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Issues involved:
The judgment involves the issue of exemption under section 11 of the Income Tax Act for a public charitable trust in relation to income other than dividend income for the assessment years 1984-85 and 1985-86. Assessment Year 1984-85: The assessee, a public charitable trust, lost exemption under section 11 of the Act in respect of dividend income due to holding preference shares contravening section 11(5). The Income Tax Officer (ITO) rejected the claim for exemption, stating that the entire income would be taxed without deduction for object expenses. The Commissioner of Income-tax (Appeals) upheld the ITO's decision, ruling that the entire income stands disqualified for exemption under section 11 due to contravention of section 11(5) by holding investments not included in section 11(5). However, the Tribunal disagreed, stating that only the dividend income from the shares should be taxed at the prescribed rate, as the trust cannot be denied exemption under section 11 for other income earned. Assessment Year 1985-86: For this assessment year, the ITO similarly did not accept the assessee's claim for exemption under section 11 due to holding investments contravening section 11(5). The CIT(A) upheld the ITO's decision, stating that the entire income of the trust stands disqualified for exemption under section 11. However, the Tribunal ruled in favor of the assessee, directing the ITO to accept the contention that only the income from dividend on the shares should be taxed at the prescribed rate, while the trust should not lose exemption under section 11 for other income earned. In conclusion, the Tribunal allowed both appeals, holding that the trust should only be taxed on the dividend income from the shares not compliant with section 11(5), while maintaining exemption under section 11 for other income earned by the trust.
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