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2014 (8) TMI 681 - HC - Income TaxExemption to be granted as provided u/s 13(1)(d) or total denial u/s 11 Investment made in MIOT Hospitals Ltd. Contravention of section 11(5)/13(1)(d) or not Held that - Following the decision in DIT (Exemptions) v. Sheth Mafatlal Gagalbhai Foundation Trust 2000 (10) TMI 26 - BOMBAY High Court - violation of section 11(5) r.w.s. 13(1)(d) by the assessee would result in the maximum marginal rate of tax only on the dividend income on shares, which was not the recognised mode of investment and that the assessee would not be vested with marginal rate of tax on the entire income - the income other than dividend income has to be taxed only to the extent to which the violation was found by the AO - there is a vital difference between eligibility for exemption and withdrawal of exemption/forfeiture of exemption for contravention of the provisions of law Decided against Revenue.
Issues:
1. Whether denial of exemption should only be to the extent of income violative of section 13(1)(d) and not total denial under section 11? 2. Whether the Tribunal was right in dismissing the Revenue's appeal due to the investment by the assessee-trust in MIOT Hospitals Ltd. contravening provisions of section 11(5)/13(1)(d)? Analysis: Issue 1: The case involved a trust registered under section 12AA of the Income-tax Act, providing assistance to various social causes. The assessee invested in MIOT Hospitals Ltd., which was not a specified asset under section 13(1)(d), leading to denial of exemption by the Assessing Officer under sections 11 and 12 of the Income-tax Act. The Commissioner of Incometax (Appeals) allowed part of the income violative of section 13(1)(d) to be taxed at the maximum marginal rate, following previous decisions. The Tribunal, referencing a Bombay High Court case, rejected the Revenue's appeal, leading to the current appeals. The High Court upheld the Tribunal's decision, emphasizing the distinction between eligibility for exemption and withdrawal/forfeiture of exemption for contravention of the law. It was held that only the part of income forfeiting exemption should be taxed at the maximum marginal rate, not the entire income. Issue 2: The Revenue contended that since the assessee violated section 13(1)(d), exemption under section 11 should not be granted. However, the High Court disagreed, stating that the decision relied upon by the Commissioner of Income-tax (Appeals) was not relevant to the current issue. The High Court supported the Tribunal's decision based on the Bombay High Court case, which clarified that violation of section 11(5) read with section 13(1)(d) would result in the maximum marginal rate of tax only on the part of income forfeiting exemption, not the entire income. Therefore, the High Court confirmed the Tribunal's order and rejected the Revenue's appeals. In conclusion, the High Court upheld the Tribunal's decision, emphasizing the correct application of tax laws regarding the denial of exemption only to the extent of income violative of specified provisions, rather than total denial under relevant sections.
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