2016 (7) TMI 96 - AT - Income Tax

Rate of tax where the Benefit of Section 11 denied - violation of Sec. 13 - Held that - It is undisputed fact that during the year the assessee has shown surplus income over the expenditure at 20, 51, 064/-. There is violation of Sec. 13 that the assessee had made advances to the office bearer which was coming as opening from 01/4/2008 and also as on 31/3/2009 for 1, 54, 880/- . The assessee s explanation was that it was advances for payment was to be made for the services provided by the third person but as such the assessee has not established any nexus with evidence that these amounts were really provided and kept with the office bearer for the purposes of services rendered by the third person to the assessee society as same has been adjusted in the month of April 2011. Therefore it is clear cut default U/s 13 but as various ITATs as well as Hon ble High Courts held that if there is violation of Section 13 read with Section 11 MMR can be applied to that sum which was considered U/s 13 as violated during the year the assessee s advance 1, 54, 880/-. Therefore by following the decision cited by the assessee particularly decision of Hon ble Supreme Court in the case of DIT Vs Working Women s Forum (2015 (9) TMI 1447 - SUPREME COURT) and Jurisdictional ITAT decision in the case of M/s Santokba Durlabh Ji Trust Fund Vs ITO (2014 (11) TMI 444 - ITAT JAIPUR) are squarely applicable. Accordingly the ld Assessing Officer is directed to tax @ MMR for 1, 54, 880/- and allow the benefit of Section 11 for remaining amount as claimed in the return by the society. - Decided in favour of assessee

Summary

Issues: Violation of Section 13 of the Income Tax Act, 1961 leading to taxation of surplus income, applicability of Maximum Marginal Rate (MMR) for taxation, exemption under Section 11 for remaining amount.

Analysis:
1. The appeal was filed against the order passed by the ld. CIT(A)-III, Jaipur for the assessment year 2009-10. The issue revolved around the treatment of certain advances made by the assessee society to its office bearers. The Assessing Officer found that advances were given to office bearers, which were considered as personal benefits and not for the society's purposes, leading to denial of exemption under Section 11 and taxation of the surplus income shown in the income and expenditure account. The Assessing Officer relied on the provisions of Section 13(1) and 13(2) of the Act to hold the surplus taxable, citing a similar decision by the ITAT, Allahabad Bench.

2. The ld CIT(A) dismissed the appeal, emphasizing that the society had misutilized funds by diverting them to specified persons, leading to a violation of Section 13(1)(c) and 13(2)(a) of the Act. The advances given to office bearers were not convincingly explained by the assessee, resulting in the dismissal of the appeal.

3. In the appeal before the ITAT, the ld AR argued that the advances were made in previous years for specific purposes like repayment of loans or payments to third parties for services rendered to the society. The AR contended that if there was a violation of Section 13, only the amount violating the section should be taxed at MMR, citing various judicial precedents and decisions. The ITAT considered the arguments and directed the Assessing Officer to tax the amount violating Section 13 at MMR, allowing the exemption under Section 11 for the remaining amount as claimed by the society.

4. The ITAT's decision was based on the principle that only the amount violating Section 13 should be taxed at MMR, following the guidance of the Hon'ble Supreme Court and various High Court decisions. The ITAT emphasized the need for a nexus between the advances given and the services rendered to the society, and directed the Assessing Officer to apply MMR only to the amount violating Section 13, allowing the exemption under Section 11 for the remaining surplus income as claimed by the society.

5. Ultimately, the ITAT allowed the appeal of the assessee, directing the taxation of the amount violating Section 13 at MMR and granting exemption under Section 11 for the remaining surplus income. The decision was in line with established legal principles and judicial precedents, ensuring a fair and balanced approach to the taxation of the society's income.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the ITAT's decision, highlighting the legal arguments presented and the basis for the final ruling.