2014 (6) TMI 980 - HC - Income Tax

Violation u/s.11(5) and 13(1)(d) - whether the exemption is to be withdrawn for the entire income or the portion of the income? - Held that - This issue is covered by the judgment of the Bombay High Court in the case reported in Director Of Income-Tax (Exemptions) Versus Sheth Mafatlal Gagalbhai Foundation Trust(2000 (10) TMI 26 - BOMBAY High Court ). Following the aforesaid judgment, this court in the case of Commissioner of Income Tax, Mangalore Vs. Fr. Mullers Charitable Institutions, Kankanady, Mangalore 2014 (2) TMI 1033 - KARNATAKA HIGH COURT has held the entire income of the assessee cannot be assessed for the tax, for violating under Section 11(5) read with Sec.31(1)(d) of the Act and what would become the subject matter of assessment is only that income which is the subject matter of violation. - Decided in favour of the assessee

Summary

Issues:
Challenging order passed by Income Tax Appellate Tribunal regarding relief claimed u/s.11 in violation of Section 13(1)(d) of the Income Tax Act, 1961.

Analysis:

1. Violation of Section 11(5) and 13(1)(d) of the Act:
The appeals were filed by the Revenue challenging the Tribunal's decision upholding the finding of the Commissioner of Income Tax and directing a re-look at the relief claimed under Section 11 in violation of Section 13(1)(d) of the Income Tax Act, 1961. The key issue was whether the exemption should be withdrawn for the entire income or only a portion of it in case of violation of these sections. The judgment referred to a case from the Bombay High Court and another case from the Karnataka High Court, where it was held that only the income subject to violation should be assessed for tax, not the entire income. Therefore, the High Court upheld the decision in favor of the assessee based on these precedents, dismissing the appeals by answering the substantial question of law in favor of the assessee and against the Revenue.

2. Interpretation of Relevant Sections:
The High Court analyzed the provisions of Section 11(5) and 13(1)(d) of the Income Tax Act, 1961, to determine the scope of violation and the consequences thereof. It was established that in cases of violation of these sections, only the income directly related to the violation should be subjected to assessment for tax purposes. The court relied on previous judgments to support this interpretation and applied the same principle to the current case, emphasizing that the entire income of the assessee should not be assessed for tax due to the violation of these specific sections.

3. Precedents and Legal Interpretation:
The judgment extensively referred to past decisions, especially the Bombay High Court case and a previous Karnataka High Court case, to establish a consistent legal interpretation regarding the assessment of income in cases of violation of Section 11(5) and 13(1)(d) of the Income Tax Act, 1961. By aligning with the principles set in these precedents, the High Court maintained a clear stance that only the income associated with the violation should be subject to taxation, ensuring a fair and consistent application of the law in similar cases. This reliance on established legal principles and precedents strengthened the court's decision to dismiss the Revenue's appeals and rule in favor of the assessee.