9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (10) TMI 918 - AT - Income TaxDenial of exemption u/s 11 - violation of provisions of section 13(1)(d) - assessee has received the dividend income f rom its holdings as exempt u/s 10(34) - AO invoked the provisions of section 13(1)(d) to hold that the of the assessee trust has invested otherwise than in forms or modes specified u/s 11(5) - HELD THAT -Holding of the assessee Trust as of 31.03.2014 mainly consists of bonus shares and that the acquisitions prior to 01.03.1983 are not continued to be held (refer Sale Gifts above). Therefore in our considered view there is merit in the submission that the provisions of section 13(1)(d)(ii) is not applicable to assessee's case and that the holdings in Tata Sons Ltd., are covered by the exception as provided in section 13(1)(d). One more argument of the ld AR is that the shares of Tata Sons Ltd., are not acquired as investments using the fund of the assessee Trust but received as corpus donations and on that count also section 13(1)(d) is not applicable. AR also argued that the shares were received at the time of formation of the Trust which goes to prove that it forms part of the corpus of the assessee Trust - AR also made a without prejudice submission that even if the dividend income is held to be taxable for violation of section 11(5), it is otherwise exempt under section 10(34) which the AO has denied saying the Trust is not entitled to claim exemption u/s 10(34). Thus we hold that the AO is not correct in denying the benefit of section 11 to the assessee on the ground that section 13(1)(d) is applicable in assessee's case. Violation of section 13(2)(h) - founder trust of the assessee has invested in a concern in which he was the Chairman and that he is having substantial interest in Tata Sons Ltd. - Tata Sons Ltd. is an interested party in terms of section 13(3)(b) of the Act as it has contributed more than Rs. 50,000/- to the assessee - HELD THAT - The facts for the year under consideration is that none of Trustees including Mr.Ratan Tata is holding more than 20% of the voting powers in Tata Sons Ltd and therefore as per the provisions of explanation 3 to section 13, there is no violation of provisions of section 13(2)(h). As we note from the decision of JRD Trust 2019 (10) TMI 305 - ITAT MUMBAI that being a chairman in a company would not amount to holding substantial interest therein as per explanation to section 13(3). It is also relevant to note that the contention of the revenue that Tata Sons Ltd. has contributed more than Rs. 50,000/- is not supported by any evidence and the revenue did not bring anything on record to substantiate the same. In view of these discussions and considering the above decisions of the Tribunal we hold that the provisions of section 13(2)(h) cannot be applied in assessee's case and the benefit of section 11 cannot be denied for that reason. As already held that the benefit under section 11 cannot be denied to the assessee on the ground on violation of section 13(1)(d) 13(2)(h). Therefore, the deduction allowed towards application of funds on the ground that assessee is not entitled for exemption under section 11 is not sustainable. Accordingly the AO is directed to allow the deduction claimed by the assessee towards application of funds. It is ordered accordingly. Violation of provisions of section 13(1)(c) - Trustees of assessee Trust have received certain payments towards there past services from Tata Sons Ltd whose shares are held as corpus in assessee's Trust - HELD THAT - In assessee's case we are unable to appreciate how the AO applied the said provisions for the reason certain payment received by the Trustee. The payments are received for the past services rendered by the Trustees from Tata Sons Ltd, and there is no application/use of the income of the assessee. Therefore on the plain facts itself we are of the view that the AO is not correct in invoking the provisions of section 13(1)(c) of the Act. Violation of section 2(15) - assessee engaged in business by having control over the business of Tata Sons Ltd. - AO drew this conclusion from the fact that the assessee Trust is holding 23.56% of the shareholding in Tata Sons Ltd., and that one of the ex-Directors of Tata Sons Ltd. had submitted certain documents in support of the allegation that the business of Tata Sons Ltd., is controlled by the Trustees of the assessee Trust - HELD THAT - There is merit in the submission that the right to nominate persons to be a director of Tata Sons Ltd., is to protect the interest of assessee Trust and the numerous beneficiaries who are benefitted by the activities of the Trust by utilizing the Dividend earned from Tata Sons Ltd., which is a major source of income for the assessee Trust. The fact that the income of the Trust consists of Dividend and other donations and does not include any income from business proves that the assessee is not engaged in any activity in the nature of business. Further the income of Tata Sons Ltd is taxed in its own hand and not in the hands of the assessee also supports the contention that the assessee Trust is not engaged in any business activity - we hold that the Trust is not hit by the proviso to section 2(15) of the Act and accordingly, exemption under section 11 of the Act cannot be denied to the assessee Trust. Assessee appeal allowed.
Issues Involved:
1. Denial of exemption under section 11 due to alleged violations of sections 13(1)(d), 13(2)(h), 13(1)(c), and section 2(15) of the Income Tax Act for AY 2014-15 and AY 2018-19. Issue-wise Detailed Analysis: 1. Violation of Section 13(1)(d): The assessee, a Public Charitable Trust, was denied exemption under section 11 on the grounds that its investments in shares of Tata Sons Ltd. violated section 13(1)(d). The Assessing Officer (AO) argued that the trust's funds were invested in shares not specified under section 11(5), thus breaching section 13(1)(d). However, the assessee contended that the shares were part of the corpus as of June 1, 1973, and any accretions were bonus shares, falling under the exceptions in section 13(1)(d). The Tribunal found merit in the assessee's argument, noting that the investments were held as corpus and were covered by the exceptions, thus section 13(1)(d) was not applicable. 2. Violation of Section 13(2)(h): The AO claimed a violation of section 13(2)(h), asserting that Mr. Ratan Tata, a trustee, held substantial interest in Tata Sons Ltd. The Tribunal, however, noted that Mr. Tata held only 0.83% of shares, far below the 20% threshold for substantial interest as defined in Explanation 3 to section 13. Furthermore, being a Chairman does not equate to holding substantial interest. The Tribunal concluded that there was no violation of section 13(2)(h) and upheld the exemption under section 11. 3. Violation of Section 13(1)(c): For AY 2018-19, the AO alleged violation of section 13(1)(c) due to payments made by Tata Sons Ltd. to trustees for past services. The Tribunal observed that section 13(1)(c) applies when a trust's income is used for the benefit of specified persons. Since the payments were made by Tata Sons Ltd. and not from the trust's income, section 13(1)(c) was not applicable. The Tribunal held that the AO's application of section 13(1)(c) was incorrect, and the exemption under section 11 should not be denied. 4. Violation of Section 2(15): The AO argued that the trust violated section 2(15) by allegedly controlling Tata Sons Ltd., thus engaging in business activities. The Tribunal, however, clarified that holding shares and exercising shareholder rights does not constitute business activity. The trust's income was primarily from dividends, not business operations. The Tribunal concluded that the trust did not violate section 2(15) and was entitled to exemption under section 11. Conclusion: The Tribunal allowed the appeals for both AY 2014-15 and AY 2018-19, holding that the assessee trust did not violate sections 13(1)(d), 13(2)(h), 13(1)(c), or 2(15). Consequently, the denial of exemption under section 11 was overturned, and the trust was granted the benefit of exemption for both assessment years.
|
