. He contended that under the said proviso, the Legislature has clearly contemplated that in a case where the whole or part of the relevant income is not exempt under section 11 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses. 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 of 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), 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 the non-exempt income portion would fall in the net of tax as if it was the income of the association of persons. On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e book right from April 1, 1985. The said proviso was inserted by the Finance Act, 1984. The proviso specifically refers to violation of section 13(1)(d) and its consequences. In the circumstances, we find 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 in Mafatlal Industries Limited and not to the entire income. Therefore, income other than dividend income shall be taxed at the normal rate of taxation under the Act. Accordingly, the above question is answered in the negative, i.e., in favour of the assessee and against the Department. Question No. 1 is answered in our judgment in ITA No. 81 of 1999. Accordingly, all the above appeals a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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