2024 (9) TMI 1524 - HC - Income Tax

Rejection of Exemption u/s 11 - trust had spent a sum towards one Meenakshi Sundararajan who is the wife of the founder of the trust - violation of Section 13(1)(c) - HELD THAT - Tribunal has correctly held that the first issue with regard to the rejection of the claim made by the assessee trust for getting exemption under Section 11 of the Act is concerned the payment to the said Meenakshi Sundararajan cannot be construed as a violation of Section 13(1)(c) of the Act because the trust was established well before the Act came into force that is on 01.02.1961 and the Memorandum of Association of the trust had paved the way for making this amount of honorarium to the trustees. When that being so it is strictly in consonance with the Memorandum of Association and therefore it cannot be construed as a violation of Section 13(1)(c). Tribunal has come to the conclusion that the assessee is entitled to claim exemption under Section 11 of the Act. When that being so the Assessing Authorities move to treat the entire income as a taxable income is erroneous and therefore the assessment order passed by the Assessing Authority as confirmed by the CIT (Appeals) has been reversed. Claim of depreciation is concerned the Tribunal followed its own decision in M/s.Mohamed Sathak Trust 2013 (10) TMI 1482 - ITAT CHENNAI and also decided the said issue in favour of the assessee.

Summary

Issues:
1. Claim of exemption under Section 11 of the Income Tax Act for a charitable trust.
2. Rejection of depreciation claim by the Assessing Authority.

Analysis:
1. The judgment pertains to an appeal against an order by the Income Tax Appellate Tribunal for the Assessment Year 2010-2011. The appellant, a charitable trust operating an educational institution, sought total exemption under Section 11 of the Income Tax Act for its income. The Assessing Authority disallowed the exemption due to a payment of Rs. 1,13,400 to an individual, considered a violation of Section 13(1)(c) of the Act. However, the Income Tax Appellate Tribunal ruled in favor of the assessee, stating that the payment was in line with the trust's Memorandum of Association and exempt under the Act, as the trust was established before the Act came into force. The Tribunal emphasized that the lower authorities erred in their interpretation of Sections 13(1)(c), 13(2), and 13(3) and reversed the assessment order, allowing the exemption under Section 11.

2. Additionally, the judgment addressed the rejection of the depreciation claim by the Assessing Authority. The Tribunal, following its precedent in a similar case, ruled in favor of the assessee on this issue as well. The court reviewed the Tribunal's decision and reasoning, concurring with it entirely and finding no grounds to interfere. Consequently, the substantial questions of law were answered in favor of the assessee, leading to the dismissal of the tax case appeal with no order as to costs.

In conclusion, the judgment upheld the charitable trust's claim for exemption under Section 11 of the Income Tax Act and favored the assessee on the depreciation claim issue. The court found no reason to overturn the Tribunal's decision and dismissed the tax case appeal accordingly.