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TMI Blog2016 (4) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... in a scenario where it is held that there is violation of provisions of section 13. In view of the same, we don’t think it would be relevant to examine whether the appellant trust has violated the provisions of section 13 of the Act as the same has become infructious in the facts and circumstances of the present case. The AO is accordingly, directed to allow exemption to the appellant trust u/s 11 and the addition made by the AO and confirmed by CIT(A) is hereby deleted. - Decided in favour of assessee. - ITA No.140/JP/15 - - - Dated:- 28-4-2016 - SHRI R.P. TOLANI, JM SHRI VIKRAM SINGH YADAV, AM Assessee by : Shri P.C. Parwal (C.A.) Revenue by : Shri P.R. Meena (JCIT) ORDER PER SHRI VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of CIT(A)-3. Jaipur dated 13.01.2015 wherein the assessee has taken following grounds of appeal: 1. The Ld. CIT(A) has erred on facts and in law in confirming the action of the AO in holding that the advance of ₹ 20,00,000/- given to M/s Rajkala Industries Private Ltd. violated the provision of section 13(3) and thereby denying the exemption u/s 11 and assessing the voluntary contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turned back. The company vide letter dt. 28.03.2011 after making detailed study recommended not to establish such project as the land was available neither at a suitable place nor at an affordable rate and therefore the project was dropped and amount advanced was agreed to be returned. 2.1 The AO, however, did not accept the above contention of the assessee by giving the following findings:- (i) In both the letters, no amount has been mentioned so it is difficult to believe that the assessee trust has decided to handover a sum of ₹ 20 lacs for the object of the trust. (ii) There appears to be no resolution whereby it was decided to develop any project of this scale involving such substantial sum of money. (iii) There has been no competitive bidding carried out by the assessee for selection of best bidder before handling over the project of this scale. The assessee has not stated about the nature of business of M/s Rajkala Industries Pvt. Ltd. (iv) In the Balance Sheet of M/s Rajkala Industries Pvt. Ltd., the amount received from assessee trust has been shown under the head other liabilities, the entry of which is shown as loan from charitable trust. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sec.11 will not apply. 2.3 The ld. AR submitted that the advance of ₹ 20 lacs was given by the trust to M/s Rajkala Industries Pvt. Ltd. on 27.08.2010 as per the understanding dt. 16.08.2010 as the trust has entrusted M/s Rajkala Industries Pvt. Ltd. to search for a suitable land for construction of kitchen and start manufacturing meal on pilot basis for one month with the recruited staff, before handing over the operational infrastructure to the trust for further running. The understanding also envisaged that the company was to start the project before the end of the FY otherwise the advance would carry interest @ 12%. The company vide its letter dt. 28.03.2011 after making detailed study recommended not to establish such project as the land was available neither at a suitable place nor at affordable rate and therefore the project was dropped. Accordingly, the amount of ₹ 20 lacs with interest of ₹ 2,16,000/- i.e. ₹ 22,16,000/- was received back on 07.11.2012/26.12.2012. The interest income of ₹ 2,16,000/- was offered in the return for AY 2012-13. The issue raised by the lower authorities in this regard as to the resolution of trustee or selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross receipt at maximum marginal rate without considering the provisions of section 11 12 is bad in law. The above principal of law is settled by the following decisions:- DIT Vs. Working Women s Forum (2015) 235 Taxman 516 (SC) decision dt. 18.09.2015 CIT Vs Working Women s Forum (2014) 365 ITR 353 (Mad) CIT Vs. Fr. Mullers Charitable Institutions (2014) 227 Taxman 369 (SC) decision dt. 19.09.2014 CIT Vs. Fr. Mullers Charitable Institutions (2014) 363 ITR 230 (Kar.) CIT Vs. Orpat Charitable Trust (2015) 230 Taxman 0066 (Guj.) (HC) DIT (Exemption) V. Sheth Mafatlal Gagalbhai Foundation Trust 249 ITR 533 (Bom.) ITAT Jaipur Bench in case of M/s Santokba DurlabhJi Trust Fund V. ITO in ITA No.169/JP/2012 for A.Y. 2008-09 dated 5-11-2014 2.4 Ld DR is heard who has vehemently argued the matter and supported the order of the lower authorities. 2.5 We have heard the rival contentions and pursued the material on record. The fundamental issue that arises for consideration is where there is violation of section 13, whether the entire income of the trust is chargeable to tax at maximum marginal rate as against only that income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax. This interpretation of ours is also supported by Circular No. 387, dated July 6, 1984 (see [1985] 152 ITR (St.) 1). Vide the said circular, it has been laid down in para. 28.6 that, where a trust contravenes section 13(1)(d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provision and not to the entire income. We may also add that in law, there is a vital difference between eligibility for exemption and withdrawal of exemption/forfeiture of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. It is interesting to note that although the Legislature withdrew section 164(2) by the Direct Tax Laws (Amendment) Act, 1987, which provision was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, the Legislature did not touch the proviso to section 164(2) which has been on the statute book right from April 1, 1985. The said proviso was inserted by the Finance Act, 1984. The proviso specifically refers to violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; under s. 161(1A). This is only by way of comparison. Under s. 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the legislature has clearly indicated its mind in the proviso to s. 164(2) when it categorically refers to forfeiture of exemption for breach of s.13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has for forfeited exemption. It does not refer to the entire income being subjected to maximum, marginal rate of tax. This interpretation is also supported by Circular No.387, dt. 6th July, 1984. Vide the said Circular, it has ' been laid down in para 28.6 that where a trust contravenes s.13(1)(d), the maximum marginal rate of Income-tax will apply only to that part of the income which has forfeited exemption wider the said provision and not to the entire income. There is a vital difference between eligibility for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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