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2019 (10) TMI 305 - AT - Income Tax


Issues Involved:
1. Violation of Section 13(1)(d) and 13(2)(h) of the Income Tax Act.
2. Exemption under Sections 11 and 12 of the Income Tax Act.
3. Allowance of exemption under Section 10(34) and 10(38) of the Income Tax Act.
4. Carry forward of deficit on account of excess expenditure.

Detailed Analysis:

1. Violation of Section 13(1)(d) and 13(2)(h) of the Income Tax Act
The primary issue was whether the assessee, a registered charitable trust, violated the provisions of Section 13(1)(d) and 13(2)(h) by investing in shares of Tata Group companies. The AO concluded that such investments violated Section 13(1)(d), leading to the forfeiture of exemptions under Sections 11 and 12. The CIT(A) upheld this view, noting that the trust had invested in prohibited modes of investment as per Section 13(1)(d). However, the Tribunal found that the investments were made prior to 01.06.1973 and were part of the corpus, thus falling under the proviso to Section 13(1)(d)(iii). Therefore, the trust did not violate Section 13(1)(d) or 13(2)(h).

2. Exemption under Sections 11 and 12 of the Income Tax Act
The AO and CIT(A) held that due to the violation of Section 13(1)(d) and 13(2)(h), the trust's income was taxable at the maximum marginal rate under Section 164. The Tribunal, however, noted that the investments were compliant under the proviso to Section 13(1)(d)(iii) and thus, the trust was entitled to exemptions under Sections 11 and 12. Furthermore, the Tribunal emphasized that even if there was a violation, only the income from such investments would lose exemption, not the entire income of the trust.

3. Allowance of Exemption under Section 10(34) and 10(38) of the Income Tax Act
The CIT(A) allowed the exemption of dividend income under Section 10(34) and long-term capital gains under Section 10(38), relying on the Bombay High Court's decision in Jasubhai Foundation. The Tribunal upheld this, noting that the AO's view that the entire income becomes taxable was incorrect. The Tribunal referenced the Supreme Court's dismissal of the department's SLP in the case of Working Women's Forum, which supported the view that only the income from non-compliant investments should be taxed.

4. Carry Forward of Deficit on Account of Excess Expenditure
The CIT(A) allowed the carry forward of the deficit, relying on the Bombay High Court's decision in Institute of Banking Personnel Selection. The Tribunal upheld this, noting that the issue was settled by the Supreme Court in the case of Subros Educational Society, which allowed the carry forward of excess expenditure. The Tribunal dismissed the revenue's appeal, confirming that the assessee could carry forward the deficit for future application.

Conclusion
The Tribunal concluded that the assessee did not violate Sections 13(1)(d) and 13(2)(h), and thus, was entitled to exemptions under Sections 11 and 12. It also upheld the CIT(A)'s allowance of exemptions under Sections 10(34) and 10(38), and the carry forward of the deficit. The revenue's appeal was dismissed, and the assessee's appeal was allowed.

 

 

 

 

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