RAJKALA CHARITABLE TRUST, V. ACIT, JHUNJHUNU

ITA 140/JPR/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5359 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P R MEENA JCIT DHK
• Keywords: Charitable institution; Maximum Marginal Rate; Earning of tax free income
• Section: 12; 11

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO.140/JP/15 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 M/S RAJKALA CHARITABLE TRUST, NEW COURT ROAD, CHIRAWA, JHUNJHUNU CUKE VS. THE ACIT, CIRCLE, JHUNJHUNU LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAATR 1208 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI P.R. MEENA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 09.03.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 28 /04/2016. VKNS'K@ 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 TA KEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CO NFIRMING THE ACTION OF THE AO IN HOLDING THAT THE ADVANCE OF RS. 20,00,000 /- GIVEN TO M/S RAJKALA INDUSTRIES PRIVATE LTD. VIOLATED THE PROVIS ION OF SECTION 13(3) AND THEREBY DENYING THE EXEMPTION U/S 11 AND ASSESSING THE VOLUNTARY CONTRIBUTION AND THE CORPUS DONATION OF RS. 1,56,31 ,000/- RECEIVED BY THE TRUST AS ITS TOTAL INCOME CHARGEABLE TO TAX. 1.1 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT DUE TO THE AFORESAID VIOLATION, THE ENTIRE INCOME OF THE TRUST IS CHARGEABLE TO TAX AT ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 2 MAXIMUM MARGINAL RATE AS AGAINST ONLY THAT INCOME W HICH HAS VIOLATED SECTION 13 AS MANDATED BY PROVISION TO SECTION 164( 2) OF THE IT ACT, 1961. HE HAS FURTHER ERRED IN NOT FOLLOWING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN 363 ITR 230 AND OTHER DECISIONS RELIE F BY THE ASSESSEE. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PUBLIC CHARITABLE TRUST WITH OBJECT TO RUN AND MANAGE EDUCATIONAL INS TITUTIONS, HOSPITALS, WATER SUPPLY SCHEME, DHARAMSHALA FOR PUBLIC GOOD AND DO A LL OTHER PUBLIC WELFARE ACTIVITIES FROM TIME TO TIME AS DECIDED BY THE TRUS TEES. THE RETURN OF INCOME DECLARING NIL INCOME AFTER CLAIMING EXEMPTION U/S 1 1 WAS FILED ON 29.09.2011. THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS OBSE RVED THAT ASSESSEE HAS ADVANCED RS.20 LACS TO M/S RAJKALA INDUSTRIES PVT. LTD. SMT. MADHU ADUKIA, THE TRUSTEE IN THE ASSESSEE TRUST AND W/O SH. AJIT KUMA R ADUKIA, THE SETTLOR OF TRUST IS THE DIRECTOR OF M/S RAJKALA INDUSTRIES PVT. LTD. ACCORDINGLY, THE AO VIDE SHOW CAUSE NOTICE DT. 27.02.2014 REQUIRED THE ASSESSEE T O SHOW CAUSE AS TO WHY IT SHOULD NOT BE DEEMED THAT INCOME OF THE TRUST HAS B EEN APPLIED FOR THE BENEFIT OF PROHIBITED CATEGORY OF PERSONS REFERRED U/S 13(3). IN RESPONSE TO SAME, THE ASSESSEE SUBMITTED ITS REPLY VIDE LETTER DT. 04.03.2014 ALONG WITH TWO LETTERS EXCHANGED WITH M/S RAJKALA INDUSTRIES P VT. LTD. IN LETTER DT. 16.08.2010 WHICH WAS ADDRESSED BY ASSESSEE TO M/S RAJKALA INDU STRIES PVT. LTD., IT WAS STATED THAT THE ASSESSEE HAS DECIDED T O START FREE MEAL DISTRIBUTION PROGRAMME IN AND AROUND CHIRAWA FOR WHICH IT REQUIR E TO BUILD A PERMANENT KITCHEN AT APPROPRIATE LOCATION FOR SEAMLESS SUPPLY OF THE FOOD AND THUS IT HAS ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 3 AUTHORISED THE COMPANY TO SEARCH A SUITABLE LAND FO R CONSTRUCTION OF KITCHEN AND TO START MANUFACTURING MEAL ON PILOT BASIS FOR ONE MONTH WITH THE RECRUITED STAFF BEFORE HANDLING OVER THE OPERATIONA L INFRASTRUCTURE TO THE ASSESSEE FOR FURTHER RUNNING. IT WAS FURTHER STATED THAT IF THE COMPANY WILL NOT BE ABLE TO PROCURE THE LAND AND START THE PROJECT B EFORE THE END OF THE FINANCIAL YEAR, THE WHOLE ADVANCE GIVEN FOR THE PROJECT HAS T O BE RETURNED BACK. THE COMPANY VIDE LETTER DT. 28.03.2011 AFTER MAKING DET AILED STUDY RECOMMENDED NOT TO ESTABLISH SUCH PROJECT AS THE LAND WAS AVAIL ABLE NEITHER AT A SUITABLE PLACE NOR AT AN AFFORDABLE RATE AND THEREFORE THE P ROJECT WAS DROPPED AND AMOUNT ADVANCED WAS AGREED TO BE RETURNED. 2.1 THE AO, HOWEVER, DID NOT ACCEPT THE ABOVE CONTE NTION OF THE ASSESSEE BY GIVING THE FOLLOWING FINDINGS:- (I) IN BOTH THE LETTERS, NO AMOUNT HAS BEEN MENTIONED S O IT IS DIFFICULT TO BELIEVE THAT THE ASSESSEE TRUST HAS DECIDED TO HAND OVER A SUM OF RS.20 LACS FOR THE OBJECT OF THE TRUST. (II) THERE APPEARS TO BE NO RESOLUTION WHEREBY IT WAS DE CIDED TO DEVELOP ANY PROJECT OF THIS SCALE INVOLVING SUCH SUBSTANTIA L SUM OF MONEY. (III) THERE HAS BEEN NO COMPETITIVE BIDDING CARRIED OUT B Y THE ASSESSEE FOR SELECTION OF BEST BIDDER BEFORE HANDLING OVER THE P ROJECT OF THIS SCALE. THE ASSESSEE HAS NOT STATED ABOUT THE NATURE OF BUS INESS OF M/S RAJKALA INDUSTRIES PVT. LTD. ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 4 (IV) IN THE BALANCE SHEET OF M/S RAJKALA INDUSTRIES PVT. LTD., THE AMOUNT RECEIVED FROM ASSESSEE TRUST HAS BEEN SHOWN UNDER T HE HEAD OTHER LIABILITIES, THE ENTRY OF WHICH IS SHOWN AS LOAN FR OM CHARITABLE TRUST. (V) AS PER REPLY OF M/S RAJKALA INDUSTRIES PVT. LTD., T HE PRICES OF LAND HAVE BEEN SUDDENLY INCREASED, THEREFORE, WHY THE AMOUNT OF RS.20 LACS OF TRUST REMAINED WITH THE COMPANY. ACCORDINGLY, THE AO HELD THAT THE AMOUNT GIVEN BY A SSESSEE TRUST IS NOT AN ADVANCE GIVEN FOR ANY PURPOSE BUT LOAN WHICH IS REF LECTED IN THE BALANCE SHEET OF M/S RAJKALA INDUSTRIES PVT. LTD., THE ASSE SSEES CONTENTION IS AN AFTERTHOUGHT STORY JUST TO GIVE COLOUR TO THE TRANS ACTION AND PERUSAL OF BALANCE SHEET OF ASSESSEE TRUST FOR YEAR ENDED 31.0 3.2012 REVEALS THAT THE AMOUNT REMAINED WITH THE COMPANY FOR SUBSEQUENT PER IOD ALSO. THUS, BY VIRTUE OF PROVISIONS CONTAINED IN SEC. 13(1)(C)/ 13 (1)(D) R.W.S. 13(2) AND 13(3), ENTIRE INCOME OF THE TRUST IS NOT EXEMPT U/S 11 OR 12 OF THE ACT. ACCORDINGLY, INCOME OF RS.1,40,31,000/- AS DONATION AND AMOUNT OF RS.16,00,000/- AS CORPUS FUND AGGREGATING TO RS.1,5 6,31,000/- WAS HELD TO BE ASSESSEES TOTAL INCOME CHARGEABLE TO TAX AT MAX IMUM MARGINAL RATE. 2.2 THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO B Y GIVING THE FOLLOWING FINDINGS:- ADVANCE OF RS.20 LACS GIVEN BY THE TRUST TO M/S RA JKALA INDUSTRIES PVT. LTD. IS LOAN WHICH IS IN VIOLATION OF SEC.13(1)(C) OF THE IT ACT. THOUGH THE APPELLANT HAS CONTENDED THAT SUCH AMOUNT WAS ADVANC ED TO M/S RAJKALA INDUSTRIES PVT. LTD. IN CONNECTION WITH THE BUSINES S TO BUILD A PERMANENT ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 5 KITCHEN AT APPROPRIATE LOCATION FOR SUPPLY OF FOOD FOR FREE MEAL DISTRIBUTION PROGRAMME IN AND AROUND CHIRAWA, HOWEV ER, AS REGARDS THIS TRANSACTION, THERE WAS NO RESOLUTION OF THE TRUST A ND IT IS ALSO A FACT THAT SUCH AMOUNT WAS ADVANCED WITHOUT ANY COMPETITIVE BI DDING. M/S RAJKALA INDUSTRIES PVT. LTD. IS NOT ENGAGED IN THE CONSTRUCTING BUSINESS AND THEREFORE PRIMA FACIE THERE WAS NO BASIS FOR MA KING SUCH ADVANCE. ACCORDINGLY, BY MAKING SUCH ADVANCE TO M/S RAJKALA INDUSTRIES PVT. LTD., THE APPELLANT APPLIED PART OF ITS INCOME FOR THE BE NEFIT OF THE PERSON SPECIFIED U/S 13(3) OF THE IT ACT R.W.S. 13(2)(A) O F IT ACT. IN CASES WHERE PROVISIONS OF SEC.13 ARE APPLICABLE, PROVISIONS OF SEC.11 WILL NOT APPLY. IN THE APPELLANTS CASE, PROVISIONS OF SEC. 13(1)(C) ARE APPLICABLE. IN THE PROVISIONS OF SEC.13(1)(C)(II), THE WORD ANY PART OF SUCH INCOME OR PROPERTY OF TRUST IS CLEARLY MENTIONED W HICH INDICATE THAT IN CASE OF VIOLATION OF SEC.13, THE ENTIRE INCOME OF T HE TRUST WOULD BE TAXABLE AS SEC.11 WILL NOT APPLY. 2.3 THE LD. AR SUBMITTED THAT THE ADVANCE OF RS.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 ENTRU STED M/S RAJKALA INDUSTRIES PVT. LTD. TO SEARCH FOR A SUITABLE LAND FOR CONSTRU CTION OF KITCHEN AND START MANUFACTURING MEAL ON PILOT BASIS FOR ONE MONTH WIT H 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 ADVA NCE WOULD CARRY INTEREST @ 12%. THE COMPANY VIDE ITS LETTER DT. 28.03.2011 AFT ER MAKING DETAILED STUDY RECOMMENDED NOT TO ESTABLISH SUCH PROJECT AS THE LA ND WAS AVAILABLE NEITHER AT A SUITABLE PLACE NOR AT AFFORDABLE RATE AND THER EFORE THE PROJECT WAS DROPPED. ACCORDINGLY, THE AMOUNT OF RS.20 LACS WITH INTEREST OF RS.2,16,000/- ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 6 I.E. RS.22,16,000/- WAS RECEIVED BACK ON 07.11.2012 /26.12.2012. THE INTEREST INCOME OF RS.2,16,000/- WAS OFFERED IN THE RETURN F OR AY 2012-13. THE ISSUE RAISED BY THE LOWER AUTHORITIES IN THIS REGARD AS T O THE RESOLUTION OF TRUSTEE OR SELECTION OF PERSON BY COMPETITIVE BIDDING OR REFLE CTION OF THE AMOUNT IN THE BOOKS OF M/S RAJKALA INDUSTRIES PVT. LTD. ARE IRREL EVANT CONSIDERATION. THUS, THE ADVANCE SO GIVEN WAS FOR THE OBJECT OF THE TRUST AN D NOT FOR ANY BENEFIT TO THE TRUSTEE OR AN INVESTMENT/ DEPOSIT OTHERWISE THAN TH E MODES PRESCRIBED U/S 11(5) AND THEREFORE THERE IS NO VIOLATION OF SEC. 1 3(1)(C)/13(1)(D). IT WAS FURTHER SUBMITTED THAT SEC.164 DEALS WITH TH E CHARGE OF THE TAX WHERE THE SHARES OF THE BENEFICIARY IS UNKNOWN. SEC. 164( 2) DEALS WITH THE CHARGE OF TAX ON THE INCOME OF THE TRUST WHICH IS DERIVED BY IT FROM THE PROPERTY HELD WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE. THE PRO VISO TO THIS SECTION WHICH IS RELEVANT FOR THE PRESENT PURPOSE READS AS UNDER:- PROVIDED THAT IN A CASE WHERE THE WHOLE OR ANY PAR T OF THE RELEVANT INCOME IS NOT EXEMPT UNDER SECTION 11 OR SECTION 12 BY VIRTUE OF THE PROVISIONS CONTAINED IN CLAUSE (C) OR CLAUSE (D) OF SUB-SECTION (1) OF SECTION 13, TAX SHALL BE CHARGED ON THE RELEVANT IN COME OR PART OF RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE. FROM THE PLAIN READING OF THIS PROVISO, IT IS EVIDE NT THAT WHERE THE WHOLE OR ANY PART OF THE RELEVANT INCOME IS NOT EXEMPT U/S 11 OR 12 BECAUSE OF THE PROVISIONS OF THE SECTION 13(1)(C) OR 13(1)(D), TAX IS CHARGEABLE ON THE RELEVANT ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 7 INCOME OR PART OF THE RELEVANT INCOME AT THE MAXIMU M MARGINAL RATE (MMR). THEREFORE, IN CASE THERE IS VIOLATION OF SEC.13, TH E ENTIRE INCOME OF THE TRUST IS NOT LIABLE TO TAX AT MMR BUT ONLY THE RELEVANT PART OF THE INCOME WHICH VIOLATES SEC.13 ATTRACTS THE MMR. IN THE PRESENT CA SE, EVEN IF IT IS HELD THAT THERE IS VIOLATION OF SEC.13, THEN ONLY THE AMOUNT OF RS.20 LACS GIVEN TO M/S RAJKALA INDUSTRIES PVT. LTD. OUT OF THE INCOME OF T HE TRUST IS CHARGEABLE TO TAX AT MMR IN AS MUCH AS OUT OF THE TOTAL DONATION RECEIVE D OF RS.1,56,31,000/-, ONLY RS.20 LACS VIOLATES THE PROVISIONS CONTAINED IN SEC . 13(1)(C) OR 13(1)(D). EVEN THIS AMOUNT CANNOT BE SUBJECT TO TAX IN VIEW OF THE PRINCIPLE OF LAW AS DECIDED BY THE KARNATAKA HIGH COURT, AFFIRMED BY SUPREME CO URT AND FOLLOWED BY THE JURISDICTIONAL ITAT JAIPUR BENCH REFERRED BELOW SIN CE THERE IS NO INCOME CHARGEABLE TO TAX AFTER APPLICATION OF SECTION 11 A ND 12 AND THE AMOUNT ADVANCED TO RAJKALA INDUSTRIES PRIVATE LIMITED HAS NOT GENERATED ANY INCOME TO THE ASSESSEE. HENCE THE ACTION OF THE LOWER AUTH ORITIES IN TAXING THE GROSS RECEIPT AT MAXIMUM MARGINAL RATE WITHOUT CONSIDERIN G THE PROVISIONS OF SECTION 11 & 12 IS BAD IN LAW. THE ABOVE PRINCIPAL OF LAW IS SETTLED BY THE FOLLOW ING DECISIONS:- DIT VS. WORKING WOMENS FORUM (2015) 235 TAXMAN 516 (SC) DECISION DT. 18.09.2015 CIT VS WORKING WOMENS FORUM (2014) 365 ITR 353 (MA D) CIT VS. FR. MULLERS CHARITABLE INSTITUTIONS (2014) 227 TAXMAN 369 (SC) DECISION DT. 19.09.2014 ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 8 CIT VS. FR. MULLERS CHARITABLE INSTITUTIONS (2014) 363 ITR 230 (KAR.) CIT VS. ORPAT CHARITABLE TRUST (2015) 230 TAXMAN 00 66 (GUJ.) (HC) DIT (EXEMPTION) V. SHETH MAFATLAL GAGALBHAI FOUNDAT ION 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 MA TTER 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 CONS IDERATION 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 I NCOME WHICH HAS VIOLATED SECTION 13 AS MANDATED BY PROVISION TO SECTION 164( 2) OF THE IT ACT, 1961. THE LAW ON THE SUBJECT IS WELL SETTLED NOW WITH HONBLE SUPREME COURT IN CASE OF WORKING WOMENS FORUM (SUPRA) AND FR. MULLERS CHARI TABLE INSTITUTIONS (SUPRA) CASE AFFIRMING THE DECISION OF HONBLE MADR AS HIGH COURT AND HONBLE KARNATAKA HIGH COURT RESPECTIVELY BY REJECTING THE SLP FILED AGAINST THE SAID HIGH COURT DECISIONS. THE HONBLE MADRAS HIGH COURT IN CASE OF WORKING WO MENS FORUM (SUPRA) HAS HELD AS UNDER: 4. WE DO NOT AGREE WITH THE SAID SUBMISSION OF THE LEARNED COUNSEL FOR THE REVENUE. WE MAY AT THE OUTSET POINT OUT HEREIN THAT THE DECISION ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 9 RELIED ON BY THE COMMISSIONER OF INCOME-TAX (APPEAL S) IN THE CASE OF TULUVA VELLALA ASSOCIATION (SUPRA), IS RELATABLE TO THE DECISION OF THIS COURT IN T. C. NO. 477 OF 1989 AND HAS NO RELEVANCE OF THE ISSUE ON HAND. LEAVING THAT ASIDE, AS FAR AS THE DECISION OF THE B OMBAY HIGH COURT IN SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST (SUPRA) I S CONCERNED, IT IS A SIMILAR LINE, WHICH WAS APPLIED BY THE TRIBUNAL. TH E ASSESSEE THEREIN WAS BROUGHT UNDER SECTION 164 TO BE ASSESSED AT THE MAX IMUM MARGINAL RATE OF TAX ON ACCOUNT OF CONTRAVENTION OF SECTION 13(1) (D). THE BOMBAY HIGH COURT HELD THAT VIOLATION OF SECTION 11(5), READ WI TH SECTION 13(1)(D) BY THE ASSESSEE WOULD RESULT IN THE MAXIMUM MARGINAL R ATE OF TAX ONLY ON THE DIVIDEND INCOME ON SHARES, WHICH WAS NOT THE RE COGNISED MODE OF INVESTMENT AND THAT THE ASSESSEE WOULD NOT BE VESTE D WITH MARGINAL RATE OF TAX ON THE ENTIRE INCOME. THEREFORE, THE INCOME OTHER THAN DIVIDEND INCOME HAS TO BE TAXED ONLY TO THE EXTENT TO WHICH THE VIOLATION WAS FOUND BY THE ASSESSING OFFICER. IN SO CONSIDERING, THE BOMBAY HIGH COURT HELD AS FOLLOWS (PAGE 537) : 'UNDER SECTION 161(1A), WHICH BEGINS WITH A NON-OBS TANTE CLAUSE, IT IS PROVIDED THAT WHERE ANY INCOME IN RESPECT OF WHICH A PERSON IS LIABLE AS A REPRESENTATIVE ASSESSEE CONSISTS OF PROFITS OF BU SINESS, THEN TAX SHALL BE CHARGED ON THE WHOLE OF THE INCOME IN RESPECT OF WH ICH SUCH PERSON IS SO LIABLE AT THE MAXIMUM MARGINAL RATE. THEREFORE, REA DING THE ABOVE TWO PHRASES SHOW THAT THE LEGISLATURE HAS CLEARLY INDIC ATED ITS MIND IN THE PROVISO TO SECTION 164(2) WHEN IT CATEGORICALLY REF ERS TO FORFEITURE OF EXEMPTION FOR BREACH OF SECTION 13(1)(D), RESULTING IN LEVY OF MAXIMUM MARGINAL RATE OF TAX ONLY TO THAT PART OF THE INCOM E WHICH HAS FORFEITED EXEMPTION. IT DOES NOT REFER TO THE ENTIRE INCOME B EING SUBJECTED TO MAXIMUM MARGINAL RATE OF TAX. THIS INTERPRETATION O F 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 A CT, THE MAXIMUM MARGINAL RATE OF INCOME-TAX WILL APPLY ONLY TO THAT PART OF THE INCOME WHICH HAS FORFEITED EXEMPTION UNDER THE SAID PROVIS ION AND NOT TO THE ENTIRE INCOME. WE MAY ALSO ADD THAT IN LAW, THERE I S 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 DI FFERENT CONSEQUENCES. IT IS INTERESTING TO NOTE THAT ALTHOUGH THE LEGISLA TURE 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 ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 10 LEGISLATURE DID NOT TOUCH THE PROVISO TO SECTION 16 4(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 OF SECTION 13(1)(D) AND ITS CONSEQUENCES.' 5. WE ARE IN ENTIRE AGREEMENT WITH THE STATEMENT OF LAW BY THE BOMBAY HIGH COURT IN THE DECISION REFERRED TO ABOVE. RESPE CTFULLY FOLLOWING THE SAID DECISION, WE CONFIRM THE ORDER OF THE TRIBUNAL , THEREBY REJECT THE REVENUE'S APPEALS. THE HONBLE KARNATAKA HIGH COURT IN CASE OF FR. MUL LERS CHARITABLE INSTITUTIONS (SUPRA) HAS HELD AS UNDER: 11. WITH REGARD TO SECOND AND THIRD SUBSTANTIAL QU ESTIONS OF LAW ARE CONCERNED, READING OF SECTION 13(1)(D) OF THE ACT M AKES IT CLEAR THAT IT IS ONLY THE INCOME FROM SUCH INVESTMENT OR DEPOSIT WHI CH HAS BEEN MADE IN VIOLATION OF SECTION 11(5) OF THE ACT THAT IS LIABL E TO BE TAXED AND THAT VIOLATION UNDER SECTION 13(1)(D) DOES NOT TANTAMOUN T TO DENIAL OF EXEMPTION UNDER SECTION 11 ON THE TOTAL INCOME OF T HE ASSESSEE. AN IDENTICAL QUESTION CAME BEFORE THE BOMBAY HIGH COUR T IN THE CASE REPORTED IN SHETH MAFATLAL GAGALBHAI FOUNDATION TRU ST (SUPRA). THE QUESTION BEFORE THE BOMBAY HIGH COURT IS 'WHETHER V IOLATION OF SECTION 11(5) R/W SECTION 13(1)(D) BY THE ASSESSEE-TRUST AT TRACTS MAXIMUM MARGINAL RATE OF TAX ON THE ENTIRE INCOME OF THE TR UST? THE BOMBAY HIGH COURT HELD THAT IN CASE OF CONTRAVENTION OF SECTION 13(1)(D), MAXIMUM MARGINAL RATE OF TAX UNDER SECTION 164(2), PROVISO IS APPLICABLE ONLY TO THAT PART OF INCOME OF THE TRUST WHICH HAS FORFEITE D EXEMPTION AND NOT THE ENTIRE INCOME. RELEVANT PARAGRAPH READS AS UNDE R: 'SEC. 164(2) REFERS TO THE RELEVANT INCOME WHICH IS DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. IF SUCH INCOME CONSISTS OF SEVERABLE PORT IONS, EXEMPT AS WELL AS TAXABLE, THE PORTION WHICH IS EXEMPT IS TO BE LEFT OUT AND THE PORTION WHICH IS NOT EXEMPT IS CHARGED TO TAX A S IF IT IS THE INCOME OF AN AOP. THEREFORE, A PROVISO WAS INSERTED BY THE FINANCE ACT, 1984 W.E.F 1ST APRIL 1985, UNDER WHICH IN CASES WHERE THE WHOLE OR ANY PART OF THE RELEVANT INCOME IS NOT EXEMPT UNDER S. 11 OR S.12 BECAUSE OF THE CONTRAVENTION OF S.13( 1)(D),THE TAX ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 11 SHALL BE CHARGED ON SUCH INCOME OR PART THEREOF, AS THE CASE MAY BE, AT THE MAXIMUM MARGINAL RATE. IN OTHER WORDS, O NLY THE NON- EXEMPT INCOME PORTION WOULD FALL IN THE NET OF TAX AS IF IT WAS THE INCOME OF AN AOP. THE PHRASE 'RELEVANT INCOME OR PA RT OF THE RELEVANT INCOME' IN THE PROVISO IS REQUIRED TO BE R EAD IN CONTRADISTINCTION TO THE PHRASE 'WHOLE INCOME' UNDE R 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 WHE RE ANY INCOME IN RESPECT OF WHICH A PERSON IS LIABLE AS A REPRESENTA TIVE ASSESSEE CONSISTS OF PROFITS OF BUSINESS, THE TAX SHALL BE C HARGED ON THE WHOLE OF THE INCOME IN RESPECT OF WHICH SUCH PERSON IS SO LIABLE AT THE MAXIMUM MARGINAL RATE. THEREFORE, READING THE A BOVE TWO PHRASES SHOWS THAT THE LEGISLATURE HAS CLEARLY INDI CATED ITS MIND IN THE PROVISO TO S. 164(2) WHEN IT CATEGORICALLY REFE RS TO FORFEITURE OF EXEMPTION FOR BREACH OF S.13(1)(D), RESULTING IN LE VY OF MAXIMUM MARGINAL RATE OF TAX ONLY TO THAT PART OF THE INCOM E WHICH HAS FOR FORFEITED EXEMPTION. IT DOES NOT REFER TO THE ENTIR E INCOME BEING SUBJECTED TO MAXIMUM, MARGINAL RATE OF TAX. THIS IN TERPRETATION IS ALSO SUPPORTED BY CIRCULAR NO.387, DT. 6TH JULY, 19 84. 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 O F INCOME-TAX WILL APPLY ONLY TO THAT PART OF THE INCOME WHICH HA S FORFEITED EXEMPTION WIDER THE SAID PROVISION AND NOT TO THE E NTIRE INCOME. 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 C ONCEPTS ARE DIFFERENT. THEY HAVE DIFFERENT CONSEQUENCES. IN THE CIRCUMSTANCES, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE TH AT IN THE PRESENT CASE THE MAXIMUM MARGINAL RATE OF TAX WILL APPLY ON LY TO THE DIVIDED INCOME FROM SHARES HELD IN CONTRAVENTION OF S.13(1)(A) AND NOT TO THE ENTIRE INCOME. THEREFORE, INCOME OTHER T HAN DIVIDEND INCOME SHALL BE TAXED AT NORMAL RATE OF TAXATION UN DER THE ACT.' A SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI HIGH COU RT IN A JUDGMENT REPORTED IN AGRIM CHARAN FOUNDATION (SUPRA). READING OF THE PROVISO TO SECTION 142 IS VERY CLEAR THAT THE LEGISLATURE HAS CLEARLY CONTEMPLATED THAT IN A CASE, WHERE THE WHOL E OR PART OF THE ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 12 RELEVANT INCOME IS NOT EXEMPTED UNDER SECTION 11 BY VIRTUE OF VIOLATION OF SECTION 13(1)(D) OF THE ACT, TAX SHALL BE LEVIED ON THE RELEVANT INCOME OR A PART OF THE RELEVANT INCOME AT THE MAXIMUM MAR GINAL RATE. THE SAID ANALOGY IS APPLICABLE TO THE FACTS OF THE PRESENT C ASE. 12. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEWS E XPRESSED BY THE BOMBAY HIGH COURT AS WELL AS DELHI HIGH COURT FOR V IOLATING SECTION 11(5) OF THE ACT AND THE ENTIRE INCOME OF THE RESPONDENT- TRUST CANNOT BE ASSESSED FOR THE TAX. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, IT IS H ELD THAT WHERE THERE IS VIOLATION OF SECTION 13, THE ENTIRE INCOME OF THE T RUST IS NOT CHARGEABLE TO TAX AT MAXIMUM MARGINAL RATE AND IT IS ONLY THAT INCOME WHICH HAS VIOLATED SECTION 13 WHICH SHALL SUFFER MAXIMUM MARGINAL RATE AS PER PROVISO TO SECTION 164(2) OF THE ACT. FURTHER, THE APPELLANT HAS SUBMITTED THAT THE AMOUN T OF RS.20,00,000 WITH INTEREST OF RS.2,16,000/- I.E. RS.22,16,000/- WAS R ECEIVED BACK BY THE TRUST AND THE INTEREST INCOME OF RS.2,16,000/- WAS OFFERED IN THE RETURN FOR AY 2012-13 AND THERE IS NO INCOME GENERATED ON AMOUNT OF RS 20 LACS ADVANCED TO M/S RAJAKALA INDUSTRIES LIMITED DURING THE YEAR. THERE IS NOTHING ON RECORD TO CONTROVERT THE SAID SUBMISSIONS OF THE APPELLANT. THUS, THERE IS NO INCOME DURING THE YEAR WHICH CAN BE BROUGHT TO TAX AT MAXI MUM MARGINAL RATE IN THE HANDS OF THE TRUST IN A SCENARIO WHERE IT IS HELD T HAT THERE IS VIOLATION OF PROVISIONS OF SECTION 13. IN VIEW OF THE SAME, WE DONT THINK IT WOULD BE RELEVANT TO EXAMINE WHETHER THE APPELLANT TRUST HAS VIOLATED THE PROVISIONS OF ITA NO. 140/JP/15 M/S RAJKALA CHARITABLE TRUST, CHIRAWA VS. ACIT, CIR CLE JHUNJHUNU 13 SECTION 13 OF THE ACT AS THE SAME HAS BECOME INFRUC TIOUS IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE AO IS ACCOR DINGLY, DIRECTED TO ALLOW EXEMPTION TO THE APPELLANT TRUST U/S 11 AND THE ADD ITION MADE BY THE AO AND CONFIRMED BY CIT(A) IS HEREBY DELETED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/04 /2016. SD/- SD/- ( R.P. TOLANI ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 28 / 04 /2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S RAJKALA CHARITABLE TRUST, C HIRAWA 2. THE RESPONDENT- THE ACIT, CIRCLE, JHUNJHUNU 3. THE CIT(A) 3, JAIPUR 4. THE CIT-III, JAIPUR 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO.140/JP/15) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR