SETH WALCHAND HIRACHAND MEMORIAL TRUST, MUMBAI V. ITO (E) II(1), MUMBAI

ITA 4852/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7745 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 21-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Maximum Marginal Rate; Earning of tax free income
• Section: 80G; 263; 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUM BAI , , , , $ BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.4852/MUM/2016 ( %& '& / ASSESSMENT YEAR:2010-11) SETH WALCHAND HIRACHAND MEMORIAL TRUST HINCON HOUSE, 11 TH FLOOR, 247 PARK, L.B.S. MARG, VIKHROLI (WEST) MUMBAI - 400083 / VS. INCOME TAX OFFICER (EXEMP.) II (1) 5 TH FLOOR, PIRAMAL CHAMBERS, PAREL, LALBAUG MUMBAI - 400012 ./ ./PAN/GIR NO. : AAATW0014E ( /APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 05.01.2017 /DATE OF PRONOUNCEMENT: 29.03.2017 / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST T HE ORDER DATED 11.05.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE A.Y. 2010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- ASSESSEE BY : MS. VAIBHAVI PATEL REVENUE BY: SHRI M. C. OMI NINGSHAN ITA NO.4852/M/2016 A.Y.2010-11 2 GROUND NO.1: ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OF FICERS ACTION OF NOT ALLOWING THE ACCUMULATION OF 15% OF I NCOME AS ALLOWED UNDER SECTION 11(1)(A) OF THE ACT. THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER BE DELETED. GROUND NO.2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OF FICERS ACTION OF NOT ALLOWING EXEMPTION UNDER SECTION 10(3 3) OF THE ACT, ON DIVIDEND AMOUNTING TO RS.2,76,459/- RECEIVED ON INVESTMENTS IN UNITS AND MUTUAL FUNDS. THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER BE DELETED. GROUND NO.3: ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING THE ASSESS ING OFFICERS ACTION OF NOT ALLOWING THE CURRENT YEARS (A.Y.2010- 11) EXCESS APPLICATION OF RS.20,93,366/- TO BE CARRIED FORWARD TOE SUBSEQUENT YEAR(S). THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER BE DELETED. GROUND NO.4: ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING THE ASSESS ING OFFICERS ACTION OF NOT ALLOWING THE BROUGHT FORWARD EXCESS A PPLICATION TO RS.7,41,31,385/- THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME ON 03.09.2010 ALONG WITH THE INCOME AND EXPE NDITURE ACCOUNT, BALANCE SHEET AND AUDIT REPORT IN FORM NO.10 B DECL ARING TOTAL INCOME TO ITA NO.4852/M/2016 A.Y.2010-11 3 THE TUNE OF RS. (-) 7,62,24,751/-. THE CASE WAS SE LECTED FOR SCRUTINY UNDER CASS THEREFORE NOTICE U/S.143(2) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) WAS ISSUED ON 13.09.2011 WHICH WAS DULY SERVED UPON THE ASSESSEE. SUBSEQUENTLY, THE NOTICE U/S.142(1) OF T HE ACT WAS ALSO ISSUED TO THE ASSESSEE ON 24.02.2012 AND 30.05.2012. THE ASS ESSEE IS THE TRUST WHICH HAS BEEN REGISTERED WITH THE DIRECTOR OF INCO ME TAX (EXEMPTION), MUMBAI U/S.12A AND 80G OF THE ACT. THE ASSESSEE CL AIMED THE EXEMPTION U/S.11 OF THE ACT AND CLAIMED AN AMOUNT OF RS.2,83, 801/- AS ACCUMULATION U/S.11(1)(A) OF THE ACT BEING 15% OF THE GROSS RECE IPTS WHICH WAS NOT ALLOWED AS NO INCOME REMAINS AFTER DEDUCTING THE RE GULAR ADMINISTRATIVE EXPENDITURE AND EXPENSES TOWARDS THE APPLICATION OF OBJECT. IT WAS ALSO FOUND THAT THE ASSESSEE DID NOT INCLUDE ITS DIVIDEN D OF UNITS OF UTI RECEIVED DURING THE YEAR AMOUNTING TO RS.2,76,459/-, AS IT W AS EXEMPT U/S.10(33) OF THE ACT. 4. SINCE THE SAID DIVIDEND INCOME WAS EARNED ON THE ASSET WHICH WAS THE PART OF THE PROPERTY HELD UNDER TRUST AS SUCH I NCOME SO EARNED WAS THE PART OF THE INCOME OF THE TRUST WHICH WAS AVAILABLE FOR APPLICATION, THEREFORE, THE SAID EXEMPTION WAS NOT GRANTED. THE ASSESSEE ALSO CLAIMED AN AMOUNT OF RS.20,93,366/- AS DEFICIT FOR SETTING IT OFF IN FUTURE YEARS WHICH WAS ALSO NOT ALLOWED. FEELING AGGRIEVED THE ASSESSE FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER, THEREFOR E, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1:- ITA NO.4852/M/2016 A.Y.2010-11 4 5. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE ORDER OF THE ASSESSING OFFICER BY THE CIT(A) IN WHI CH THE CIT(A) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER FOR NO T ALLOWING THE ACCUMULATION OF THE 15% AND THE INCOME WAS ALLOWED U/S.11(1)(A) OF THE ACT. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HA S ARGUED THAT THIS ISSUE HAS BEEN COVERED BY THE ORDER PASSED BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN CASE OF ADIT(E) 1(2) VS. SAYAJI UBAKHIN MEMORIAL TRUST (ITA NO.5646/MUM/2011) DATED 17.05.2 013. HOWEVER, ON THE OTHER HAND THE LEARNED REPRESENTATIVE OF THE DE PARTMENT HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUEST ION. BEFORE GOING FURTHER, IT IS NECESSARY TO ADVERT THE FINDING OF T HE ADIT(E) 1(2) VS. SAYAJI UBAKHIN MEMORIAL TRUST (ITA NO.5646/MUM/2011) DATED 17.05.2013 ON RECORD:- 5. WITH REGARD TO GROUND NO.2 OF APPEAL, THE ASSES SING OFFICER OBSERVED THAT IF THE TRUST HAS NOT LEFT WITH SURPLU S AND THERE IS DEFICIT, THEN THERE CAN BE NO ACCUMULATION MADE. A O HAS STATED THAT ACCUMULATION OR SETTING APART OF 15% OF INCOME HAS BEEN ALLOWED BY VIRTUE OF PROVISION OF SECTION 11(1)(A) OF THE ACT WHEN ASSESSEE IS NOT ABLE TO SPEND THE ENTI RE AMOUNT AND WHEN THE ENTIRE AMOUNT HAS BEEN SPENT, THERE IS NO SURPLUS LEFT THAT CAN BE ACCUMULATED. AGGRIEVED, A SSESSEE FILED APPEAL BEFORE LD. CIT(A). 6. ON BEHALF OF ASSESSEE, IT WAS SUBMITTED THAT AS PER SECTION 11(1)(A), THE EXPENDITURE INCURRED BY A TRUST OR IN STITUTE ON THE ITA NO.4852/M/2016 A.Y.2010-11 5 OBJECTS OF THE TRUST BY WAY OF APPLICATION OF INCOM E DERIVED FROM THE PROPERTY HELD FOR RELIGIOUS OR CHARITABLE PURPOSES IS DEDUCTIBLE FROM THE INCOME. IT WAS SUBMITTED THAT THERE IS NO BAR IN LAW AND THERE ARE NO SPECIFIC PROVISIONS IN THE ACT WHICH SAYS THAT SUCH DEDUCTION OF 15% FOR ACCUMULAT ION WILL NOT BE ALLOWED IN CASE OF DEFICIT. SUCH 15% ACCUMU LATION IS ALLOWABLE IRRESPECTIVE OF WHETHER 85% OF THE INCOME HAVE BEEN APPLIED TO CHARITABLE PURPOSES OR NOT. LD. CI T(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE STATED T HAT AO IS NOT JUSTIFIED IN DENYING THE CLAIM OF THE ASSESSEE FOR THE ACCUMULATION OF INCOME AND, ACCORDINGLY, ALLOWED TH E CLAIM OF THE ASSESSEE. BEING AGGRIEVED, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 7. WE OBSERVE THAT LD CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE, INTER ALIA, OBSERVING AS UNDER: 6.3 I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE APPELLANTS A/R SUBMISSION. I HAVE ALSO CAREFU LLY OBSERVED THE FINDINGS OF THE HONBLE SUPREME COURT IN THE CASE OF PROGRAMME FOR COMMUNITY ORGANIZATION REPORTED IN 248 ITR I, WHEREIN THE HONBLE SUPREME COURT, WHILE DELIVERING THE SAID JUDGEMENT HAS STAT ED THAT HAVING REGARD TO THE PLAIN LANGUAGE OF THE AB OVE PROVISIONS, IT IS CLEAR THAT A CHARITABLE OR RELIGI OUS TRUST IS ENTITLED TO ACCUMULATE TWENTY FIVE PERCENT. THU S, ITA NO.4852/M/2016 A.Y.2010-11 6 TAKING NOTE OF ALL THESE FACTS, I FIND MERITS INT E H ARGUMENTS OF THE APPELLANT. BESIDES THIS, I ALSO G ET STRONG OPINED FROM THE RECENT JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TRUSTEES O F BHAT FAMILY RESEARCH FOUNDATION, WHEREIN THE HONBLE BOMBAY HIGH COURT STATES THAT T IS CLEAR F ROM CLAUSE (A) OF SUB-SECTION (1) OF SECTION 11 THAT IN COME DERIVED FROM PROPER HELD UNDER TRUST WHOLLY FOR CHARITABLE PURPOSES OR RELIGIOUS PURPOSES SHALL NOT BE INCLUDED IN THE TOTAL INCOME TO THE EXTENT TO WHICH IT IS APPLIED FOR SUCH PURPOSES IN INDIA AND, WHERE IT IS ACCUMULATED FOR SUCH APPLICATION TO THE EXTENT WHICHEVER IS HIGHER. THE EXEMPTION OF ACCUMULATED INCOME TO THE EXTENT OF 25% OR RS.10,000/-, WHOEVER IS HIGHER, IS UNQUALIFIED AND UNCONDITIONAL.. FURT HER TO THAT, I ALSO PLACE RELIANCE TO THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF ADDL. CIT VS. A.I.N. R AO CHARITABLE TRUST (1995) 129 CTR 205, WHEREIN IT IS HELD THAT EXEMPTION AVAILABLE U/S.11(1)(A) I.E. 15% OF INCOME IS UNFETTERED AND NOT SUBJECT TO ANY CONDITI ONS. 6.4. CONSIDERING ALL THE ABOVE FACTUAL POSITION AS WELL AS THE CASE LAWS REFERRED AS ABOVE, I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE A.O. WAS NO T JUSTIFIED IN DENYING THE CLAIM OF THE APPELLANT FOR ITA NO.4852/M/2016 A.Y.2010-11 7 ACCUMULATION OF INCOME. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 8. WE OBSERVE THAT LD CIT(A) HAS RELIED ON THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF A.I.N. RAO CHA RITABLE TRUST(SUPRA), WHEREIN, IT IS HELD THAT EXEMPTION AV AILABLE U/S.11(1)(A) I.E. 15% OF INCOME IS UNFETTERED AND N OT SUBJECT TO ANY CONDITIONS. IN THE CASE BEFORE US, ASSESSEE HAS CLAIMED 15% ACCUMULATION U/S.11(1)(A) OF THE ACT. HENCE, W E DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE L D. CIT(A) AND REJECT GROUND OF APPEAL TAKEN BY DEPARTMENT. 6. ON APPRAISAL OF THE ABOVE MENTIONED ORDER IT IS NOT IN DISPUTE THAT THE MATTER OF CONTROVERSY HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE INCOME TAX APPELLATE TRIBUN AL BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT DECISION IN CASE OF CIT VS. A.I.N. RAO CHARITABLE TRUST (1995) 129 CTR 205. IN VIEW OF THE ORDER PASSED BY THE CO-ORDINATE BENCH WE ALLOWED TH IS ISSUE IN FAVOUR OF THE ASSESSEE AND DELETE THE ADDITION CONFIRMED B Y THE CIT(A) IN QUESTION. ACCORDINGLY, THIS ISSUE IS DECIDED IN FA VOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.2:- 7. UNDER THIS ISSUE THE APPELLANT HAS CHALLENGED TH E CONFIRMATION OF THE DISALLOWANCE OF DIVIDEND INCOME OF RS.2,76,4 59/- FROM INVESTMENT IN UTI UNITS AS EXEMPT U/S.10(33) OF THE ACT. THE ITA NO.4852/M/2016 A.Y.2010-11 8 ASSESSING OFFICER DELETED THE SAID INCOME FROM THE PROPERTY AND APPLIED THE PROVISION OF SECTION 11 OF THE ACT. TH E CONTENTION OF THE ASSESSEE IS THAT THE DIVIDEND INCOME WAS ALREADY EX EMPTED U/S.10(33) OF THE ACT. THEREFORE, THE SAME WAS NOT REQUIRE TO BE CONSIDERED U/S.11 OF THE ACT. THE LEARNED REPRESENTATIVE OF T HE ASSESSEE HAS ARGUED THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY HONBLE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN ITA NO.3807/MUM/2015 FOR A.Y.2011-12 DATED 04.02.20 16 IN CASE TITLED AS ACIT (EXEMPTION)-I(1) VS. JAMSHETJEE TATA TRUST . HOWEVER, ON THE OTHER HAND THE LEARNED REPRESENTATIVE OF THE DEPART MENT HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUEST ION. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT THE FINDING OF TH E HONBLE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN ITA NO.3807/MUM /2015 FOR A.Y.2011-12 DATED 04.02.2016 IN CASE TITLED AS ACIT (EXEMPTION)-I(1) VS. JAMSHETJEE TATA TRUST:- 5 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL BEFORE US. WE FIND THAT THE AO HAD DENIED THE EXEM PTION TO THE ASSESSEE-TRUST ON MANY A COUNTS INCLUDING NON APPLI CATION OF 85% OF THE INCOME OF THE TRUST FOR CHARITABLE PURPOSES, VIOLATION OF THE PROVISIONS OF SECTION 13(1)(D) AND 13(2)(H) OF THE ACT ETC. HE WAS OF THE OPINION THAT THE INCOME SHOULD BE TAXED AT T HE MAXIMUM MARGINAL RATE AND THAT THE ASSESSEE WAS NOT ENTITLE D TO CLAIM DEDUCTION U/S.10(34),10 (35). WE FIND THAT ALL THE ISSUES RAISED BY THE AO HAVE BEEN DEALT BY THE TRIBUNAL WHILE DECIDI NG THE APPEAL FOR THE EARLIER AY. WE ARE REPRODUCING THE RELEVAN T PART OF THE ORDER AND SAME READS AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE INCOME OF THE CHARITABLE/RE LIGIOUS TRUST OR INSTITUTION IS EXEMPT U/S 11 OF THE INCOME TAX A CT SUBJECT TO THE FULFILLMENT OF CONDITIONS STIPULATED U/S 11 AND 13 OF THE ACT. ITA NO.4852/M/2016 A.Y.2010-11 9 THERE ARE TWO TESTES TO BE QUALIFIED BY THE TRUST O R INSTITUTION TO AVAIL THE EXEMPTION U/S 11 OF THE ACT. THESE TWO TE STS ARE BROADLY CATEGORIZED AS APPLICATION OF INCOME AND SOURCE OF INCOME THE CONDITIONS AND MANNER OF APPLICATION OF INCOME AS E NUMERATED U/S 11 (5) OF THE ACT. WHEREAS THE CONDITION OF SOU RCE OF INCOME ARE PROVIDED UNDER SECTION 13 AND PARTICULARLY UNDE R SUB SECTION 1 AND 2 OF SECTION 13 OF INCOME TAX ACT. WE ARE CON CERNED ONLY WITH THE CONDITIONS PRESCRIBED IN CLAUSE (D) OF SUB SECTION (1) AND CLAUSE (H) OF SUBS SECTION (2) OF SECTION 13. B OTH THESE TESTS ARE TO BE QUALIFIED FOR EXEMPTION U/S 11. FIRST WE WILL DEAL WITH THE ISSUE OF APPLICATION OF INCOME IN CONFORMITY WI TH THE PROVISIONS OF SECTION 11 OF THE ACT. FOR READY REFE RENCE WE QUOTE SECTION 11(1) AS UNDER:- XXXXXXXXX 6.1 AS PER SECTION 11(1), THE INCOME DERIVED FROM P ROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURP OSES SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE TRUST/INSTIT UTION TO EXTENT SUCH INCOME IS APPLIED FOR CHARITABLE/RELIGIOUS PUR POSE IN INDIA, AND IN CASE SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSE IN INDIA TO THE EXTENT SUCH ACCUMULATION IS NOT IN EXCESS OF 15% OF THE TOTAL I NCOME FROM SUCH PROPERTY. THUS IF THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST IS APPLIED TO THE EXTENT OF 85% FOR CHARITABLE/RELIGIOUS PURPOSE IN INDIA, SUCH INCOME IS EXEMPT. THIS CONDITION OF APPLICATION OF 85% OF INCOME IS R ELAXED TO THE EXTENT THAT IF THE SAME IS APPLIED IN THE IMMEDIATE SUBSEQUENT YEAR AND THE ASSESSEES TRUST EXERCISE SUCH OPTION IN WRITING BEFORE THE EXPIRE OF TIME ALLOWED U/S 139(1) OF INC OME TAX ACT FOR FURNISHING THE RETURN OF INCOME THEN IT WOULD B E DEEMED TO BE INCOME APPLIED TO SUCH PURPOSE DURING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED. SUB SECTION 2 OF SECT ION 11 FURTHER RELAXES THE CONDITION OF APPLICATION OR DEE MED APPLICATION OF 85% OF INCOME DURING THE RELEVANT PR EVIOUS YEAR IF SUCH INCOME IS ACCUMULATED OR SET APART EITHER I N WHOLE OR IN PART FOR APPLICATION TO SUCH PURPOSE IN INDIA SUBJE CT TO THE CONDITION PROVIDED UNDER THIS SUB SECTION 2 WHICH R EADS AS UNDER:- XXXXXXXXX ITA NO.4852/M/2016 A.Y.2010-11 10 6.2 THUS THE TRUST WOULD NOT LOSE EXEMPTION EVEN 8 5% OF THE INCOME APPLIED OR DEEMED APPLIED DURING THE YEAR IF THE WH OLE OR PART OF SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICA TION OF SUCH PURPOSE IN INDIA BY GIVING NOTICE IN WRITING TO THE AO AND THE MONEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITE D IN THE FORM OR MODE SPECIFIED IN SUB SECTION (5) OF SECTION 11. TH E MODE OF INVESTMENT AND DEPOSIT UNDER SUB SECTION (5) AS UND ER:- XXXXXXXXX 6.3 THE ASSESSEE BEFORE US UNDISPUTEDLY HAS NOT COM PLIED WITH THE CONDITION OF APPLICATION OF 85% OF THE INCOME DURIN G THE YEAR AS WELL AS THE INVESTMENT/DEPOSIT OF ACCUMULATION OF THE SHORT FALL IN TERMS OF SUB SECTION (2) AND (5) OF SECTION 11. THIS FACT IS APP ARENT FROM THE DETAILS OF THE INCOME AND APPLICATION CLAIMED AS UNDER:- DETAILS OF INCOME LESS APPLICATION OF INCOME EXPENSES ON THE OBJECTS OF THE TRUST 160.93 ADMINISTRATIVE EXPENSES 2.73 CONTRIBUTION TO PTA FUND - 0.93 164.59 6.3 FOR THE PURPOSE OF APPLICATION OF INCOME IN TER MS OF SECTION 11 (1) AND (2), THE ENTIRE INCOME OF THE TRUST HAS TO BE C ONSIDERED INCLUDING THE DIVIDEND AND LONG TERM CAPITAL GAIN CLAIMED AS EXEM PT U/S 10. IT IS PERTINENT TO MENTION THAT FOR AVAILING THE EXEMPTIO N U/S 11, THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST HAS TO B E CONSIDERED IRRESPECTIVE OF THE FACT THAT SOME OF THE INCOME SO DERIVED IS ALSO EXEMPT U/S 10, THEREFORE, 85% OF THE ENTIRE INCOME WITHOUT EXCLUSION OF DIVIDEND AND LONG TERM CAPITAL GAIN ON SHARES HAS TO BE APPL IED FOR SUCH PURPOSE IN INDIA FOR AVAILING DEDUCTION U/S 11. AS IT IS CL EAR FROM THE DETAILS GIVEN ABOVE THAT OUT OF TOTAL INCOME OF RS. 714.42 CRORES , THE ASSESSEE TRUST HAS APPLIED DURING THE YEAR ONLY RS 164.59 CRORES. THE BALANCE HAS BEEN INVESTED IN THE SHARES OF TATA SONS LTD WHICH IS NO T IN CONFORMITY WITH SECTION 11(5) OF THE INCOME TAX ACT. THE LD. SENIOR COUNSEL SUBMITTED THAT THE ASSESSEE HAD EXERCISED OPTION UNDER CLAUSE 2 OF THE EXPLANATION AND THE INCOME APPLIED FOR SUCH PURPOSE IN NEXT YEA R SHALL BE DEEMED TO HAVE APPLIED IN PREVIOUS YEAR. HE HAS REFERRED THE LETTER DATED 13.09.2010 WHEREBY THE ASSESSEE EXERCISED ITS OPTIO N UNDER CLAUSE 2 OF THE EXPLANATION TO SECTION 11 (1)(A) OF THE INCOME TAX ACT. IT IS PERTINENT TO NOTE THAT WHILE COMPUTING THE APPLICATION OF THE INCOME THE ASSESSEE HAS EXCLUDED DIVIDEND AND LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM ITA NO.4852/M/2016 A.Y.2010-11 11 CAPITAL GAIN AND SHOWN THE INCOME AT RS. 25.78 CROR ES. WHEREAS THE TOTAL INCOME OF THE ASSESSEE INCLUDING CAPITAL GAIN AND D IVIDEND INCOME IS RS. 714.42 CRORES. TO MEET THE REQUIREMENT OF 85% OF TH E INCOME OF RS. 714.42 CRORES, THE ASSESSEE WAS REQUIRED TO APPLY O R DEEMED TO HAVE BEEN APPLIED THE INCOME TO THE EXTENT OF RS. 607.43 CRORES. AS PER THE DETAILS, THE ASSESSEE HAS APPLIED RS. 164.93 CRORES DURING THE YEAR AND NOTHING HAS BEEN BROUGHT BEFORE US TO SHOW THAT THE SHORTFALL OF MORE THAN 446 CRORES HAS BEEN APPLIED IN THE IMMEDIATE F OLLOWING YEAR. THEREFORE, APPARENTLY THE ASSESSEE TRUST HAS NOT AP PLIED THE SHORTFALL OF MORE THAN 446 CRORES IN THE IMMEDIATE NEXT YEAR IN TERMS OF THE EXPLANATION TO SECTION 11(1) OF THE ACT. BECAUSE TH E ASSESSEE HAS ALREADY APPLIED THE ENTIRE BALANCE AMOUNT IN THE SHARES OF TATA SONS LTD., THEREFORE, THE QUESTION OF APPLICATION OF SHORTFALL IN THE IMMEDIATE NEXT YEAR DOES NOT ARISE. 7 NOW WE TURN TO THE ISSUE OF CONDITION OF SOURCE O F INCOME IN TERMS OF SECTION 13 OF THE INCOME TAX ACT. THE AO HAS DISALL OWED THE EXEMPTION ON TWO VIOLATIONS VIZ. VIOLATION OF SECTION 13(1)(D )(III) AND SECTION 13(2)(H). SO FAR AS THE CONDITIONS REQUIRED TO BE F ULFILLED U/S 13(1)(D)(III) ARE CONCERNED ANY INCOME FROM THE SHARES IN A COMPA NY OTHER THAN PUBLIC SECTOR COMPANY OR SHARES PRESCRIBED OR FORM OF INVESTMENT UNDER CLAUSE (XII) OF SUB SECTION 5 OF SECTION 11 IS NOT EXEMPT U/S 11 OF THE ACT. SECTION 13(1)(D) READS AS UNDER:- XXXXXXXXXXX 7.1 IN THE CASE OF THE ASSESSEE THE DIVIDEND INCOME , LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL AGAIN DERIVED FROM THE SHARES OF TCS HELD BY THE ASSESSEE IN CONTRAVENTION OF SECTION 13(1)(D)(I II). THE SHARES OF TCS WERE RECEIVED BY THE ASSESSEE IN THE YEAR 2001-02 A ND THERE IS NO DISPUTE THAT HOLDING OF THESE SHARES BY ASSESSEE IS BEYOND THE PERMITTED LIMIT OF TIME PERIOD PRESCRIBED U/S 13(1)(D). THE LD. SENIOR COUNSEL HOWEVER HAS ARGUED THAT THE BONUS SHARES RECEIVED BY THE ASSESS EE ON 19.06.2009 ARE NOT HELD BY THE ASSESSEE BEYOND THE LIMIT PERMITTED BY THE PROVISO TO SECTION 13(1)(D) OF THE ACT. THIS CONTENTION OF THE LD. SENIOR COUNSEL IS NOT ACCEPTABLE SIMPLY ON THE REASON THAT THE TIME P ERIOD PERMITTED UNDER PROVISO TO SECTION 13(1)(D) IS TO EXIT FROM NON PER MISSIBLE INVESTMENT/HOLDING OF SHARES AND CONVERT THE SAME I NTO PERMISSIBLE INVESTMENT. CLAUSE (IIA) OF PROVISO HAS BEEN INSERT ED BY THE FINANCE ACT 1991 TO SECURE THAT MERE ACCRETION OF THE EXISTING HOLDING OF SHARES BY WAY OF BONUS SHARES OR ACCEPTANCE OF DONATION IN KI ND OR ANY ASSET NOT ITA NO.4852/M/2016 A.Y.2010-11 12 CONFORMING TO THE PROVISIONS OF SECTION 11(5) WILL NOT MAKE THE FUND OR TRUST OR INSTITUTION LOSE TAX EXEMPTION IF THE TRUS T/INSTITUTION COVERT THE ASSET NOT CONFORMING TO SECTION 11(5) INTO PERMISSI BLE INVESTMENT WITHIN ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHIC H SUCH BONUS SHARES OR OTHER ASSETS ARE RECEIVED OR ON 31.3.1992 WHICHE VER IS LATER. THE EXPLANATORY NOTE ON THE PROVISION AS ISSUED BY THE CBDT VIDE CIRCULAR NO. 621 DATED 19.12.1991 REPORTED IN 195 ITR (ST) 1 54 IS RELEVANT ON THIS POINT. PARA 15.2 OF THE SAID CIRCULAR READS AS UNDE R:- FURTHER A NEW CLAUSE (IIA) HAS BEEN INSERTED IN TH E PROVISO IN CLAUSE (D) OF SUB SECTION (1) OF SECTION 13 TO SECURE THAT MER E ACCRETION TO THE EXISTING HOLDING OF SHARES BY WAY OF BONUS SHARES O R ACCEPTANCE OF DONATIONS IN KIND OR ANY ASSET NOT CONFORMING TO TH E PROVISION OF SECTION 11(5) WILL NOT MAKE THE FUND OR TRUST OR INSTITUTIO N LOSE TAX EXEMPTION. THE TRUSTS OR INSTITUTIONS WILL, HOWEVER, BE' REQUI RED TO DISPOSE OR CONVERT THE ASSETS NOT CONFORMING TO THE REQUIREMENT OF SEC TION 11(5) INTO PERMISSIBLE INVESTMENT WITHIN ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH SUCH BONUS SHARES OR OTHER ASSETS ARE RECE IVED OR 31-3-1992, WHICHEVER IS LATER. 7.2 THUS IT IS CLEAR THAT CLAUSE (IIA) OF THE PROVI SO TO SECTION 13(1)(D) WAS INSERTED WITH A VIEW THAT HOLDING OF THE ASSET NOT CONFORMING TO THE PROVISIONS OF SECTION 11(5) WOULD NOT MAKE THE TRUS T OR INSTITUTION LOSE TAX EXEMPTION IS SUCH ASSETS WERE DISPOSED OFF OR C ONVERTED INTO PERMISSIBLE INVESTMENT WITHIN ONE YEAR FORM THE END OF THE FINANCIAL YEAR IN WHICH SUCH ASSETS WERE RECEIVED. DUE TO CER TAIN ANOMALIES AND HARDSHIP ARISING OUT OF THE REQUIREMENT OF THE PROV ISO TO SECTION 13(1)(D) CLAUSE (IIA) WAS FURTHER AMENDED VIDE FINANCE ACT 1 992 WHEREBY THE PERIOD OF DISINVESTMENT ALLOWED UPTO 31ST MARCH 199 3 OR WITHIN ONE YEAR FORM THE END OF THE FINANCIAL YEAR IN WHICH TH E SUCH ASSETS WERE RECEIVED WHICHEVER IS LATER. 7.3 IN THE CASE IN HAND, THOUGH THE ASSESSEE HELD T HE BONUS SHARES OF TCS FOR THE DURATION WHICH IS WITHIN THE TIME LIMIT PRESCRIBED UNDER CLAUSE (IIA) OF THE PROVISO TO SECTION 13(1)(D) THE ASSESSEE CONVERTED THE ASSETS BEING BONUS SHARES OF TCS INTO THE PREFERENT IAL SHARE OF TATA SONS LTD. JAMSETJI TATA TRUST 18 WHICH IS NOT A CONVERSI ON INTO THE ASSET/INVESTMENT PERMISSIBLE U/S 11(5) OF THE ACT. THEREFORE, CLAUSE (IIA) OF PROVISO TO SECTION 13(1)(D) WOULD NOT RESCUE THE ASSESSEE FROM THE MISCHIEF OF SECTION 13(1)(D) (III) OF THE INCOME TA X ACT. THE INTENT BEHIND THE INSERTION OF CLAUSE (IIA) OF THE PROVISO IS TO EXIT FORM NON PERMISSIBLE INVESTMENT, AND TO CONVERT INTO PERMISSIBLE INVESTM ENT AND NOT TO JUST ITA NO.4852/M/2016 A.Y.2010-11 13 CHANGE ONE NON PERMISSIBLE INVESTMENT TO ANOTHER NO N PERMISSIBLE INVESTMENT. IF IT IS PERMITTED IT WILL DEFEAT THE V ERY PURPOSE OF OBJECT OF THE SAID CLAUSE OF THE PROVISO. 8. THE NEXT QUESTION ARISES IS, VIOLATION OF PROVIS IONS OF SECTION 13(2)(H) WHICH READS AS UNDER:- (H) IF ANY FUNDS OF THE TRUST OR INSTITUTION ARE, OR CONTINUE TO REMAIN, INVESTED FOR ANY PERIOD DURING THE PREVIOUS YEAR (NOT BEING A PERIOD BEFORE THE 1ST DAY OF JANUARY, 1971 ) IN ANY CONCERN IN WHICH ANY PERSON REFERRED TO IN SUB- SEC TION (3) HAS A SUBSTANTIAL INTEREST. 8.1 THE AO HELD THAT INVESTMENT IN SHARES OF TATA S ONS LTD IS IN CONTRAVENTION OF CLAUSE (H) OF SUB SECTION 2 OF SEC TION 13 BECAUSE TATA SONS LTD., IS A CONCERN IN WHICH THE PERSON RE FERRED IN SUB SECTION 3 HAS SUBSTANTIAL INTEREST. LD. SENIOR COUN SEL THOUGH REITERATED THE ASSESSEES STAND TAKEN BEFORE THE AU THORITIES BELOW HOWEVER HE HAS CONTENDED THAT VIOLATION OF SECTION 13(2)(H) WOULD NOT RENDER THE ENTIRE INCOME OF THE TRUST LOS E EXEMPTION U/S 11. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF TATA EDUCAT ION TRUST AND TATA SOCIAL WELFARE TRUST (SUPRA). AS FAR AS THE VI OLATION OF CLAUSE (H) OF SECTION 13(2) IS CONCERNED WE FIND TH AT THE AUTHOR OF THE ASSESSEE TRUST AND ITS RELATIVE DEFINITELY H AVE A SUBSTANTIAL INTEREST IN THE TATA SONS LTD, THEREFORE, THE INVES TMENT IN THE SHARES OF TATA SONS LTD IS CLEAR VIOLATION OF CLAUS E (H) OF SECTION 13(2). WE HAVE GIVEN OUR SERIOUS THOUGHT ON THE ISS UE AND ARE OF THE VIEW THAT VIOLATION OF SECTION 13(1)(D) AND SEC TION 13(2)(H) WOULD DISQUALIFY EXEMPTION OF INCOME FROM THE INVES TMENT IN NON CONFORMING OF SECTION 11(5) BUT NOT THE ENTIRE INCO ME OF TRUST IF THE OTHER INCOME OF THE TRUST OTHERWISE FULFILL THE CONDITION FOR EXEMPTION. THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TATA EDUCATION TRUST AND TATA SOCIAL WELFARE TRUST (SUPRA) HAS DECIDED A SIMILAR ISSUE IN PARA 13 AS UNDER:- 13 WE HAVE HEARD THE PARTIES. THE ASSESSEE IS A PU BLIC CHARITABLE TRUST. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE DERIVED ITS INCOME FROM INTEREST AND DIVIDEND. SINCE THE ASSESSEE CONT INUED TO HOLD THE SHARES OF TATA SONS LTD. BEYOND THE PERMITTED D ATE PRESCRIBED FOR DISINVESTMENT U/S 13(1)(D), THE EXEM PTION WAD DENIED BY THE AO AND THE ENTIRE INCOME OF THE ASSES SEE WAS ITA NO.4852/M/2016 A.Y.2010-11 14 BROUGHT TO TAX EXCEPT THE DIVIDEND INCOME RECEIVED ON SHARES OF TATA SONS LTD. ON APPEAL, THE LD. CIT(A) HAS HELD, FOLLOWING HIS APPELLATE ORDER DATED 20.06.2000 FOR AY 1996-97, TH AT THE ENTIRE INCOME OF THE ASSESSEE WOULD NOT ATTRACT DISQUALIFI CATION FOR THE PURPOSE OF SECTION 11 BUT ONLY THE INCOME DERIVED F ORM THE INVESTMENTS FALLING IN PROHIBITED CATEGORY WOULD BE CHARGEABLE TO TAX. IN HIS APPELLATE ORDER FOR A.Y. 1996-97, TH E LD. CIT(A) HAS FOLLOWED THE DECISION OF THIS TRIBUNAL IN GURU DAYAL BERLIA CHARITABLE TRUST, 34 ITD 489 IN WHICH IT HAS BEEN H ELD THAT ONLY THE RELEVANT INCOME DERIVED FROM IMPERMISSIBLE INVE STMENT WOULD BE SUBJECTED TO TAX AND THE NON-FULFILLMENT O F THE CONDITION STIPULATED IN SECTION 13(1)(D)(III) WOULD NOT DEPRI VE A TRUST OF ITS EXEMPTION FROM TAX IN RESPECT OF OTHER INCOME WHICH HAS ALREADY BEEN GRANTED TO IT IN EARLIER YEARS. THE ORDER OF T HE LD. CIT(A) IS IN CONFORMITY WITH THE ORDER OF THIS TRIBUNAL REFER RED TO BY HIM IN HIS APPELLATE ORDER FOR AY 1996-97. IN THIS VIEW OF THE MATTER,, HIS ORDER IS CONFIRMED. APPEAL FILED BY THE DEPARTM ENT IS DISMISSED. 8.2 WE FURTHER NOTE THAT WHILE DECIDING THE SIMILAR ISSUE THE TRIBUNAL IN THE CASE OF GURU DAYAL BERLIA CHARITABL E TRUST VS. ITO HAS REPRODUCED THE RELEVANT PART OF THE EXPLANA TORY NOTE ON THE FINANCE ACT 1984 VIDE CIRCULAR NO. 387 IN PARA 6 OF THE SAID ORDER WHICH READS AS UNDER:- 6 . BEING AGGRIEVED BY THE ORDERS OF THE CIT(A), THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS, WHICH WERE MADE BEFORE THE IT AUTHORITIES AND STRONGLY URGED THAT THEY SHOULD HAVE ACCEPTED T HE ASSESSEE'S CONTENTION THAT IT WOULD LOSE EXEMPTION UNDER S. 11 OF THE ACT IN RESPECT OF THE DIVIDEND INCOME ONLY. HE WAS FAIR ENOUGH TO STATE THAT IT IS NOT IN DISPUTE THAT BY VIRTUE OF THE PROVISIONS OF S. 11 ( 5) OF THE ACT, THE ASSESSEE WOULD LOSE EXEMPTION UNDER S. 11 OF THE AC T, AS IT IS HOLDING 12,000 PREFERENCE SHARES OF THE NATIONAL RAYON CORP ORATION LTD. HOWEVER, HE HASTENED TO STATE THAT THE ASSESSEE WOU LD LOSE EXEMPTION UNDER S. 11 OF THE ACT IN RESPECT OF THE DIVIDEND I NCOME RECEIVED ON THE SAID SHARES AND NOT IN RESPECT OF OTHER INCOME EARN ED BY IT. IN OTHER WORDS THE LEARNED COUNSEL FOR THE ASSESSEE WANTED T O IMPRESS UPON US THAT JUST CA SE THE ASSESSEE WAS NOT IN A POSITION TO DISPOSE OF THE SHARES OF NATIONAL RAYON CORPORATION LTD., IT SHOULD NOT L OSE EXEMPTION CONTEMPLATED UNDER S. 11 OF THE ACT IN RESPECT OF O THER INCOME EARNED BY ITA NO.4852/M/2016 A.Y.2010-11 15 IT. IN THIS CONNECTION H INVITED OUR ATTENTION TO C IRCULAR NO. 387 CONTAINING EXPLANATORY NOTES ON THE FINANCE ACT, 19 84, MORE PARTICULARLY PARAGRAPH 28.6 WHICH READS AS UNDER. 28.6 IT MAY BE NOTED THAT NEW SUB-S. (1A) INSERTED IN S. 161 OF THE IT ACT, WHICH PROVIDES FOR TAXATION OF THE ENTIRE INCOME RE CEIVED BY TRUSTS AT THE MAXIMUM MARGINAL RATE IS APPLICABLE ONLY IN THE CAS E OF PRIVATE TRUSTS HAVING PROFITS AND GAINS OF BUSINESS. SO FAR AS THE PUBLIC CHARITABLE AND RELIGIOUS TRUSTS ARE CONCERNED, THEIR BUSINESS PROF ITS ARE NOT EXEMPT FROM TAX, EXCEPT IN THE CASES FALLING UNDER CL. (A) OR C L. (B) OF S. 11(4A) OF THE IT ACT. AS THE MAXIMUM MARGINAL RATE OF TAX UNDER T HE NEW PROVISO TO S. 164(2) APPLIES TO THE WHOLE OR A PART OF THE RELEVA NT INCOME OF A CHARITABLE OR RELIGIOUS TRUST WHICH FORFEITS EXEMPT ION BY VIRTUE OF THE PROVISIONS OF THE IT ACT IN REGARD TO INVESTMENT PA TTERN OR USE OF THE TRUST PROPERTY FOR THE BENEFIT OF THE SETTLOR. ETC., CONT AINED IN S. 13(L)(C) AND (D) OF THAT ACT, THE SAID RATE WILL NOT APPLY TO THE BU SINESS PROFITS OF SUCH TRUST WHICH ARE OTHERWISE CHARGEABLE TO TAX. IN OTH ER WORDS, WHERE SUCH A TRUST CONTRAVENES THE PROVISIONS OF S. 13(L)(C) OR (D) OF THE ACT, THE' MAXIMUM MARGINAL RATE OF INCOME TAX WILL APPLY ONLY TO THAT ART OF THE INCOME WHICH HAS FORFEITED EXEMPTION UNDER THE SAID PROVISIONS. 8.3 AFTER CONSIDERING THE EXPLANATORY NOTE THE TRIB UNAL DECIDED THE ISSUE BY HOLDING THAT THE PROVISION OF SECTION 164(2) ALONG WITH THE PROVISO THERETO WOULD COME INTO OPERATION AND ONLY SUCH INCOME WOULD BE BROUGHT TO TAX AT THE MAXIMUM MARGINAL RATE WHICH COULD NOT BE TREATED AS EXEMPTION BY VIR TUE OF NON FULFILLMENT OF CONDITIONS OF INVESTMENT IN SPECIFIE D SECURITIES AS PRESCRIBED U/S 11(5). THE HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTION) VS. SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST (249 ITR 533) A S HELD IN PARA 6 AS UNDER:- SECTION 164 OF THE INCOME-TAX ACT DOES NOT CREATE A CHARGE ON THE INCOME OF A DISCRETIONARY TRUST. THE WORD 'CHARGE' IN SECTION 164 MEANS 'LEVY'. SECTION 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 SEVE RABLE PORTIONS, EXEMPT AS WELL AS TAXABLE, THE PORTION WH ICH IS EXEMPT IS TO BE LEFT OUT AND THE PORTION WHICH IS N OT EXEMPT IS CHARGED TO TAX AS IF IT IS THE INCOME OF THE ASSOCIATION OF PERSONS. THEREFORE, A PROVISO WAS IN SERTED ITA NO.4852/M/2016 A.Y.2010-11 16 BY THE FINANCE ACT OF 1984 WITH EFFECT FROM APRIL 1 , 1985, UNDER WHICH IN CASES WHERE THE WHOLE OR ANY P ART OF THE RELEVANT INCOME IS NOT EXEMPT UNDER SECTION 11 OR SECTION 12 BECAUSE OF THE CONTRAVENTION OF SECTION 13(1)(D), THEN TAX SHALL BE CHARGED ON SUCH INCOME OR PART THEREOF, AS THE CASE MAY BE, AT THE MAXIMUM MARGINAL RATE. IN OTHER WORDS, ONLY THE NON-EXEMPT INCOME PORTION WOULD FALL IN THE NET OF TAX AS IF I T WAS THE INCOME OF THE ASSOCIATION OF PERSONS. ON THE OT HER HAND, SECTION 11(5) LAYS DOWN VARIOUS MODES OR FORM S IN WHICH A TRUST IS REQUIRED TO DEPLOY ITS FUNDS. S ECTION 13(1) LAYS DOWN CASES IN WHICH SECTION 11 SHALL NOT APPLY. UNDER SECTION 13(1)(D)(III), IT HAS BEEN LAI D DOWN THAT ANY SHARE IN A COMPANY, NOT BEING A GOVERNMENT COMPANY, HELD BY THE TRUST AFTER NOVEMBER 30, 1983, SHALL RESULT IN FORFEITURE OF EXEMPTION. BY VIRTUE OF PROVISO (IIA) IT HAS BEEN LAID DOWN THAT ANY ASSET WHICH DOES NOT FORM PART OF PERMISSIBLE INVESTMENT UNDER SECTION 11(5) SHALL BE DISPOSED OF WITHIN ONE YEAR FROM THE END OF THE PREVIOUS YEAR IN WHICH SUCH ASSET IS ACQUIRED OR BY MARCH 31, 1993, WHICHEVER IS LATER. IN THE PRESENT CASE, THE ASSESSEE WAS REQUIRED TO DISPOSE OF THE SHARES UNDER THE SAID PROVISO BY MARCH 31, 1995 (SE E THE JUDGMENT OF THIS COURT IN I. T. A. NO. 81 OF 1999, DECIDED ON SEPTEMBER 14, 2000--DIRECTOR OF INCOME-T AX (EXEMPTIONS) V. SHARDABEN BHAGUBHAI MAFATLAL PUBLIC CHARITABLE TRUST [2001] 247 ITR 1). THE SHARES HAVE NOT BEEN DISPOSED OF EVEN DURING THE ASSESSMENT YEAR IN QUESTION. NOW, UNDER SECTION 164(2) IT IS, INTER AL IA, LAID DOWN THAT IN THE CASE OF RELEVANT INCOME WHICH IS DERIVED FROM PROPERTY HELD UNDER TRUST FOR CHARITAB LE PURPOSES, WHICH IS OF THE NATURE REFERRED TO IN SEC TION 11(4A), TAX SHALL BE CHARGED ON SO MUCH OF THE RELE VANT INCOME AS IS NOT EXEMPT UNDER SECTION 11. SECTION 164(2) WAS REINTRODUCED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1989, WITH EFFECT FROM APRIL 1, 19 89. EARLIER IT WAS OMITTED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987. HOWEVER, THE LEGISLATURE INSERTED A PROVISO BY THE FINANCE ACT, 1984, WITH E FFECT ITA NO.4852/M/2016 A.Y.2010-11 17 FROM APRIL 1, 1985. BY THE SAID PROVISO, IT IS, INT ER ALIA, LAID DOWN THAT WHERE THE WHOLE OR PART OF THE RELEV ANT INCOME IS NOT EXEMPT BY VIRTUE OF SECTION 13(1)(D), TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF THE RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE, THE PHRASE 'RELEVANT INCOME OR PART OF THE RELEVANT INC OME' IS REQUIRED TO BE READ IN CONTRADISTINCTION TO THE PHRASE 'WHOLE INCOME' UNDER SECTION 161(1A). THIS IS ONLY BY WAY OF COMPARISON. UNDER SECTION 161(1A), WHICH BEGINS WITH A NON OBSTANTE CLAUSE, IT IS PROVIDED T HAT WHERE ANY INCOME IN RESPECT OF WHICH A PERSON IS LI ABLE AS A REPRESENTATIVE ASSESSEE CONSISTS OF PROFITS OF BUSINESS, THEN 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 SHOW THAT THE LEGISLATURE HAS CLEARLY INDICATED ITS MIND IN THE PROVISO TO SECTION 164(2) WHEN IT CATEGORICALLY REFERS 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 T HE INCOME WHICH HAS FORFEITED EXEMPTION. IT DOES NOT R EFER TO THE ENTIRE INCOME BEING SUBJECTED TO MAXIMUM MARGINAL RATE OF TAX. THIS INTERPRETATION OF OURS I S 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 MAXIMU M MARGINAL RATE OF INCOME-TAX WILL APPLY ONLY TO THAT PART OF THE INCOME WHICH HAS FORFEITED EXEMPTION UNDER T HE SAID PROVISION AND NOT TO THE ENTIRE INCOME. WE MAY ALSO ADD THAT IN LAW, THERE IS A VITAL DIFFERENCE BETWEE N ELIGIBILITY FOR EXEMPTION AND WITHDRAWAL OF EXEMPTION/FORFEITURE OF EXEMPTION FOR CONTRAVENTION OF THE PROVISIONS OF LAW. THESE TWO CONCEPTS ARE DIFFE RENT. 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 ITA NO.4852/M/2016 A.Y.2010-11 18 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 OF SECTION 13(1)(D) AND ITS CONSEQUENCES. IN THE CIRCUMSTANCES , WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT I N THE PRESENT CASE, THE MAXIMUM MARGINAL RATE OF TAX WILL APPLY ONLY TO THE DIVIDEND INCOME FROM SHARES IN MAFATLAL INDUSTRIES LIMITED AND NOT TO THE ENTIRE I NCOME. THEREFORE, INCOME OTHER THAN DIVIDEND INCOME SHALL BE TAXED AT THE NORMAL RATE OF TAXATION UNDER THE ACT. 8.4 FOLLOWING THE ABOVE DECISION WE HOLD THAT THE BREACH OF SECTION 13(1)(D) AND 13(2)(H) WOULD LEAD TO FORFEITURE OF EXEMPTION OF INCOME DERIVED FROM SUCH INVESTMENT AND NOT THE ENTIRE INCOME WOULD BE SUBJE CTED TO THE MAXIMUM MARGINAL RATE OF TAX U/S 164(2). THU S THE EXEMPTION U/S 11 IS AVAILABLE TO THE ASSESSEE O NLY ON THE INCOME TO THE EXTENT THE SAME IS DERIVED IN CONFORMITY OF SECTION 11 AND APPLIED DURING THE YEA R FOR SUCH PURPOSE OF CHARITABLE TRUST. 9. GROUND NO.2 IS REGARDING DENIAL OF EXEMPTION U/ S 10(34), 10(35) AND 10(38). 9.1 THE ASSESSEE CLAIMED THAT DIVIDEND INCOME ON SH ARES AND UNIT AND LONG TERM CAPITAL GAIN ON SALE OF SHARES ARE EXEMPT U/S 10(34), 10(35) AND 10(38) RESPECTIVELY. THE AO DENIED THE EXEMPTIO N ON THE GROUND THAT THE INCOME DERIVED FROM THE PROPERTY HELD BY THE TR UST AND NOT ANY OTHER PERSON, SECTION 11 EXCLUSIVELY DEALS WITH THE INCOM E DERIVED FROM THE PROPERTY HELD UNDER TRUST AND NOT SECTION U/S 10(34 ), 10(35) AND 10(38). HENCE THE AO HELD THAT THERE IS A VIOLATION U/S 13 AND AS A RESULT OF THE SAME EXEMPTION U/S 11 IS DENIED. THE ASSESSEE CANNO T CLAIM THE ALTERNATIVE CLAIM FOR EXEMPTION U/S 10(34), 10(35) AND 10(38) BECAUSE THESE SECTIONS DO NOT DEAL WITH INCOME DERIVED FROM THE PROPERTY HELD UNDER THE TRUST. IF THE INCOME OF THE TRUST WHICH I S NOT HELD EXEMPT U/S 11, 12 AND 13 IS ALLOWED TO EXEMPT UNDER OTHER SUB SECT IONS OF SECTION 10 IT WILL LEAD TO OPEN GROUND FOR TRUST TO EXERCISE LONG TERM SECURITIES INCOME AND DIVIDEND INCOME AND CLAIMED EXEMPTION OF THE SA ME UNDER OTHER SUB SECTIONS OF SECTION 10 OF INCOME TAX ACT. 9.2 ON APPEAL, CIT(A) CONCUR WITH THE VIEW OF AO. ITA NO.4852/M/2016 A.Y.2010-11 19 9.3 BEFORE US, THE LD. SENIOR COUNSEL HAS SUBMITTED THAT ANY INCOME BY WAY OF DIVIDEND REFERRED TO IN SECTION 115O OF THE INCOME TAX ACT IS EXEMPT FROM TAX U/S 10(34) OF THE INCOME TAX ACT. S INCE THE DIVIDEND IS ALREADY SUBJECTED TO TAX AT THE HAND OF THE DISTRIB UTING COMPANY U/S 115O AND, THEREFORE, IT CANNOT BE TAXED TWICE. ONCE THE INCOME IS EXEMPT U/S 10 IT WOULD NOT REQUIRED TO BE QUALIFIED U/S 11 OF THE ACT. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION O F HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DIVINE LIGHT MISSION. (278 ITR 659) AND SUBMITTED THAT THE HONBLE HIGH COURT DEALT WITH AN IDENTICAL ISSUE REGARDING AGRICULTURAL INCOME EXEMPT U/S 10(5) OF T HE INCOME TAX ACT HELD THAT THIS INCOME IS NOT REQUIRED TO BE CONSIDE RED AT ALL EVEN FOR THE PURPOSE OF SECTION 11 OF THE INCOME TAX ACT. THUS T HE LD. SENIOR COUNSEL HAS SUBMITTED THAT IF EXEMPTION IS AVAILABL E U/S 10 THEN SECTION 11 IS IRRELEVANT. HE HAS RELIED UPON THE FOLLOWING DECISIONS:- (I) COMMISSIONER OF INCOME-TAX. VS. SEETHAKATHI TRU ST (295 ITR 520.) (II) BRAHMIN EDUCATIONAL SOCIETY VS ASSISTANT COMMI SSIONER OF INCOME TAX (227 ITR 317) (III) COMMISSIONER OF INCOME TAX VS. RAO BAHADUR CA LAVALA CUNNAN CHETTY CHARITIES [1982] (135 ITR 485 ) (IV) BAR COUNCIL OF UTTAR PRADESH VS COMMISSIONER O F INCOME- TAX (143 ITR 584) (V) COMMISSIONER OF INCOME-TAX. V. BAR COUNCIL OF M AHARASHTRA. (130 ITR 28) 9.4 THE LD. SENIOR COUNSEL REFERRED THE OBSERVATION S OF THESE DECISIONS AND SUBMITTED THAT ONCE THE INCOME IS EXEMPT U/S 10 , SAME CANNOT BE SAID TO BE TAXED U/S 11 TO 13. HE HAS FURTHER CONTE NDED THAT IF THE EXEMPTION IS AVAILABLE TO THE ASSESSEE UNDER TWO PR OVISIONS OF THE ACT, THEN THE ASSESSEE IS ENTITLED TO EXEMPTION UNDER TH E PROVISION WHICH IS MORE BENEFICIAL. 9.5 ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT AS PER SECTION 11 OF THE ACT, THE INCOME FROM THE PROPERTY HELD UNDER TR UST IS COVERED UNDER THIS SECTION AND NOT U/S 10 OF THE INCOME TAX ACT. HE HAS CONTENDED THAT BOTH THESE SECTIONS ARE PART OF CHAPTER III AND, TH EREFORE, SECTION 11 BEING SPECIFIC PROVISION FOR EXEMPTION OF INCOME FR OM THE PROPERTY HELD UNDER TRUST WOULD OVERRIDE GENERAL PROVISIONS. HE H AS EMPHASIZED THAT THE PROVISIONS UNDER SAME CHAPTER SHOULD BE CONSIDE RED HARMONIOUSLY WHILE DEALING WITH SPECIAL MISCHIEF. SECTIONS 11, 1 2 AND 13 ARE STRINGS OF PROVISIONS AND IF THE CASE IS COVERED BY THESE SPEC IAL PROVISIONS THEN GENERAL LAW WOULD NOT APPLY. HE HAS PUT FORTH THE L OGIC THAT SECTION 13 ITA NO.4852/M/2016 A.Y.2010-11 20 DEHORS THE APPLICABILITY OF SECTION 11 AND IN THE S AME MANNER IT WOULD ALSO DEHORS THE APPLICABILITY OF SECTION 10 IF THER E IS A VIOLATION OF SECTION 13 OF THE ACT. 9.6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT PROVISIONS OF LAW. THE EXEMPTION U/S 10 IS INCOME S PECIFIC IRRESPECTIVE OF THE STATUS/CLASS OF PERSON. WHEREAS THE EXEMPTION U NDER SECTION 11 IS PERSON SPECIFIC THOUGH ON THE INCOME DERIVED FROM T HE PROPERTY HELD UNDER THE TRUST. FURTHER THE EXEMPTION U/S 11 IS SU BJECT TO THE APPLICATION OF INCOME AND MODES OR FORM OF DEPOSIT AND INVESTME NT. THE HONBLE HIGH COURT IN THE CASE OF CIT VS. DIVINE LIGHT MISS ION (SUPRA) WHILE DEALING WITH AN IDENTICAL ISSUE HAS HELD IN PARA 9 AS UNDER : SO FAR AS QUESTION NO.4 OF PARAGRAPH NO. 3 WITH RE GARD TO AGRICULTURAL INCOME IS CONCERNED, SECTION 10(5) OF THE ACT SPECI FICALLY POINTS OUT THAT AGRICULTURAL INCOME SHALL NOT BE INCLUDED IN COMPUT ING THE TOTAL INCOME OF A PREVIOUS YEAR AND HENCE THE QUESTION IS REQUIR ED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THI S INCOME IS NOT REQUIRED TO BE CONSIDERED AT ALL EVEN FOR THE PURPO SE OF SECTION 11 OF THE ACT. 9.7 WHILE DECIDING THE QUESTION THAT THE AGRICULTUR AL INCOME WAS INCOME FROM THE PROPERTY HELD UNDER THE TRUST CAN BE DENIE D EXEMPTION U/S 11 OF THE INCOME TAX ACT. THE HONBLE HIGH COURT HAS HELD THAT THE AGRICULTURAL INCOME SHALL NOT BE INCLUDED IN THE CO MPUTATION OF TOTAL INCOME OF PREVIOUS YEAR IN VIEW OF SECTION 10(5) OF THE ACT. THEREFORE, THIS INCOME IS NOT REQUIRED TO BE CONSIDERED FOR TH E PURPOSE OF SECTION 11 OF THE ACT. IN THE CASE OF HIS HOLINESS SILASARI KA SIVASI MUTHUKUMARASWAMI THAMBIRAN AVL & ORS. VS. AGRICULTU RAL INCOME TAX OFFICER & ORS. (113 ITR 889) THE HONBLE HIGH C OURT OF MADRA HAS HELD THAT THE AGRICULTURAL INCOME DERIVED BY CHARIT ABLE OR RELIGIOUS TRUST IS EXEMPT U/S 10 COULD NOT BE SAID TO BE BROUGHT TO TAX U/S 11 TO 13. SIMILAR VIEW HAS BEEN TAKEN IN THE SERIES OF DECISI ONS AS RELIED UPON BY THE LD. SENIOR COUNSEL WHEN THE QUESTION INVOLVED W AS THE ALLOWABILITY OF EXEMPTION U/S 10, (22), (23) VS. SECTION 11 AND 13. IN OUR VIEW THE EXEMPTION U/S 11 IS AVAILABLE ON THE INCOME OF THE PUBLIC CHARITABLE /RELIGIOUS TRUST OR INSTITUTION WHICH IS OTHERWISE TAXABLE IN THE HANDS OF OTHER PERSONS. THUS THE INCOME WHICH IS EXEMPT U/S 10 CANNOT BE BROUGHT TO TAX BY VIRTUE OF SECTION 11 AND 13 OF THE ACT BE CAUSE NO SUCH PRE CONDITION IS PROVIDED EITHER U/S 10 OR 11 TO 13 OF INCOME TAX ACT. THEREFORE, SECTION 11 TO 13 WOULD NOT OPERATE AS OV ERRIDING AFFECT TO THE SECTION 10 OF THE ACT. THE LANGUAGE OF THESE PROVIS IONS DOES NOT SUGGEST ITA NO.4852/M/2016 A.Y.2010-11 21 THAT EITHER SECTION 10 IS SUBJECTED TO THE PROVISIO NS OF SECTION 11 TO 13 OR SECTION 11 TO 13 HAS ANY OVERRIDING AFFECT OVER SEC TION 10. THEREFORE, THE BENEFIT OF SECTION 10 CANNOT BE DENIED BY INVOKING THE PROVISIONS OF SECTION 11 TO 13 OF THE ACT. ONCE THE CONDITIONS OF SECTION 10 ARE SATISFIED THEN NO OTHER CONDITION CAN BE FASTENED F OR DENYING THE CLAIM UNDER SECTION 10 OF THE ACT. 9.8 IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING T HE VARIOUS DECISIONS (SUPRA) WE HOLD THAT THE DIVIDEND INCOME ON SHARES AND MUTUAL FUNDS AND LONG TERM CAPITAL GAIN ON SALE OF SHARES AN EXE MPT U/S 10(34),10(35) AND 10(38) RESPECTIVELY AND CANNOT BE BROUGHT TO TA X BY APPLYING SECTION 11 AND 13 OF THE ACT. 10. GROUND NO. 3 IS REGARDING EDUCATION GRANT GIVEN TO INDIAN STUDENTS FOR STUDYING ABROAD. 10.1 THE ASSESSEE HAS GIVEN GRANTS TO VARIOUS INDIA N STUDENTS/PERSONS TO PURSUE THEIR EDUCATION/HIGHER EDUCATION IN VARIOUS UNIVERSITIES ABROAD. THE AO NOTED THAT THE GRANT IS RELEASED BY THE ASSE SSEE ONLY AFTER OBTAINING THE FIRST SEMESTER RESULTS OF THEIR EDUCA TION OUTSIDE INDIA FROM EACH SCHOLAR. THE AO WAS OF THE VIEW THAT THE APPLI CATION OF INCOME AS WELL AS CHARITABLE PURPOSE, BOTH SHOULD BE IN INDIA AND EXECUTION OF CHARITABLE PURPOSE MAY BE INSIDE OR OUTSIDE INDIA. THE AO RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF DIRECTOR OF INCOME TAX (EXEMPTION) VS. NATIONAL ASSOCIATION OF SOFTWARE AND SERVICES COMPANIES (345 ITR 362) AND HELD THAT THE AMOUNT OF RS. 1,53,50,000/- SPENT BY THE ASSESSEE FOR EDUCATION G RANT TO THE STUDENTS IS NOT APPLICATION OF ITS INCOME FOR CHARITABLE PURPOS E IN INDIA AND ACCORDINGLY DISALLOWED THE EXEMPTION U/S 11. 10.2 ON APPEAL CIT(A) CONFIRMED THE ACTION OF THE A O. XXXXXXXXX 10.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE RELEVANT MATERIAL. THE ASSESSEE HAS GIVEN GRANT TO 97 SCHOLA RS STUDYING IN VARIOUS INSTITUTIONS AND UNIVERSITIES OUTSIDE INDIAN AND TH E TOTAL AMOUNT OF GRANT IS RS. 1,53,50,000/-. THE ASSESSEE PAID THE GRANT I N INDIA AND FOR THE PURPOSE OF EDUCATION OF INDIAN STUDENTS/PERSONS, TH US THE CHARITABLE PURPOSE OF THE GRANT IS EDUCATION OF INDIAN PERSONS . THE APPLICATION OF INCOME OF THE ASSESSEE COMPLETES AT THE POINT WHEN THE ASSESSEE RELEASED THE GRANT WHICH TOOK PLACE IN INDIA. THE DECISION R ELIED UPON BY THE REVENUE IS NOT APPLICABLE IN THE FACTS OF THE PRESE NT CASE AS THE APPLICATION OF INCOME TOOK PLACE IN INDIA AND FOR T HE PURPOSE OF EDUCATION OF INDIAN STUDENTS/PERSONS. THEREFORE, FO R TAKING EDUCATION BY ITA NO.4852/M/2016 A.Y.2010-11 22 BENEFICIARY FROM ABROAD WOULD NOT AMOUNT TO APPLICA TION OF INCOME OF THE ASSESSEE OUTSIDE INDIA. IN THE CASE OF BHARATA KALANJI VS. INCOME TAX OFFICER (SUPRA) THE CHENNAI BENCH OF THIS TRIBUNAL WHILE DECIDING A QUESTION ARISING FROM THE PAYMENT OF RS. 1.55 LAKH MADE TO A TRAVEL CORPORATION OF INDIAN FOR SENDING A TROOP ON TOUR. THE AO TREATED THE EXPENDITURE AS APPLICATION OF INCOME OF THE TRUST F OR CHARITABLE PURPOSE. HOWEVER CIT REVISED THE ASSESSMENT AND WAS OF THE O PINION THAT THIS EXPENDITURE WAS PROHIBITED AND WAS NOT APPLIED FOR PURPOSE OF TRUST IN INDIA AND, THEREFORE, NOT ELIGIBLE FOR EXEMPTION U/ S 11. THE MAIN OBJECT OF THE TRUST WAS TO ADVANCE, PROPAGATE, INCREASE AN D PROMOTION OF INDIAN CLASSICAL AND FOLK ARTS AND INDIAN MUSIC ETC. THE T RUST WAS INVITED BY THE GOVERNMENT OF NIGERIA TO GIVE CERTAIN DANCE PERFORM ANCE ABROAD. ACCORDINGLY THE TRUST SEND A TROOP AND PAID A SUM O F RS. 1.55 LAKH BEING THE PASSAGE MONEY TO THE TRAVEL CORPORATION OF INDI A. THE TRIBUNAL HELD IN PARA 6 AS UNDER:- 6. THE CRUCIAL QUESTION IS ONLY WHETHER THE CONDIT IONS IN SECTION 11 ARE COMPLIED WITH. THAT SECTION STATES THAT THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE PURPOSES SHA LL NOT BE INCLUDED IN THE TOTAL INCOME TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA. THE QUESTION IS WHETHER THIS SEC TION REQUIRES THE APPLICATION OF MONEY IN INDIA OR THE CARRYING OUT O F THE PURPOSES IN INDIA OR BOTH. THE CONTENTION OF THE REVENUE IS THAT APAR T FROM THE MONEY BEING SPENT IN INDIA EVEN THE PURPOSE MUST BE CARRIED OUT IN INDIA. THE SECTION ITSELF CONTRADICTS THIS CONTENTION. SECTION 11(1)(C )( II) PROVIDES THAT INCOME APPLIED TO SUCH PURPOSES OUTSIDE INDIA IS EX EMPT IN THE CASE OF TRUST CREATED BEFORE 1-4-1952 SUBJECT TO THE APPROV AL OF THE BOARD. THIS UNDERLINES THE PRINCIPLE THAT GOVERNMENTS DO NOT FO REGO THEIR REVENUE IN FAVOUR OF CHARGES PAID OUTSIDE THEIR COUNTRIES AND HENCE THE RELEVANT CONSIDERATION IS WHETHER THE SITUS OF THE APPLICATI ON OF THE MONEY AND NOT THE PLACE IN WHICH THE OBJECTS OF THE TRUST MAY BEC OME EFFECTIVE. IT MAY BE PERTINENT TO REFER TO SECTION I O( 16) WHICH EXE MPTS SCHOLARSHIPS GRANTED TO MEET THE COST OF EDUCATION WHERE ALSO TH E CBDT ITSELF DOES NOT CONSIDER SCHOLARSHIP GRANTED FOR EDUCATION ABRO AD AS MONEY SPENT OUTSIDE INDIA. SIMILARLY, IN THE PRESENT CASE OF SU CH A WIDE OBJECT OF PROPAGATION OF ART IT WOULD BE DIFFICULT TO CONFINE IT TO THE SHORES OF THE LAND. WE ARE OF THE CONSIDERED OPINION THAT THE EXP RESSION 'APPLIED TO SUCH PURPOSES IN INDIA' REFERS ONLY TO THE SITUS OF THE EXPENDITURE AND NOT' TO THE PLACE 'WHERE THE 'PURPOSES' ARE CARRIED OUT. THE FACT THAT THE TROUPE GAVE THE PERFORMANCE ABROAD IS THEREFORE NO DISQUALIFICATION FOR ITA NO.4852/M/2016 A.Y.2010-11 23 TREATING HE AMOUNT ACTUALLY SPENT IN INDIA AS APPLI CATION OF THE AMOUNT FOR CHARITABLE PURPOSES. THE COMMISSIONER ALSO REFE RRED TO COLLECTIONS MADE FOR PERFORMANCES GIVEN AS AN ACTIVITY FOR PROF IT. WE FIND THAT SUCH PERFORMANCES DO NOT CONSTITUTE ACTIVITIES FOR PROFI T AS THE COLLECTIONS ARE IN THE NATURE OF DONATIONS RECEIVED FOR THE PURPOSE S OF THE TRUST. HENCE THIS OBJECTION ALSO CANNOT BE SUSTAINED, IT FOLLOWS THAT THE EXEMPTION GRANTED BY THE INCOME-TAX OFFICER WAS NOT ERRONEOUS AND DID NOT REQUIRE TO BE REVIEWED BY THE COMMISSIONER. HENCE HIS ORDER U/S 263 IS CANCELLED. THE APPEAL IS ALLOWED. 10.6 SIMILARLY IN THE CASE OF CEO CLUBS INDIA VS. D IRECTOR OF INCOME TAX (EXEMPTION), CO-ORDINATE BENCH OF THIS TRIBUNAL HAS HELD IN PARA 11 AS UNDER:- THE OTHER OBJECTION OF THE DIT WAS THAT THE ACTIV ITIES OF THE ASSESSEE WERE NOT CONFINED TO INDIA AND THEREFORE REGISTRATI ON CANNOT BE GRANTED. THE BASIS FOR THESE OBSERVATIONS IS THAT CONFERENCE S WERE TO BE HELD OUTSIDE INDIA. WE ARE OF THE VIEW THAT HOLDING OF C ONFERENCES ABROAD WOULD NOT MAKE THE ACTIVITIES OF THE ASSESSEE BEING CARRIED OUT OUTSIDE INDIA. THE BENEFITS OF SUCH CONFERENCE WILL ULTIMAT E GO TO ASSESSEE AND ITS MEMBERS. IT CANNOT BE SAID THAT THE ACTIVITIES OF THE ASSESSEE WERE CARRIED ON OUTSIDE INDIA. 10.7 FOLLOWING THE ABOVE DECISIONS OF TRIBUNAL, WE HOLD THAT THE EDUCATION GRANT GIVEN TO THE INDIAN STUDENTS IN IND IA FOR EDUCATION/HIGHER EDUCATION ABROAD FULFILLS THE COND ITIONS OF APPLICATION OF MONEY FOR SUCH PURPOSE IN INDIA. FINALLY, THE TRIBUNAL PARTLY ALLOWED THE APPEAL FI LED BY THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL FO R THE EARLIER YEAR WE DECIDE ALL THE EFFECTIVE GROUNDS(GOA1-5)AGAINST THE AO. 8. ON APPRAISAL OF THE ABOVE MENTIONED ORDER IT IS NOT IN DISPUTE THAT THE MATTER OF CONTROVERSY HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE INCOME TAX APPELLATE TRIBUN AL BY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DIV INE LIGHT MISSION. (278 ITR 659) AND COMMISSIONER OF INCOME-TAX. VS. SEETHAKATHI TRUST (295 ITR 520.) AND BRAHMIN EDUCAT IONAL SOCIETY VS ASSISTANT COMMISSIONER OF INCOME TAX (227 ITR 317) AND COMMISSIONER OF INCOME TAX VS. RAO BAHADUR CALAVALA CUNNAN ITA NO.4852/M/2016 A.Y.2010-11 24 CHETTY CHARITIES [1982] (135 ITR 485 ) AND BAR COU NCIL OF UTTAR PRADESH VS COMMISSIONER OF INCOME-TAX (143 ITR 584) AND COMMISSIONER OF INCOME-TAX. V. BAR COUNCIL OF MAHAR ASHTRA. (130 ITR 28). IT IS SPECIFICALLY HELD THAT THE DIVIDEN D INCOME ON SHARES AND MUTUAL FUNDS AND LONG TERM CAPITAL GAIN ON SALE OF SHARES AN EXEMPT U/S 10(34),10(35) AND 10(38) RESPECTIVELY AN D CANNOT BE BROUGHT TO TAX BY APPLYING SECTION 11 AND 13 OF THE ACT. IN VIEW OF THE ORDER PASSED BY THE CO-ORDINATE BENCH WE ALLOWE D THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DELETE THE ADDITION CONF IRMED BY THE CIT(A) IN QUESTION. ACCORDINGLY, THIS ISSUE IS BEI NG DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.3 & 4:- 9. UNDER THESE ISSUES THE ASSESSEE HAS CHALLENGED T HE CONFIRMATION OF THE ORDER OF THE ASSESSING OFFICER BY THE CIT(A) IN WHICH THE ASSESSING OFFICER DID NOT CARRY FORWARD THE EXCESS APPLICATION OF RS.20,93,366/-. THE ASSESSEE HAS EXCESS EXPENDITUR E OVER INCOME OF RS.20,93,366/- (RS.16,08,208 37,01,574/-). THE A SSESSEE CLAIMED THE CARRY FORWARD OF THE SAME WHICH WAS DECLINED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). THE LEARNED R EPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE, THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING (264 ITR 110). IT IS ALSO ARGUED THAT THE HONBLE INCOME TAX APPELLATE TRIBUNAL HAS ALSO DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN THE DECISION OF ADIT (E) 1(2) VS. ITA NO.4852/M/2016 A.Y.2010-11 25 SAYAJI UBAKHIN MEMORIAL TRUST (ITA NO.5646/MUM/2011 ) AND IN CASE OF ITO(E) VS. SHRI SADGURU SEVA TRUST (ITA NO.3387/MUM/2015). BEFORE GOING FURTHER, IT IS NEC ESSARY TO ADVERT THE CASE DECIDED BY THE HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. INSTITUTE OF BANKING (264 ITR 110) ON RECOR D:- NOW COMING TO QUESTION NO.3, THE POINT WHICH ARISE S FOR CONSIDERATION IS : WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUB SEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF O F THE DEPARTMENT THAT EXPENDITURE INCURRED IN THE EARLIER YEARS CANNOT MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND TH AT UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDIT URE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES. IN THE PRESENT CASE, THE AS SESSING OFFICER DID NOT ALLOW CARRY FORWARD OF THE EXCESS EXPENDITU RE TO BE SET OFF AGAINST THE SURPLUS OF THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEIR INCOM E WAS ASSESSABLE UNDER SELF-CONTAINED CODE MENTIONED IN SECTION 11 T O SECTION 13 OF THE INCOME TAX ACT AND THAT THE INCOME OF THE CH ARITABLE TRUST WAS NOT ASSESSABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS UNDER SECTION 28 IN WHICH THE PROVISION F OR CARRY FORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE OF A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD OF THE EXCESS OF ITA NO.4852/M/2016 A.Y.2010-11 26 EXPENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF THE SUBSEQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROP ERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES A ND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT O F EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUS T IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICA TION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PU RPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE H AVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SE CTION 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EX CLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A) OF T HE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGEMENT OF THE GUJA RAT HIGH COURT IN THE CASE OF CIT VS. SHRI PLOT SWETAMBER MU RTI PUJAK JAIN MANDAL [1995] 211 ITR 293. ACCORDINGLY, WE AN SWER QUESTION NO.3 IN THE AFFIRMATIVE, I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 10. BY FOLLOWING THE ABOVE SAID LAWS OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN CASE OF ADIT (E) 1(2) VS. SAY AJI UBAKHIN MEMORIAL TRUST (ITA NO.5646/MUM/2011) AND IN CASE O F ITO(E) VS. SHRI SADGURU SEVA TRUST (ITA NO.3387/MUM/2015) HAS DECIDED THIS ISSUES ARE IN FAVOUR OF THE ASSESSE. NOTHING CONTR ARY TO THE ABOVE SAID ITA NO.4852/M/2016 A.Y.2010-11 27 FINDING. THE ISSUE NO.4 IS QUITE SIMILAR TO THE IS SUE NO.3. THE ABOVE SAID LAW IS APPLICABLE ON BOTH THE ISSUES, THEREFOR E, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO CARRY FORWARD THE EXCESS APPLICATION TO THE SUBSEQUENT YEARS. THEREFORE, WE DECIDED THESE ISSUES IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH, 2017 . SD/- SD/- (D.KARUNAKARA RAO) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 29 TH ! $% , 2017 MP )' *'' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. - , - , / DR, ITAT, MUMBAI 6 . , .% / GUARD FILE. / BY ORDER, # # //TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI