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2021 (8) TMI 204 - AT - Income TaxExemption u/s. 10(34) - exemption u/s. 11 is denied to the assessee due to the violation of section 13(1 )(d) - CIT(A) granting exemption u/s. 10(34) when this income forms a part of the income from property held under trust and therefore can only be claimed to be exempt u/s. 11, if applied for charity and not u/s. 10 - HELD THAT - We find ourself agreement with the submission of assessee and the view taken by the Ld.CIT(A) that the issue stands covered in favour of the assessee by the decision of Jasubhai Foundation 2015 (4) TMI 305 - BOMBAY HIGH COURT . ITAT decision in the case of Jamsetji Tata Trust 2014 (5) TMI 890 - ITAT MUMBAI and associate trust of the assessee trust, Shekhar bajaj charitable trust also supports this view. Departments plea in grounds of appeal that Hon ble jurisdictional High Court in decision in Jasubhai Foundation(supra) has not been appealed before Hon ble Supreme Court due to low tax effect is not a reason for us to take a contrary view.
Issues involved:
1. Whether exemption u/s. 10(34) can be granted to income from property held under trust or should it be claimed u/s. 11 for charity purposes? 2. Whether the judgment of Hon'ble Bombay High Court in DIT(E) vs. Jasubhai Foundation is applicable to the current case? 3. Whether the AO was justified in denying exemption u/s. 10(34) for dividend income earned by the appellant trust? Issue 1 - Detailed Analysis: The case involved a public company trust engaged in providing medical aid to rural poor. The trust held shares of listed companies as donations towards its corpus, violating Section 11(5) and Section 13(1)(d) of the Income Tax Act. The AO contended that the trust invested in a prohibited manner, leading to the denial of exemption u/s. 11. The AO taxed the dividend income earned by the trust at the maximum marginal rate under Section 164(2) of the Act. The CIT(A) allowed the exemption u/s. 10(34) for the dividend income, citing judgments supporting the claim that income exempt u/s. 10 cannot be taxed by applying sections 11 and 13. Issue 2 - Detailed Analysis: The CIT(A) relied on judgments, including one from the Hon'ble Bombay High Court in the case of DIT(E) vs. Jasubhai Foundation. The High Court held that the language of Sections 10 and 11 does not allow income excluded under Section 10 to be included in the total income under Section 11. The judgment emphasized that the provisions of Section 10 and Section 11 operate independently, and the benefit of Section 10 cannot be denied by invoking Sections 11 to 13. The CIT(A) found the judgment applicable to the current case, supporting the trust's claim for exemption u/s. 10(34). Issue 3 - Detailed Analysis: The Revenue appealed the CIT(A)'s decision. The ITAT upheld the CIT(A)'s order, stating that the issue was covered in favor of the assessee by the decision of the Hon'ble jurisdictional High Court in the case of Jasubhai Foundation. The ITAT rejected the Revenue's plea that the High Court's decision had not been appealed before the Supreme Court due to low tax effect. The ITAT found the AO's denial of exemption u/s. 10(34) for the dividend income unjustified, ultimately dismissing the Revenue's appeal. In conclusion, the ITAT ruled in favor of the assessee, upholding the exemption u/s. 10(34) for the dividend income earned by the trust, based on the judgments cited and the interpretation of Sections 10 and 11 of the Income Tax Act.
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