2015 (3) TMI 711 - HC - Income Tax

Disallowance of exemption u/s.11 - ITAT confirming the order passed by the CIT(A) directing the Assessing Officer to restrict the disallowance of exemption u/s.11 of the Act in respect of deposits in contravention of section 11(5) read with section 13(1)(d) of the Income Tax Act as against denial of exemption on the entire income by the Assessing Officer - Held that - Tribunal was justified in upholding the order passed by CIT(A)who has very clearly observed that the provisions of Section 11(1)(a) are very clear and provide that the income derived from the property held under trust shall not be included in the income to the extent it is applied for the charitable or religious purposes (expenses incurred during the year) or accumulated/set apart to be applied for that purpose in future out of 75% to which the restriction u/s 11(5) applies. In the case of Fr. Mullers Charitable Institutions (2014 (2) TMI 1033 - KARNATAKA HIGH COURT) it was held that a perusal of section 13(1)(d) of the Income-tax Act 1961 makes it clear that it is only the income from such investment or deposit which has been made in violation of section 11(5) of the Act that is liable to be taxed and violation under section 13(1)(d) does not result in denial of exemption under section 11 to the total income of the assessee and that where the whole or part of the relevant income is not exempted under section 11 by virtue of violation of section 13(1) (d) of the Act tax shall be levied on the relevant income or part of the relevant income at the maximum marginal rate - Decided in favour of assessee.

Summary

Issues Involved:
Challenge to ITAT order denying exemption under Income Tax Act for deposits made in contravention of specified sections.

Analysis:
The appellant-Revenue challenged the ITAT order regarding denial of exemption for deposits made in contravention of Section 11(5) and Section 13(1)(d) of the Income Tax Act for various assessment years. The respondent-assessee had filed appeals before the CIT(A) for each assessment year after the Assessing Officers denied exemption. The ITAT upheld the CIT(A) order, prompting the present appeals by the Revenue.

The main legal questions in the present tax appeals revolved around the extent to which exemption could be denied under the Income Tax Act for contraventions of specific sections. The key issues were whether the Tribunal was correct in restricting the disallowance of exemption only to the extent of the investment contravening the provisions, as opposed to denying exemption on the entire income amount.

During the proceedings, the appellant's counsel argued that the Tribunal should have considered the relevant provisions of Section 11(5) and Section 13(1)(d) of the Act more comprehensively. The appellant contended that denial of exemption on the entire amount was justified based on the Act's provisions. Conversely, the respondent's counsel supported the Tribunal's decision, citing a previous court ruling in a similar matter.

Upon hearing arguments from both sides and reviewing the orders of the CIT(A) and the Tribunal, the Court noted that the issues in question had already been settled in favor of the assessee in a previous decision. The Court reiterated the previous decision's findings, emphasizing that income derived from property held under trust should not be included in the income to the extent applied for charitable purposes. The Court also referenced a Karnataka High Court ruling regarding the taxation of income from investments made in violation of specified sections.

Consequently, the Court dismissed all appeals, ruling against the appellant-revenue and in favor of the respondent-assessee. The Court found no grounds to interfere with the impugned orders and held that the denial of exemption should only apply to the relevant income affected by the contraventions, not the entire income amount. No costs were awarded in the matter.