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2021 (2) TMI 640 - AT - Income TaxExemption u/s 11 - Denial of exemption as assessee has allowed benefit to the persons specified u/s.13 (1)(c) allowing various loans and advances to trustees or companies, in which trustees are interested, thereby violated provisions of section 13(1)(c) - HELD THAT - Advance given to M/s. Star Educational Trust and Shri M.G. Bharathkumar, were ultimately used by M/s. Star Educational Trust for the purpose of imparting education and there was no finding of fact from the authorities that any part of income was directly or indirectly benefited to the persons specified u/s.13(3) - As regards, advance given to M/s. Mahaajay Spinners India Pvt. Ltd., the evidence brought on record clearly indicate that said advance was given in the normal course of activity of the trust for purchase of uniforms and coats for which necessary evidences including bill for supply of uniforms was placed on record. Therefore, all 3 advances cannot be considered as income or property of the trust was directly or indirectly allowed to the benefit of any person referred to sub-section (3) of section 13 of the Act. AO was erred in denying the benefit of exemption u/s.11 of the Act, to the trust for contravention of provisions of section 13(1)(c) of the Act. The ld.CIT(A) although has accepted the arguments of the assessee, in so far as advance given to M/s. Star Educational Trust and Shri M.G. Bharathkumar, but in so far as advance given to M/s. Mahaajay Spinners India Pvt. Ltd., held that said advance was violative of section 13(1)(c) of the Act, without assigning any reasons - in so far as three advances considered by the ld AO, there is no violation of section 13(1)(c) of the Income Tax Act, 1961 and accordingly, there is no reason to deny exemption u/s 11 of the Act, to income of the trust. Hence, we direct the ld. AO to allow the benefit of exemption u/s.11 of the Act, as claimed by the assessee. - Decided in favour of assessee.
Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act. 2. Violation of provisions under Section 13(1)(c) and Section 13(1)(d) of the Income Tax Act. 3. Treatment of advances given to specified persons under Section 13(3) of the Income Tax Act. 4. Application of Section 164(2) of the Income Tax Act regarding taxation at the maximum marginal rate. Detailed Analysis: 1. Eligibility for Exemption under Section 11: The central issue was whether the assessee trust was eligible for exemption under Section 11 of the Income Tax Act. The trust had claimed exemption for income applied for charitable purposes. The Assessing Officer (AO) denied this exemption, arguing that the trust had violated provisions of Section 13(1)(c) by allowing benefits to specified persons. 2. Violation of Provisions under Section 13(1)(c) and Section 13(1)(d): The AO identified three instances of alleged violations: - Advance to M/s. Star Educational Trust: The AO argued that since this trust was not registered under Section 12AA, the advance could not be considered as application of income for charitable purposes. However, the CIT(A) and the Tribunal found that the objects of both trusts were similar and charitable, and the funds were used for educational purposes. Thus, there was no violation of Section 13(1)(c). - Advance to Shri M.G. Bharathkumar: The AO considered this as a direct benefit to the trustee. However, it was found that the amount was transferred to M/s. Star Educational Trust for educational purposes. The Tribunal concluded that this did not constitute a violation of Section 13(1)(c). - Advance to M/s. Mahaajay Spinners India Pvt. Ltd.: The AO argued this was a benefit to a company where trustees were directors. However, it was established that the advance was for the supply of uniforms and coats, a normal business transaction. The Tribunal found no violation of Section 13(1)(c). 3. Treatment of Advances Given to Specified Persons under Section 13(3): The AO argued that advances given to specified persons without adequate interest or security violated Section 13(2)(a) and Section 13(2)(h). The Tribunal, however, concluded that these advances were commercial transactions and not benefits to specified persons. 4. Application of Section 164(2) Regarding Taxation at Maximum Marginal Rate: The CIT(A) and the Tribunal referred to judicial precedents, including the Hon’ble Jurisdictional High Court of Madras and the Hon’ble Supreme Court, which held that denial of exemption should be limited to the income violating Section 13(1)(c) and Section 13(1)(d), not the entire income. This was supported by the case of CIT v. Working Women’s Forum and other relevant judgments. Conclusion: The Tribunal upheld the CIT(A)'s decision that only the income violating Section 13(1)(c) and Section 13(1)(d) should be taxed at the maximum marginal rate, and not the entire income. The appeals filed by the Revenue were dismissed, and the cross objections filed by the assessee were allowed. The Tribunal directed that the benefit of exemption under Section 11 be granted to the trust for both assessment years 2011-12 and 2012-13.
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