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2019 (12) TMI 151 - AT - Income TaxExemption u/s 11 - violation of provisions of section 13(1)(c) - specified person - the trust is operating buses to transport the students at free of cost. In case of breakdown, the Managing Trustee offers the vehicles of his own transport business to ferry the students - HELD THAT - AO was of the view that Bharat Shah was a person belonging to the prohibited category within the meaning of section 13(3)(a) and section 13(3)(cc) and since the income or property of the institution had been lent to such a person for any time during the previous year relevant to AY 1989-90 and 1990-91, without adequate security and adequate interest, the legal fiction in Sub-section (2) of section 13 of the Act would come into play and the income or property of the institution shall, for the purpose of Clause (d) of sub-section (1) of section 13 of the Act, be deemed to have been applied for the benefit of the prohibited category of persons under Sub-section (3) and thereby, the Hon ble Supreme Court affirmed the view of the Assessing Officer. The decision of the Hon ble Jurisdictional High Court in the case of CIT v. Working Women s Forum 2014 (8) TMI 681 - MADRAS HIGH COURT is not in favour of the Revenue, wherein, it was held that denial of exemption should only be to the extent of the income which is violative of section 13(1)(d) of the Act and not the total denial of exemption under section 11 of the Act. Against the above decision, the SLP filed by the Department in this regard has been dismissed by the Hon ble Supreme Court and thus, the law laid down by the Hon ble Jurisdictional High Court in the above case has become final. Under the above facts and circumstances, we are of the considered opinion that the ld. CIT(A) has rightly followed the above decision of the Hon ble Jurisdictional High Court and directed the Assessing Officer to compute the value of the benefits extended to the trustee to the extent of violation and brought to tax at the maximum marginal rate. Thus, the ground raised by the Revenue stands dismissed.
Issues:
- Exemption under section 11 of the Income Tax Act, 1961 - Violation of provisions of section 13(1)(c) of the Act - Application of CBDT Circular No. 387 and Explanation to the provisions of sub-section 2 of section 12 of the Act - Denial of exemption under section 11 based on the use of trust-owned vehicles for personal purposes - Comparison with relevant case laws like DDIT v. Paramasiva Naidu Muthuvel Raj Education Trust and DIT v. Bharat Diamond Bourse - Interpretation of the decision in CIT v. Working Women's Forum regarding denial of exemption under section 11 Exemption under section 11 of the Income Tax Act, 1961: The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the exemption under section 11 of the Act for a public charitable trust. The Assessing Officer initially denied the exemption, but the CIT(A) ruled in favor of the trust, directing the AO to verify the application of gross receipts for granting relief. The Tribunal considered the submissions and upheld the CIT(A)'s decision, dismissing the Revenue's appeal. Violation of provisions of section 13(1)(c) of the Act: The Assessing Officer invoked section 13(1)(c) due to the trust owning a transport business and using its vehicles. The AO alleged that extraneous expenditure claimed by the trust was related to the managing trustee's transport business, leading to the denial of exemption under section 11. However, the trust clarified that no such expenditure was claimed, and the vehicles were used for student transportation. The CIT(A) referred to CBDT Circular No. 387 and directed the AO to tax the benefits extended to the trustee at the maximum marginal rate for any violation. Application of CBDT Circular No. 387 and Explanation to the provisions of sub-section 2 of section 12 of the Act: The CIT(A) relied on the CBDT Circular and the Explanation to section 12 to determine the taxation of benefits granted free of cost or at concessional rates. Following a High Court decision, the CIT(A) directed the AO to compute the value of benefits extended to the trustee for any violation under section 13(1)(c) and tax it at the maximum marginal rate. Denial of exemption under section 11 based on the use of trust-owned vehicles for personal purposes: The Revenue argued that the denial of exemption under section 11 should have been considered in light of previous case laws. However, the Tribunal found no direct or indirect benefit to the trustee from the trust's use of vehicles, distinguishing it from cases where violations of section 13(1)(c) were evident. Comparison with relevant case laws: The Tribunal compared the present case with DDIT v. Paramasiva Naidu Muthuvel Raj Education Trust and DIT v. Bharat Diamond Bourse to assess the violation of section 13(1)(c). The Tribunal concluded that the trust's situation did not align with the violations in those cases, leading to the dismissal of the Revenue's appeal. Interpretation of the decision in CIT v. Working Women's Forum: The Tribunal upheld the CIT(A)'s decision based on the interpretation of CIT v. Working Women's Forum, emphasizing that denial of exemption should only apply to the violative income under section 13(1)(d) and not a total denial of exemption under section 11. The Tribunal found the CIT(A) to have correctly followed the High Court decision and directed the AO to tax benefits extended to the trustee for any violation. In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision regarding the exemption under section 11 of the Income Tax Act, 1961, and the application of provisions related to violations under section 13(1)(c).
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