9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (10) TMI 169 - AT - Income TaxExemption u/s 11 - violation of provision of Section 13(1)(c) and 13 (1)(d) - trustees have used property then trust - whether the trust looses exemption on whole of its income‟ or only that part of the amount covered under the violation - HELD THAT - As the issue is squarely covered by the decision of various courts at least on the principle that the assessee trust looses the exemption only to the extent of violation of Section 13 and not on the whole of the income, The order of the learned CIT (A) cannot be found to be fault with and therefore, upheld to that extent. There is an amendment to the provisions by the finance act 2022 within for from 1-4-2023 which provides that a part of income is applied directly indirectly for the benefit of specified persons then only such part of income shall be excluded from the operations of provisions of Section 11 and 12 of the act and consequently it should be included in the total income of the trust. This It needs to be ascertained that on what portion of income assessee trust loses its exemption. The assessee has without prejudice submitted before the learned Assessing Officer which is also reproduced at page no.9 of the order of the learned CIT (A). It shows that the assessee submitted before the learned Assessing Officer that even if it is presumed that the trustees have used property then trust would be made liable for the income for relevant years to the extent of income that would be chargeable to tax - The assessee submitted that some portion of the premises was intermittently used by the Private Limited Company. Assessee has also stated that market value of compensation not charged is the above amounts. CIT (A) has categorically confirmed that M/s Ideen Furniture Pvt. Ltd. was occupying the 8th floor of the building of assessee‟s trust. Therefore, naturally the Provision of Section 13(1)(c) of the Act applies to this property. 10th Floor of the building was utilised by the Bujwal family as its Bunglow - Jt. Commissioner has held that complainant could not prove before him that 10th Floor is used as a residence by the Bujwal family beyond reasonable doubt . In the income tax proceedings the beyond reasonable doubt concept is unknown. Further the proceedings before the joint Charity Commissioner were altogether Under different provisions of the Bombay public trust act for the removal of the trustees. For the purpose of provisions of Section 11, 12 and 13 it needs to be verified whether the property has been used directly or indirectly for the benefit of the specified persons or not. Therefore the issue needs to be looked at from the perspective of the income tax act. Therefore, the learned AO should make necessary enquiries. In view of this fact, the learned Assessing Officer should make an independent enquiry in accordance with the law that whether the 10th floor has been utilized by the trustees for their direct or indirect benefit. If, on enquiry the learned assessing officer finds that the property is used for the director indirect benefit of the specified persons, naturally on this property also the provisions of Section 13 (1) (C) will apply. Provisions of Section 13(1)(c) (ii) of the Act clearly says that if any part of such income or property of the trust during the previous year used or applied directly or indirectly for the benefit of the specified persons then such part of income cannot be said to be applied for the charitable purposes. In the present case, the property at 8th floor and 10th floor(subject to the outcome of the enquiries of the learned assessing officer) of the building of the assessee trust are applied for the benefit of the specified persons. Therefore, the learned Assessing Officer is also direct to determine the part of such income or property of the trust on which it loses the exemption. The learned Assessing Officer may do so after giving proper opportunity of hearing to the assessee. AO is further directed to examine Whether such income is also chargeable to tax in the hands of such specified persons with respect to the provisions of Section 56 (2) (vii) of the act which was operating from 1 October 2009 till 31 March 2017 or Under Section 28 (iv) of the act.
Issues Involved:
1. Validity of reassessment under Section 147/148. 2. Violation of Section 13 by the assessee trust. 3. Denial of exemption under Section 11 due to violation of Section 13. 4. Extent of denial of exemption under Section 11. 5. Taxability of dividend income under Section 10(34). Detailed Analysis: 1. Validity of Reassessment under Section 147/148: The reassessment was initiated based on the information that the assessee trust's properties were used by specified persons without adequate compensation, violating Section 13. The notice under Section 148 was issued on 15th March 2015, and the reassessment was completed on 31st March 2016. 2. Violation of Section 13 by the Assessee Trust: The Assessing Officer (AO) found that the 8th floor of the trust's building was occupied by M/s Ideen Furniture Pvt. Ltd. without any payment. Additionally, the 10th floor, designated as a guest house, was allegedly used as a private residence by the Bhujbal family without compensation. The AO concluded that these actions violated Sections 13(1)(c) and 13(1)(d), leading to the denial of exemptions under Sections 11 and 12. 3. Denial of Exemption under Section 11 due to Violation of Section 13: The AO denied the exemption under Section 11 on the entire income of the trust due to the violations. The assessee admitted the market value of the compensation not charged for the use of the property by M/s Ideen Furniture Pvt. Ltd. for various financial years, but contested the denial of exemption on the entire income. 4. Extent of Denial of Exemption under Section 11: The CIT(A) held that the benefit of exemption under Section 11 can only be denied to the extent of the violation of Section 13. The CIT(A) concluded that the AO could not prove the use of the 10th floor as a private residence by the Bhujbal family. However, the CIT(A) confirmed the violation regarding the 8th floor's use by M/s Ideen Furniture Pvt. Ltd. The CIT(A) further held that despite the violation, the exemption under Section 11 cannot be withdrawn on the total income but only to the extent of the violation. The ITAT upheld this view, stating that the trust loses exemption only to the extent of the violation of Section 13 and not on the whole of the income. 5. Taxability of Dividend Income under Section 10(34): For AY 2010-11, the trust received dividend income of Rs. 5,000, which was not treated as exempt under Section 10(34) by the AO. The CIT(A), following judicial precedents, held that the dividend income is exempt under Section 10(34) despite the trust having its income exempt under Sections 11 and 12. The ITAT upheld this decision. Conclusion: The ITAT concluded that the trust loses exemption only to the extent of the violation of Section 13 and not on the whole of its income. The AO was directed to ascertain the portion of income on which the trust loses its exemption and to examine whether such income is chargeable to tax in the hands of the specified persons under Sections 56(2)(vii) or 28(iv). The appeals filed by the AO for AYs 2008-09 to 2011-12 were dismissed, but the matters were restored to the AO for computation of income under Section 13(1)(c). The ITAT also upheld the CIT(A)'s decision regarding the taxability of dividend income under Section 10(34).
|
