TMI Blog2019 (10) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... mandate of Explanation 3 to section 13 of the Act. Hence, the assessee has not violated the provision of section 13(2)(h) of the Act and hence, on both grounds assessee succeeds. Assessee trust has violated section 13(3)(b) - Tata Sons Ltd. has not made any contribution to the assessee, let alone contributing a sum in excess of ₹ 50,000/-. In the course of the assessment proceedings, no question was ever asked nor was any detail called for in this regard by the AO. Hence, I am of the view that this observation is factually incorrect and reversed. This additional ground is decided in favour of assessee. Exemption under section 11 of the Act is not to he denied to the entire income of the assessee. However, as held that the assessee in the present case has not violated any part of section 13 Allowance of carry forward deficit on account of excess expenditure while granting benefit under of section 11 - We allow the carry forward of the deficit and dismiss this issue of revenue s appeal. - ITA No. 3082/Mum/2018, 3154/Mum/2018 (Assessment Year 2012-13) - - - Dated:- 13-9-2019 - SRI MAHAVIR SINGH, JUDICIAL MEMBER Appellant by: Shri Percy Pardiwala, Sukh Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of ₹ 4,81,332/- from the units of Unit Trust of India held by it, which was claimed as exempt under section 10(35) of the Act. Further, the assessee received interest income and sundry income of ₹ 3,06,62,484/- and ₹ 90342/- respectively, which were claimed as exempt under section 11 of the Act. 3. According to AO, the assessee is hit by the provisions of section 13(1)(d) of the Act of as the Trust had made investment in equity shares in violation of section 13(1)(d) of the Act and thus exemption under section 11 and 12 of the Act will not be allowable in respect of income of the assessee trust. According to AO, the assessee s total receipts are to the tune of ₹ 16,17,38,768/- is taxable at maximum marginal rate under section 164 of the Act. The assessee claimed that the dividend on shares and units is not includible in the total income because the dividend income of shares and mutual funds and long term capital gain on sale of shares are exempted under section 10(34), 10(35) and 10(38) of the Act respectively and also cannot be brought to tax by applying the provisions of section 11 and 13 of the Act. But according to AO, section 13(1)(d) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Section 13(I)(d) of the Income Tax Act, 1961. The assessee was specifically asked by the AO vide order sheet noting dated 11.05.2015 as to why the provisions of Section 13(I)(d)(i) should not be invoked as regards investment in shares of company which was not a public sector company. The assessee submitted that investment in the shares of the Tata Sons Limited and group companies does not attract the provision of 13(l)(d)/13(2)(h) as this asset are held by the assessee trust as purpose as on l June 1973 and such assets are permitted to beheld as assets by the trust. Any accretion to such shares by way of bonus is also permitted to be held by the assessee trust as per proviso to section 13(1)(d)(iii) of I.T. Act. However, the appellant trust has invested in the shares of Tata Sons Ltd. and others and the same have been held by the assessee trust during the year, the provision of Section 13(l)(d) clearly specify that the trust cannot hold any funds as investment otherwise than in any one or more of trie forms or modes specified in the Section 11(5) of the Income Tax Act. Hence, the AO disallowed exemption u/s 11 and 12 of the Income Tax Act. By investing in shares of Tata Son ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee Only on the income to the extent the same is derived in conformity of section 11 and applied during the yea' for such purpose of charitable trust.' 6.3.3 Thus, as per the above decision of the Hon ble ITAT in a group case of the appellant trust, the income which is derived from the investments made in Instruments in violation of provisions of Section 13(l)(d) and 13(2)(h) would lead to forfeiture of exemption of income derived from such investment which in this year is the dividend income received from the shares of the TATA Sons Ltd. and other TATA Group Companies. 6.3.4 Respectfully, following the decisions of Hon'ble Supreme Court in the case of Director of Income Tax, Chennai vs Working Women's Forum [2015] 63 taxmann.com 324 (SC) and the Hon'ble ITAT order, the AO is directed to compute the income of the appellant trust accordingly for the assessment year under consideration. However, AO is also directed to incorporate the rulings in Para 5.3 (Supra) for Grounds no. 1 to 3 in respect of exemption of dividend income in the instant case while arriving at the total income of the appellant trust. Aggrieved, by the order of CIT(A) upholding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period prior to the year 01.06.1973 and the assessee s trust fulfill the condition as mentioned in the proviso (i) and (ia) to section 13(1)(d)(iii) of the Act. The learned Counsel for the assessee now drew our attention to the provisions of section 13 (1) of the Act as under: - Section 11 not to apply in certain cases. 13. (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- 13(d) (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 . (iii) any shares in a company, other than- (A) shares in a public sector company; (B) shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983: 7. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-Mar-2013 31-Mar-2012 Jamsetji Tata Trust 2,45,00,000 2,45,00,000 Navajbai Ratan Tata Trust 1,50,15,000 1,50,15,000 8. Similarly, the learned Counsel took us through the 67th Annual Report of Tata Motors for the FY 2011-12, wherein the details of shareholding is given from where noted that Shri Ratan Tata is not the investor. Similarly, the learned Counsel for the assessee drew our attention to the 93rd Annual Report of Tata Computer Company for FY 2011-12, wherein top ten shareholders of the Tata Computer Company as on 31.03.2012 is given. In this year also, there is no one in the name of Shri Ratan N Tata. The assessee has also filed the details of Tata Chemicals Limited statement showing the share of shareholders etc. in the category of promoters and promoters group but there is no Shri Ratan N Tata or the assessee of the Trust. I noted that the assessee has submitted various details and the trust was holding shares of Tata Sons limited and other group of companies. These shares were not invested by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. 10. The learned counsel for the assessee stated Shri Ratan N. Tata is not the founder of the Tata Sons, whereas founder was Jamshedji Tata. He was chairman of Tata Sons Limited from 1991 to 2012 and after 28.12.2012, he holds the position of chairman of emirates of the group which is honorary and advisory positions no doubt that Shri Ratan N Tata was one of the trustees of the assessee s trust. The learned Counsel for the assessee also drew our attention to the details of investments made by the trust along with year of acquisition, from where it is noted that the investments have been made prior to 1973 and hence, the same along with bonus shares issued therein are permissible of investments as per the clause (i) and (ia) of the proviso of section 13(1)(d)(iii) of the Act. It is also a fact that one of the trustee does not hold substantial interest of 20% or more in any of the companies where the trustees has investment and hence, findings given by the AO and CIT(A) on this issue is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etji Tata Trust (supra) was limited to the application of the main part of section 13(i)(d) and the question of the applicability of the proviso was not raised therein as admittedly the benefit of the proviso was not available to that Trust. This was for the reason that the shares held by that Trusts were received by it after 1st June, 1973. As a matter of fact, Jamsetji Tata Trust itself was settled in the year 1974, therefore, the question of receiving any shares prior to 1st June, 1973 did not arise in the facts of that case. Accordingly, the CIT(A) erred in relying on the decision of Jamseiji Tata Trust (supra) to come to the conclusion that the proviso to section 13(1)(d) is inapplicable. In light of the above, I am of the firm view that the assessee's shareholding in the four companies is not in violation of section 13(1)(d) of the Act. 12. The AO alleged that the assessee's shareholding in the four companies is also in violation of section 13(2)(h) of the Act. The AO observed that Mr. Ratan N. Tata, who is one of the Trustees of the assessee was also the chairman of Tata Sons Ltd in the relevant financial year. With this background, the AO concluded that being a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a company does not amount to holding a 'substantial interest' therein in terms of the clear mandate of Explanation 3 to section 13 of the Act. Hence, I am of the view that the assessee has not violated the provision of section 13(2)(h) of the Act and hence, on both grounds assessee succeeds. 14. The next issue raised by assessee is as regards to the order of CIT(A) confirming the action of AO in holding that assessee trust has violated section 13(3)(b) of the Act. Assessee raised the following additional ground: - 3. On the facts and under the circumstances of the case and in law, the learned Commissioner of income-tax (appeals) [CIT(A)] erred in upholding the factually incorrect finding of income tax officer (exemptions)-2(4) ( the learned AO ) that Tata Sons Ltd ( TSL ) has made a contribution of more than ₹ 50,000 to the Appellant trust and hence, is a person referred to in clause (b) of sub-section (3) of section 13 of the Income-tax Act, 1961. 15. As regards to admissibility of additional ground, Ld Counsel argued that this additional ground is raised under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 as per the settled law that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50.000/-. In view of the above, the AO disallowed exemption u/s 11 on dividend income of Its. 4,81,332/- and ₹ 13,05,04,610/-. The income of the assessee was charged at Maximum Marginal Rate u/s 164(2) of the Income Tax Act. 17. I noted that this finding is factually incorrect. Tata Sons Ltd. has not made any contribution to the assessee, let alone contributing a sum in excess of ₹ 50,000/-. In the course of the assessment proceedings, no question was ever asked nor was any detail called for in this regard by the AO. Hence, I am of the view that this observation is factually incorrect and reversed. This additional ground is decided in favour of assessee. 18. The first issue in the appeal of Revenue is against the allowances of exemption under section 10(34) and 10(38) of the Act. The CIT(A) allowed the claim of the assessee in respect of claim of exemption of dividend income on mutual funds and long term capital gain on sale of shares under section 10(34) and 10(38) of the Act respectively amounting to ₹ 4,81,352/- i.e. dividend of units only by following the decision of Hon ble Bombay High Court in the case of Director of Income-tax (Exemptions)v. Jasubh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) of section I 1(I)(d).. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in applying the ratio laid down by the Hon ble Supreme Court in the case of Director of Income Tax, Chennai Vs. Working Women's Forum 12015163 ta.xmann.com 324 (SC) in which the SLP of the department was rejected whereas the Hon tie Apex Court has already held in Bharat Diamond Bourse reported in 259 ITR 280 (SC) that the benefits under section 11 and 12 of the IT Act would be denied totally in the event of any violation of section 13 of the I.T. Act. 19. I have heard rival contentions on this issue. I noted that the AO opined that once the shareholding of the assessee in the four companies is held to be in violation of section 13 of the Act, then, the entire income of the assessee becomes taxable at the maximum marginal rate under section 164 of the Act. According to the AO, in such cases the assessee cannot claim exemption under section 11 of the Act for any income, irrespective of whether such other income has any nexus with the allegedly violative investments or not. Accordingly, it was held that even the interest income of ₹ 3,06,62,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act or not. As a matter of fact, the Hon'ble Bombay High Court has specifically dealt with the department's reliance on Bharat Diamond Bourse (supra) in its judgment in the case of Audyogik Shikshan Mandal (supra) and held that this judgment does not deal with the issue of limited versus complete denial of exemption under section 11 of the Act. The relevant observations of the High Court in Audyogik Shikshan Mandal (supra) are extracted hereunder: 7.We find that the impugned order of the Tribunal has placed reliance upon the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra), after having noted that the the decision of the Supreme Court in Bharat Diamond Bourse (supra) does not very clearly specify whether it is only the income diverted as loans to a person specified under Section 13 of the Act, which was denied the benefit of Section 11 of the Act or the entire income was denied the benefit of exemption under Sect ion 11 of the Act. We have closely read the decision of the Apex Court in Bharat Diamond Bourse (supra) and it does not extend the benefit of Section 11 of the Act to the Trust. However, it is not clear whether it is only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. The second issue in this appeal of Revenue is as regards to the allowance of carry forward deficit on account of excess expenditure while granting benefit under of section 11 of the Act by the CIT(A). For this Revenue has raised the following ground No. 3, 4 and 5: - 3. Whether, on the facts of the case and in law, the Ld. CIT(A) erred in allowing the carry forward of deficit of ₹ 11,06,82,874/-, and directing the Assessing Officer to allow carry forward of deficit on account of excess expenditure without appreciating the fact that this would have the effect of granting double benefit to the assessee, first as 'accumulation' of income u/s. 11(1)(a) or as corpus donation u/s 11(1)(d) in earlier years/current year and then as 'application' of income u/s 11(l)a in the subsequent years which was legally not permissible.? 4. Whether, on the facts of the case and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit by relying upon the judgment of Hon ble Bombay High Court in the case of Institute of Banking Personnel Selection, ignoring the fact that the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of above decision, we held the Ld. CIT (A) has rightly allowed the appeal of the assessee, therefore, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Accordingly, the appeal of the revenue on all the above grounds of appeal are therefore, dismissed. 24. I noted that this issue of denial of carry forward of deficit is covered. I noted facts that during the financial year the relevant income of the assessee which entered the computation under section 11 of the Act and which was to be applied to charitable objects of the Trust was ₹ 2,56,74,090/-, whereas the actual income which was applied by the assessee towards its charitable objects was ₹ 13,63,56,964/-. Therefore, in this year, the assessee applied all sum of ₹ 11,06,82,874/- towards its charitable objects. This excess application or deficit was sought to be carried forward by the assessee to the subsequent years. The same was denied by the AO in his assessment order. But the CIT(A) reversed the findings of the AO and allowed the claim of carry forward of such deficit by relying on several judgments, including those of the Hon'ble Bombay II High Court in the case of Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
