JAMSETJI TATA TRUST, MUMBAI V. JDIT (E) RG -II, MUMBAI

ITA 7006/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5873 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2010-2011
• Appeal Filed On: 02-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: S E DASTO OR
• Keywords: Capital asset; Charitable institution; Maximum Marginal Rate; Earning of tax free income
• Section: 142(1); 12AA; 263; 63; 12; 11; 139; 10

Judgement Text

JAMSETJI TATA TRUST 1 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER ITA NO. 7006/MUM/2013 ASSESSMENT YEAR.2010-11 JAMSETJI TATA TRUST BOMBAY HOUSE, 24, HOMI MODI STREET, FORT, MUMBAI 400 001. VS. JOINT DIRECTOR OF INCOME TAX (EXEMPTION) RANGE II INCOME TAX OFFICE, PIRAMAL CHAMBERS, PAREL, MUMBAI -12 PAN: AAATJ005N APPELLANT RESPONDENT ASSESSEE BY SHRI S.E. DASTOOR REVENUE BY SHRI S.D. SRIVASTAVA ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 7.11.2013 OF CIT(A) FOR THE A.Y. 2010-11. THE ASSES SEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE CIT(A) ERRED IN DENYING THE EXEMPTION UNDER SECTION 11 ON THE GROUN D THAT THE ASSESSEE IS HIT BY THE PROVISIONS OF SECTION 13(1 )(D) AND 13(2 )(H) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LEARNED CIT(A) ALSO ERRED IN DENYING THE EXEMPTIONS UNDER SECTION 10(34), 10(35) AND 10(38) OF THE ACT ON THE GROUNDS THAT THE ASSESSEE IS A TRUST AND ITS INCOME IS TO BE COMPUTED ONLY UNDER THE PROVISIONS OF SECT IONS 11 TO 13. 3. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LEARNED CIT(A) DATE OF HEARING 10.03.2014 DATE OF PRONOUNCEMENT 26 - 03 - 2014 JAMSETJI TATA TRUST 2 ERRED IN HOLDING THAT EDUCATION GRANTS GIVEN TO IND IAN STUDENTS IN INDIA IN INDIAN RUPEES FOR STUDIES ABROAD IS NOT SPENT OR UT ILISED FOR CHARITY IN INDIA SINCE THE GRANT HAS BEEN UTILISED FOR STUDIES ABROA D. 4. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LEARNED CIT(A) ERRED IN DENYING DEDUCTION OF THE INCOME APPLIED TO THE OBJECTS OF THE TRUST TO CHARITABLE PURPOSES IN INDIA AND ADMINISTRATIVE EXPENSES. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)ERRED IN NOT GIVING CREDIT FOR TDS. 6. . WITHOUT PREJUDICE TO THE ABOVE, THE LEAR NED CIT(A) ERRED IN HOLDING THAT THE MAXIMUM MARGINAL RATE OF TAX APPLIES TO THE ENTIRE INCOME AND IN DENYING THE APPLICABILITY OF THE RATES OF TAX APPLICABLE TO SHORT TERM AND LONG TERM CAPITAL GAINS. 2. GROUND NO. 1 IS REGARDING DENIAL OF EXEMPTION U/ S 11 OF THE INCOME TAX ACT. 2.1 THE ASSESSEE IS A CHARITABLE TRUST. DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSE E HAS EARNED THE FOLLOWING INCOME:- ASSESSMENT YEAR 2010-2011 REVISED COMPUTATION INCOME UNDER SECTION 10 RS. CRORE DIVIDEND ON SHARES 148.00 DIVIDEND ON UNITS 0.08 LONG TERM CAPITAL GAINS 296.04 ----------- TOTAL 444.12 UNDER SECTION 11 INTEREST ON BONDS 0.45 INTEREST ON GENERAL 28.73 BROKERAGE & INCENTIVE 0.24 ROYALTY 0.02 SHORT TERM CAPITAL GAINS 241.07 TOTAL 270.51 JAMSETJI TATA TRUST 3 2.2 THE DIVIDEND INCOME ON SHARES AND UNITS AS WELL AS LONG TERM CAPITAL GAIN ON SALE OF SHARES CLAIMED BY THE ASSESSEE AS E XEMPT U/S 10(34), 10(35) AND 10(38) OF THE INCOME TAX ACT. THE REST OF THE I NCOME WAS CLAIMED AS EXEMPT UNDER SECTION 11 OF THE INCOME TAX ACT. DURI NG THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE SOLD 10, 000,000 SHARES OF TCS FOR RS. 537,10,53,576/- AND REINVESTED BY WAY OF AC QUISITION OF 8% CUMULATIVE REDEEMABLE PREFERENCE SHARES OF TATA SON S LTD. OF THE VALUE OF RS. 545,00,00,000/- . THE ASSESSEEE HAS ALSO DEPOSI TED IN SHORT TERM DEPOSIT WITH BANK OF RS. 63,60,000,00/-. AO NOTED THAT ON 1 4.06.2001 THE ASSESSEE RECEIVED CORPUS DONATION FROM TATA SONS LTD OF RS. 1,52,,50,000/- IN THE SHAPE OF 15,25,000 SHARES OF ORCHID PRINT INDIA LTD . (LATER KNOWN AS TCS) OF RS. 10 EACH, TOTAL AMOUNTING TO RS. 1,52,50,000/-. IN THE ASSESSMENT YEAR 2003-04 TO 2005-06, FACE VALUE OF SHARES WERE CONVE RTED FROM RS. 10 TO RS. 1 AND ASSESSEE FURTHER GOT BONUS SHARES AS WELL. TH US THE AO FOUND THAT THE ASSESSEE IS IN RECEIPT OF PROFIT ON SALE OF SHA RES OF TCS OF RS. 536,90,53,755/- WHICH WAS SHOWN DIRECTLY IN THE BAL ANCE SHEET WITHOUT ROUTING THROUGH THE INCOME AND EXPENDITURE ACCOUNT. THE ASSESSEE HAS ALSO RECEIVED RS. 5,48,62,380/- AS DIVIDEND INCOME ON TCS SHARES AND RS. 142,51,36,643/- AS DIVIDEND INCOME ON SHARES OF TAT A SONS LTD APART FROM THE DIVIDEND OF RS. 7,53,160/- FROM THE UNITS. THE AO FOUND THAT THE SALE PROCEEDS OF SHARES OF TCS HAS BEEN REINVESTED IN T HE TATA SONS LTD WHICH IS NOT PUBLIC SECTOR COMPANY AND, THEREFORE, THE IN VESTMENT OF ACCUMULATED FUND IS NOT IN CONFORMITY OF SECTION 11(5) OF THE A CT. THUS THE AO OBSERVED THAT THE ASSESSEE IS HIT BY THE PROVISIONS OF SECTI ON 13(1)(D)(I) AS WELL AS SECTION 13(2)(H) IN TERMS OF ITS INVESTMENT IN SHAR ES OF TATA SONS LTD AND BY PROVISIONS OF SECTION 13(1)(D)(III) IN TERMS OF SHA RES OF TCS AND TATA SONS JAMSETJI TATA TRUST 4 LTD HELD BY THE ASSESSEE. ACCORDINGLY A NOTICE U/S 142(1) WAS ISSUE TO THE ASSESSEE. THE ASSESSEE RESPONDED TO THE NOTICE BY I TS REPLY AND EXPLANATION. AFTER CONSIDERING THE REPLY THE AO HEL D THAT BENEFIT OF SECTION 11(1A) IS NOT AVAILABLE TO ASSESSEE BECAUSE INVESTM ENT IN SHARES OF TATA SONS LTD AS PER SECTION 11(1) AND FURTHER THE INVES TMENT IN SHARES OF TATA SONS LTD IS NOT HELD AS CORPUS FUND. THE AO WAS ALS O OF THE VIEW THAT AS PER THE PROVISO TO SECTION 13(1)(D) EXEMPT ASSETS F ROM DISQUALIFICATION MUST BE HELD BY THE TRUST AS ITS CORPUS AS ON 1.06.1973. SHARES OF TCS ARE HELD BY ASSESSEE ONLY FROM THE A.Y. 2001-02, HENCE THE ASSE SSEEE DOES NOT FULFILL THE CONDITIONS OF HOLDING OF TCS SHARES IN TERMS OF THE PROVISO TO SECTION 13(1)(D). ACCORDINGLY THE AO HELD THAT THE ASSESSE E IS HIT BY THE PROVISIONS OF SECTION 13(1)(D)(I) IN TERMS OF INVESTMENT IN SH ARES OF TATA SONS LTD AND BY PROVISIONS OF SECTION 13(1)(D)(III) IN TERMS OF SHARES OF TCS AND TATA SONS LTD HELD BY IT AND EXEMPTION U/S 11 AND 12 WILL NO T BE ALLOWABLE IN RESPECT OF ANY INCOME OF THE ASSESSEES TRUST. 3. ON APPEAL, CIT(A) APPEAL CONCURRED WITH THE VIEW TAKEN BY THE AO. 4. BEFORE US, SHRI S.E. DASTOOR, THE LD. SENIOR CO UNSEL OF THE ASSESSEE, HAS SUBMITTED THAT DURING THE YEAR THE ASSESSEEE AP PLIED ITS INCOME FOR CHARITABLE PURPOSE TO THE EXTENT OF RS. 160.93 CRO RES OUT OF RS. 270.51 CRORES EXCLUDING THE INCOME EXEMPT U/S 10(34), 10(3 5) AND 10(38) OF INCOME TAX ACT. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS ALSO EXERCISED THE OPTION ALLOWED AS PER CLAUSE 2 OF EXPLANATION TO SECTION 11(1)(A) OF INCOME TAX ACT AND REQUESTED THE AO TO TREAT SUCH AMOUNT AS MAY BE DETERMINED AS INCOME DEEMED TO HAVE BEEN APP LIED TO THE OBJECTS AND PURPOSE OF THIS TRUST. LD. SENIOR COUNSEL REFE RRED THE EXPLANATION TO SECTION 11(1) AND SUBMITTED THAT THE SHORTFALL IN 8 5% OF THE INCOME APPLIED JAMSETJI TATA TRUST 5 FOR THE OBJECTS AND PURPOSE IS MADE IN THE SUBSEQUE NT FINANCIAL YEAR AND, THEREFORE, THERE IS NO VIOLATION OF SECTION 11(1) S O FAR AS THE APPLICATION OF INCOME IS CONCERNED. 4.1 AS REGARDS THE DISQUALIFICATION U/S 13(1)(D), THE LD. SENIOR COUNSEL HAS SUBMITTED THAT ONLY SHORT TERM CAPITAL GAIN ON SALE OF BONUS SHARES OF TCS HAS TO BE TESTED UNDER THE PROVISIONS OF SECTI ON 13(1)(D) BECAUSE THE LONG TERM CAPITAL GAIN AND DIVIDEND ON THE SHARES O F TCS AND MUTUAL FUNDS ARE EXEMPT U/S 10 OF THE INCOME TAX ACT. LD. SENIO R COUNSEL REFERRED THE PROVISO TO CLAUSE (III) OF SECTION 13(1)(D) AND SUB MITTED THAT THE SHORT TERM CAPITAL GAIN ARISING FROM THE BONUS SHARE OF TCS FA LLS UNDER THE EXCLUSION CLAUSE (IIA) OF THE SAID PROVISO AND, THEREFORE, IT IS NOT HIT BY THE MISCHIEF OF SECTION 13(1)(D) OF THE INCOME TAX ACT. THE BONUS S HARES WERE ISSUED ON 19.06.2009 WERE NOT HELD BY THE ASSESSEE BEYOND EXP IRY OF ONE YEAR FROM THE END OF THE PREVIOUS YEAR IN WHICH THEY WERE ACQ UIRED. THUS THE LD. SENIOR COUNSEL SUBMITTED THAT NONE OF THE INCOME IS TAXABLE BY VIRTUE OF SECTION 13(1)(D) OF THE INCOME TAX ACT AS THERE IS NO BREACH SO FAR AS CAPITAL GAIN ON BONUS SHARES HELD BY THE ASSESSEE AND AS RE GARD THE LONG TERM CAPITAL GAINS AND DIVIDEND INCOME THE SAME IS EXEM PT U/S 10 OF INCOME TAX ACT. 4.2 AS REGARDS THE VIOLATION OF SECTION 13(2)(H) OF THE ACT, THE LD. SENIOR COUNSEL REITERATED THE CONTENTION OF THE ASSESSEE R AISED BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT SHARES OF TATA SONS LTD WHICH IT HAS ACQUIRED DOES NOT HAVE ANY VOTING RIGHT AND IS MUCH BELOW 5% OF THE CAPITAL OF THE COMPANY, HENCE IT IS NOT HIT BY THE PROVISIONS OF SECTION 13(2)(H) IN VIEW OF EXPLANATION 3 TO SECTION 13(2) (H). ALTERNATIVELY THE LD. SENIOR COUNSEL HAS SUBMITTED THAT THE IF IT IS HEL D THAT THE INVESTMENT WITH JAMSETJI TATA TRUST 6 TATA SONS LTD., IS HIT BY THE PROVISIONS OF SECTION 13(2)(H) THEN ONLY THE INCOME ARISING FROM SUCH INVESTMENT IS DISQUALIFIED FROM THE EXEMPTION U/S 11 OF THE ACT AND NOT THE ENTIRE INCOME OF THE ASSE SSEE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF ADDL. COMMISSIONER OF INCOME-TAX. V. SU RAT ART SILK CLOTH MANUFACTURERS ASSOCIATION. THE LD. COUNSEL HAS ALSO REFERRED THE DECISION OF THIS TRIBUNAL IN THE CASE OF TATA EDUCATION TRUS T AND TATA SOCIAL WELFARE TRUST DATED 26-02-2008 AND SUBMITTED THE TRIBUNAL H AS HELD THAT THE ENTIRE INCOME OF THE ASSESSEE WOULD NOT ATTRACT THE DISQUA LIFICATION FOR THE PURPOSE OF SECTION 11 BUT ONLY THE INCOME DERIVED F ROM THE INVESTMENT FALLING UNDER THE PROHIBITED CATEGORY WOULD BE CHAR GEABLE TO TAX. HE HAS POINTED OUT THAT THE TRIBUNAL WHILE DECIDING THE I SSUE HAS FOLLOWED THE EARLIER DECISION OF THE TRIBUNAL IN THE CASE OF GUR U DAYAL BERLIA CHARITABLE TRUST, (34 ITD 489). HENCE THE LD. SENIOR COUNSEL H AS SUBMITTED THAT THE ONLY INCOME FROM THE NON-PERMITTED ASSET WOULD BE S UBJECTED TO TAX. 5. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT COMPLIED WITH THE CONDITIONS ENUMERATED U/S 11(5) O F THE INCOME TAX ACT FOR APPLICATION OF INCOME SO FAR AS INVESTMENT MADE IN THE PREFERENTIAL SHARES OF TATA SONS LTD. FURTHER HOLDING OF SHARES OF TCS IS ALSO IN VIOLATION OF SECTION 13(1)(D) OF THE INCOME TAX ACT, THEREFOR E, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 11 OF THE INCOME TAX ACT ON THE ENTIRE INCOME. THE LD. DR HAS FURTHER SUBMITTED THAT THE BENEFIT O F THE PROVISO TO SECTION 13(1)(D) IS NOT AVAILABLE TO THE BONUS SHARES OF TH E TCS AS CLAIMED BY THE ASSESSEE BECAUSE CLAUSE (IIA) DOES NOT TALK ABOUT T HE BONUS SHARES WHEREAS THE CLAUSE (II) OF THE SAID PROVISIONS MENTIONS BON US SHARES. THUS THE LD. DR HAS SUBMITTED THAT THE SITUATION OF THE BONUS SHARE S HAS BEEN SPECIFICALLY JAMSETJI TATA TRUST 7 COVERED UNDER CLAUSE II OF THE PROVISO AND, THEREFO RE, CLAUSE (IIA) HAS NOT SCOPE OF BOUNS SHARES. THE LD. DR HAS STRESSED THE POINT THAT THERE IS NO ACQUISITION OF BONUS SHARES AND, THEREFORE, IT WOUL D BE DEEMED TO HAVE ACQUIRED ON THE DATE OF ORIGINAL SHARES FOR THE PUR POSE OF PROVISO TO SECTION 13(1)(D). EVEN OTHERWISE, CLAUSE (IIA) OF T HE PROVISO TO SECTION 13(1)(D) DEALS WITH THE ASSET HELD UP TO 31.03.1993 AND NOT THEREAFTER. HE HAS REFERRED THE CIRCULAR NO. 596 DATED 15.03.1991 REPORTED IN (181 ITR STATUTES 115) AS WELL AS THE CIRCULAR NO.621 DATED 19.12.1991 REPORTED IN (195 ITR STATUTES 154) AND SUBMITTED THAT THE PROVI SO WAS INSERTED TO REMOVE THE MISCHIEF AROSE DUE TO AMENDMENT IN SECTI ON 13(1)(D) BY THE FINANCE ACT 1983. THEREFORE, THE CLAUSE (IIA) TO TH E PROVISO WAS INSERTED RETROSPECTIVELY W.E.F 1.4.1983 SO THAT THE CHARITAB LE/RELIGIOUS TRUST OR INSTITUTION COULD DISINVEST SUCH INVESTMENT CONTRAR Y TO SECTION 11(5) OF THE INCOME TAX ACT ON OR BEFORE 31.3.1992 WHICH WAS EXT ENDED BY FINANCE ACT 1992 UPTO 31 ST MARCH 1993. HENCE THE LD. DR HAS EMPHASIZED THAT T HE RELAXATION WAS GIVEN TO THE EXISTING INVESTMENT IN CONTRAVENTION OF SECTION 11(5) OF THE INCOME TAX ACT, UPTO 31 ST MARCH 1993 AND NOT SUBSEQUENT TO THAT. EVEN OTHERWISE, THE ASSESSEE AFTER DISPOSAL OF THE BONUS SHARES AGAIN REINVESTED IN THE SHARES OF TATA SONS LTD WHICH IS IN CONTRAVENTION OF SECTION 11(5), THEREFORE, THE BENEFIT OF THE PROVIS O IS NOT AVAILABLE TO THE ASSESSEE. THE LD. DR HAS ARGUED THAT THE INTERPRETA TION OF PROVISIONS SHOULD NOT CONFLICT WITH THE INTENT OF THE LEGISLAT URE AND THE OBJECT OF THE PROVISIONS AS A WHOLE. IN SUPPORT OF HIS CONTENTION S HE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF K.P. VARGHESE. V. INCOME- TAX OFFICER. (131 ITR 597). HE HAS ALSO RELIED UPON THE ORDERS OF AUTHORITIES BELOW. JAMSETJI TATA TRUST 8 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE INCOME OF THE CHARITABLE/RELIGIOUS T RUST OR INSTITUTION IS EXEMPT U/S 11 OF THE INCOME TAX ACT SUBJECT TO THE FULFILLMENT OF CONDITIONS STIPULATED U/S 11 AND 13 OF THE ACT. THERE ARE TWO TESTES TO BE QUALIFIED BY THE TRUST OR INSTITUTION TO AVAIL THE EXEMPTION U/S 11 OF THE ACT. THESE TWO TESTS ARE BROADLY CATEGORIZED AS APPLICATION OF IN COME AND SOURCE OF INCOME THE CONDITIONS AND MANNER OF APPLICATION OF INCOME AS ENUMERATED U/S 11 (5) OF THE ACT. WHEREAS THE CONDITION OF SO URCE OF INCOME ARE PROVIDED UNDER SECTION 13 AND PARTICULARLY UNDER SU B SECTION 1 AND 2 OF SECTION 13 OF INCOME TAX ACT. WE ARE CONCERNED ONLY WITH THE CONDITIONS PRESCRIBED IN CLAUSE (D) OF SUB SECTION (1) AND CLA USE (H) OF SUBS SECTION (2) OF SECTION 13. BOTH THESE TESTS ARE TO BE QUALIFIED FOR EXEMPTION U/S 11. FIRST WE WILL DEAL WITH THE ISSUE OF APPLICATION OF INCOM E IN CONFORMITY WITH THE PROVISIONS OF SECTION 11 OF THE ACT. FOR READY REFE RENCE WE QUOTE SECTION 11(1) AS UNDER:- SECTION 11(1) (1) SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63 , THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEA R OF THE PERSON IN RECEIPT OF THE INCOME- (A) 3[ INCOME DERIVED FROM PROPERTY HELD UNDER TRUST W HOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INC OME IS APPLIED TO SUCH PURPOSES IN INDIA; AND, WHERE ANY SUCH INCOME IS AC CUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTEN T TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF TWENTY - FIVE PER CENT OF THE INCOME FROM SUCH PROPERTY; (B) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST IN P ART ONLY FOR SUCH PURPOSES, THE TRUST HAVING BEEN CREATED BEFORE THE COMMENCEME NT OF THIS ACT, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURP OSES IN INDIA; AND, WHERE ANY SUCH INCOME IS FINALLY SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO SET APART IS NOT IN E XCESS OF TWENTY FIVE PER CENT OF THE INCOME FROM SUCH PROPERTY;] JAMSETJI TATA TRUST 9 (C) INCOME [ DERIVED] FROM PROPERTY HELD UNDER TRUST- (I) CREATED ON OR AFTER THE 1ST DAY OF APRIL, 1952 , F OR A CHARITABLE PURPOSE WHICH TENDS TO PROMOTE INTERNATIONAL WELFARE IN WHICH IND IA IS INTERESTED, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES OU TSIDE INDIA, AND (II) FOR CHARITABLE OR RELIGIOUS PURPOSES, CREATED BEFO RE THE 1ST DAY OF APRIL, 1952 , TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SU CH PURPOSES OUTSIDE INDIA: PROVIDED THAT THE BOARD, BY GENERAL OR SPECIAL ORDE R, HAS DIRECTED IN EITHER CASE THAT IT SHALL NOT BE INCLUDED IN THE TOTAL INCOME O F THE PERSON IN RECEIPT OF SUCH INCOME; (D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS MAD E WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUS T OR INSTITUTION.] [EXPLANATION. FOR THE PURPOSE OF CLAUSE (A) AND ( B)- (1) IN COMPUTING THE [FIFTEEN] PER CENT OF THE INCOME WHICH MAY BE ACCUMULATED OR SET APART, ANY SUCH VOLUNTARY CONTRIBUTIONS AS A RE REFERRED TO IN SECTION 12 SHALL BE DEEMED TO BE PART OF THE INCOME; (2) IF, IN THE PREVIOUS YEAR, THE INCOME APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES IN INDIA FALLS SHORT OF [EIGHTY-FIVE] PER CENT OF T HE INCOME DERIVED DURING THAT YEAR FROM PROPERTY HELD UNDER TRUST, OR, AS THE CAS E MAY BE, HELD UNDER TRUST IN PART, BY ANY AMOUNT (I) FOR THE REASON THAT THE WHOLE OR ANY PART OF T HE INCOME HAS NOT BEEN RECEIVED DURING THAT YEAR, OR (II) FOR ANY OTHER REASON, THEN (A) IN THE CASE REFERRED TO IN SUB-CLAUSE (I), SO MUCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FO LLOWING AS DOES NOT EXCEED THE SAID AMOUNT, AND (B) IN THE CASE REFERRED TO IN SUB-CLAUSE (II), SO MUCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IMM EDIATELY FOLLOWING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED AS DO ES NOT EXCEED THE SAID AMOUNT, MAY, AT THE OPTION OF THE PERSON IN RECEIPT OF TH E INCOME (SUCH OPTION TO BE EXERCISED IN WRITING BEFORE THE EXPIRY OF THE TIME ALLOWED UNDER SUB-SECTION (1) 10 [* * *] OF SECTION 139 11 [* * *] FOR FURNISHING THE RETURN OF INCOME) BE DEE MED TO BE INCOME APPLIED TO SUCH PURPOSES DURING THE PR EVIOUS YEAR IN WHICH THE JAMSETJI TATA TRUST 10 INCOME WAS DERIVED; AND THE INCOME SO DEEMED TO HAV E BEEN APPLIED SHALL NOT BE TAKEN INTO ACCOUNT IN CALCULATING THE AMOUNT OF INCOME APPLIED TO SUCH PURPOSES, IN THE CASE REFERRED TO IN SUB-CLAUSE (I) , DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING, AS THE CASE MAY BE, AND, IN THE CASE REF ERRED TO IN SUB-CLAUSE (II), DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED.] 6.1 AS PER SECTION 11(1), THE INCOME DERIVED FROM P ROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES S HALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE TRUST/INSTITUTION TO EXTENT S UCH INCOME IS APPLIED FOR CHARITABLE/RELIGIOUS PURPOSE IN INDIA, AND IN CASE SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PU RPOSE IN INDIA TO THE EXTENT SUCH ACCUMULATION IS NOT IN EXCESS OF 15% OF THE TOTAL INCOME FROM SUCH PROPERTY. THUS IF THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST IS APPLIED TO THE EXTENT OF 85% FOR CHARITABL E/RELIGIOUS PURPOSE IN INDIA, SUCH INCOME IS EXEMPT. THIS CONDITION OF APP LICATION OF 85% OF INCOME IS RELAXED TO THE EXTENT THAT IF THE SAME IS APPLIED IN THE IMMEDIATE SUBSEQUENT YEAR AND THE ASSESSEES TRUST EXERCISE S UCH 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 BE DE EMED TO BE INCOME APPLIED TO SUCH PURPOSE DURING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED. SUB SECTION 2 OF SECTION 11 FURTHER RELAXE S THE CONDITION OF APPLICATION OR DEEMED APPLICATION OF 85% OF INCOME DURING THE RELEVANT PREVIOUS YEAR IF SUCH INCOME IS ACCUMULATED OR SET APART EITHER IN WHOLE OR IN PART FOR APPLICATION TO SUCH PURPOSE IN INDIA S UBJECT TO THE CONDITION PROVIDED UNDER THIS SUB SECTION 2 WHICH READS AS UN DER:- JAMSETJI TATA TRUST 11 91[(2) 9J[WHERE 94[ EIGHTY-FIVE] PER CENT OF THE INCOME REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB-SECTION (1) READ WITH THE EXPLANATION TO THAT SUB-SECTION IS NO T APPLIED, OR IS NOT DEEMED TO HAVE BEEN APPLIED, TO CHARITABLE OR RELIGIOUS PURPOSES IN INDIA DURING THE PREVIOUS YEAR BUT IS ACCUMULATE D OR SET APART, EITHER IN WHOLE ORIN PART, FOR APPLICATION TO SUCH PURPOSES IN INDI A, SUCH INCOME SO ACCUMULATED OR SET APART SHALL NOT BE INCLUDED IN THE TOTAL INC OME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME, PROVIDED THE FOLLO WING CONDITIONS ARE COMPLIED WITH, NAMELY:-] (A) SUCH PERSON SPECIFIES, BY NOTICE IN WRITING GIVEN T O THE 95[ ASSESSING] OFFICER IN THE PRESCRIBED' MANNER', THE PURPOSE FOR WHICH THE INCOME IS BEING ACCUMULATED OR SET APART AND THE PE RIOD FOR WHICH THE INCOME IS TO BE ACCUMULATED OR SET APART, WHICH SHA LL IN NO CASE EXCEED TEN YEARS; 98[( B) THE MONEY SO ACCUMULATED' OR SET APART IS INVESTED OR DEPOSITED IN THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5)]:] I [PROVIDED THAT IN COMPUTING THE PERIOD OF TEN YEARS REFERRED TO IN CLAUSE (A), THE PERIOD DURING WHICH THE INCOME COULD NOT BE APPLIED FOR THE PURPOSE FOR WHICH IT IS SO ACCUMULATED OR SET APART, DUE TO AN ORDER OR INJUNCTION OF ANY COURT, SHALL BE EXCLUDED:] 2[PROVIDED FURTHER THAT IN RESPECT OF ANY INCOME ACCUMULATED OR SET AP ART ON OR AFTER THE 1ST DAY OF APRIL, 2001, THE PROVISIONS OF THIS SUB-SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS 'TEN YEARS' AT BOTH THE PLACES WHERE THEY OCCUR, THE WORDS 'FIVE YEARS' HAD BEEN SUBSTITUTED.] 3[ EXPLANATION.-ANY AMOUNT CREDITED OR PAID, OUT OF IN COME REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB-SECTION (1), READ WITH THE EXPLANATION TO THAT SUB-SECTION. WHICH IS NOT APPLIED, BUT IS ACCUMULATED OR SET APA RT, TO ANY TRUST OR INSTITUTION REGISTERED UNDER SECTION 12AA OR TO ANY FUND OR INS TITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB-CLAUSE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VL}ORSULR CLAUSE (VIA) OF CLAUSE (23C) OF SECTION 10, SHALL N OT BE TREATED AS APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES, EITHER DURING THE PERIOD OF ACCUMULATION OR THEREAFTER.] 6.2 THUS THE TRUST WOULD NOT LOSE EXEMPTION EVEN 85 % 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 APPLICATION OF SUCH PURPOSE IN INDIA BY GIVING NOTICE IN WRITING TO THE AO AND THE MONEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITED IN THE FORM OR MODE SPECIFIED IN SUB SECTION (5) OF SECTION 11. THE MODE OF INVESTMENT AND DEPOS IT UNDER SUB SECTION (5) AS UNDER:- . SECTION 11(5) (5) 1[ THE FORMS AND MODES OF CLAUSE (B) OF SUB- SECTION (2) SHALL BE THE FOLLOWING, NAMELY: (I) INVESTMENT IN SAVINGS CERTIFICATES AS DEFINED IN CL AUSE (C) OF SECTION 2 OF THE GOVERNMENT SAVINGS CERTIFICATES ACT, 1959 3 (46 OF 1959 ), AND ANY OTHER SECURITIES OR CERTIFICATES ISSUED BY THE CENTRAL GO VERNMENT UNDER THE SMALL SAVINGS SCHEME S OF THAT GOVERNMENT; (II) DEPOSIT IN ANY ACCOUNT WITH THE POST OFFICE (III) DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED BANK OR A C O ENGAGED IN CARRYING ON THE MORTGAGE BANK OR A CO EXPLANATION.- IN THIS CLAUSE,' SCHEDULED BANK' CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955 ), A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDI ARY BANKS) ACT, 1959 (38 OF 1959 ), A CORRESPONDING NEW BANK CONSTITUTED UNDER SECTION 3 OF TH COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS ) ACT, 19704 (5 OF 1970 ) OR UNDER SECTION 3 OF THE BANKING COMPANIES (ACQUISITI ON AND TRANSFER OF UNDERTAKINGS) ACT, 198 05 (40 OF 1980 ), OR ANY OTH ER BANK BEING A BANK INCLUDED IN THE SECOND S CHEDULE TO THE RESERVE BANK OF INDIA ACT, 1934 (2 O F 1934 ); (IV) INVESTMENT IN UNITS OF THE OF INDIA ACT, 1963 (52 OF 1963 ); (V) INVESTMENT IN ANY SECURITY FOR MONEY CREATED AND IS SUED BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT; (VI) INVESTMENT IN DEBENTURES ISSUED BY, OR ON BEHALF OF , ANY COMPANY OR CORPORATION BOTH THE PRINCIPLE WHEREOF AND THE INTE REST WHEREON ARE FULLY AND UNCONDITIONALLY GUARANTEED BY THE CENTRAL GOVERNMEN T OR BY A STATE GOVERNMENT; (VII) INVESTMENT OR DEPOSIT IN ANY 6[ PUBLIC SECTOR COMPA NY]; [PROVIDED THAT WHERE AN INVESTMENT OR DEPOSIT IN AN Y PUBLIC SECTION COMPANY HAS BEEN MADE AND SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SECTION COMPANY (A) SUCH INVEST MENT MADE IN THE SHARES OF SUCH COMPANY SHALL BE D EEMED TO BE AN INVESTMENT MADE UNDER THIS CLAUSE FOR A PERIOD O F THREE YEARS FROM THE JAMSETJI TATA TRUST 12 (5) 1[ THE FORMS AND MODES OF INVESTING OR DEPOSITING THE MONEY REFERRED TO IN SECTION (2) SHALL BE THE FOLLOWING, NAMELY: - INVESTMENT IN SAVINGS CERTIFICATES AS DEFINED IN CL AUSE (C) OF SECTION 2 OF THE GOVERNMENT SAVINGS CERTIFICATES ACT, 1959 3 (46 OF 1959 ), AND ANY OTHER SECURITIES OR CERTIFICATES ISSUED BY THE CENTRAL GO VERNMENT UNDER THE SMALL S OF THAT GOVERNMENT; DEPOSIT IN ANY ACCOUNT WITH THE POST OFFICE SAVINGS BANK; DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED BANK OR A C O - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INCLUDING A CO - MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK). IN THIS CLAUSE,' SCHEDULED BANK' MEANS THE STATE BANK OF INDIA CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955 ), A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDI ARY BANKS) ACT, 1959 (38 OF 1959 ), A CORRESPONDING NEW BANK CONSTITUTED UNDER SECTION 3 OF TH COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS ) ACT, 19704 (5 OF 1970 ) OR UNDER SECTION 3 OF THE BANKING COMPANIES (ACQUISITI ON AND TRANSFER OF UNDERTAKINGS) ACT, 198 05 (40 OF 1980 ), OR ANY OTH ER BANK BEING A BANK INCLUDED CHEDULE TO THE RESERVE BANK OF INDIA ACT, 1934 (2 O F 1934 ); INVESTMENT IN UNITS OF THE UNIT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963 ); INVESTMENT IN ANY SECURITY FOR MONEY CREATED AND IS SUED BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT; INVESTMENT IN DEBENTURES ISSUED BY, OR ON BEHALF OF , ANY COMPANY OR CORPORATION BOTH THE PRINCIPLE WHEREOF AND THE INTE REST WHEREON ARE FULLY AND UNCONDITIONALLY GUARANTEED BY THE CENTRAL GOVERNMEN T OR BY A STATE INVESTMENT OR DEPOSIT IN ANY 6[ PUBLIC SECTOR COMPA NY]; [PROVIDED THAT WHERE AN INVESTMENT OR DEPOSIT IN AN Y PUBLIC SECTION COMPANY HAS BEEN MADE AND SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SECTION MENT MADE IN THE SHARES OF SUCH COMPANY SHALL BE D EEMED TO BE AN INVESTMENT MADE UNDER THIS CLAUSE FOR A PERIOD O F THREE YEARS FROM THE JAMSETJI TATA TRUST OR DEPOSITING THE MONEY REFERRED TO IN INVESTMENT IN SAVINGS CERTIFICATES AS DEFINED IN CL AUSE (C) OF SECTION 2 OF THE GOVERNMENT SAVINGS CERTIFICATES ACT, 1959 3 (46 OF 1959 ), AND ANY OTHER SECURITIES OR CERTIFICATES ISSUED BY THE CENTRAL GO VERNMENT UNDER THE SMALL OPERATIVE SOCIETY - OPERATIVE LAND MEANS THE STATE BANK OF INDIA CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955 ), A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDI ARY BANKS) ACT, 1959 (38 OF 1959 ), A CORRESPONDING NEW BANK CONSTITUTED UNDER SECTION 3 OF TH E BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS ) ACT, 19704 (5 OF 1970 ) OR UNDER SECTION 3 OF THE BANKING COMPANIES (ACQUISITI ON AND TRANSFER OF UNDERTAKINGS) ACT, 198 05 (40 OF 1980 ), OR ANY OTH ER BANK BEING A BANK INCLUDED CHEDULE TO THE RESERVE BANK OF INDIA ACT, 1934 (2 O F 1934 ); OF INDIA ESTABLISHED UNDER THE UNIT TRUST INVESTMENT IN ANY SECURITY FOR MONEY CREATED AND IS SUED BY THE CENTRAL INVESTMENT IN DEBENTURES ISSUED BY, OR ON BEHALF OF , ANY COMPANY OR CORPORATION BOTH THE PRINCIPLE WHEREOF AND THE INTE REST WHEREON ARE FULLY AND UNCONDITIONALLY GUARANTEED BY THE CENTRAL GOVERNMEN T OR BY A STATE [PROVIDED THAT WHERE AN INVESTMENT OR DEPOSIT IN AN Y PUBLIC SECTION COMPANY HAS BEEN MADE AND SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SECTION MENT MADE IN THE SHARES OF SUCH COMPANY SHALL BE D EEMED TO BE AN INVESTMENT MADE UNDER THIS CLAUSE FOR A PERIOD O F THREE YEARS FROM THE JAMSETJI TATA TRUST 13 DATE ON WHICH SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SECTOR COMPANY. (B) SUCH OTHER INVESTMENT OR DEPOSIT SHALL BE DEEMED T O BE AN INVESTMENT OR DEPOSIT BECOMES REPAYABLE BY SUCH COMPANY; (VIII) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG- TERM FINANCE FO R INDUSTRIAL DEVELOPMENT IN INDIA AND WHICH IS APPROVED BY THE (IX) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUED BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CAR RYING ON THE BUSINESS OF PROVIDING LONG- TERM FINANCE FOR CONSTRUCTION OR PU RCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES AND WHICH IS APPROVED BY THE C ENTRAL GOVERNMENT FOR THE PURPOSES OF CLAUSE (VIII) OF SUB- SECTION (1) OF SE CTION 36; (X) INVESTMENT IN IMMOVABLE PROPERTY. EXPLANATION.-' I MMOVABLE PROPERTY' DOES NOT INCLUDE ANY MACHINERY OR PLANT (OTHER THAN MACH INERY OR PLANT INSTALLED IN A BUILDING FOR THE CONVENIENT OCCUPATION OF THE BUILD ING) EVEN THOUGH ATTACHED TO, OR PERMANENTLY FASTENED TO, ANYTHING ATTACHED TO TH E EARTH;] 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 JAMSETJI TATA TRUST 14 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 S O 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 CLEAR 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 YEAR SH ALL BE DEEMED TO HAVE APPLIED IN PREVIOUS YEAR. HE HAS REFERRED THE LETTE R DATED 13.09.2010 WHEREBY THE ASSESSEE EXERCISED ITS OPTION UNDER CLA USE 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 ASSESSE E HAS EXCLUDED DIVIDEND AND LONG TERM CAPITAL GAIN AS WELL AS SHOR T TERM CAPITAL GAIN AND SHOWN THE INCOME AT RS. 25.78 CRORES. WHEREAS THE T OTAL INCOME OF THE ASSESSEE INCLUDING CAPITAL GAIN AND DIVIDEND INCOME IS RS. 714.42 CRORES. TO MEET THE REQUIREMENT OF 85% OF THE INCOME OF RS. 7 14.42 CRORES, THE ASSESSEE WAS REQUIRED TO APPLY OR DEEMED TO HAVE BE EN 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 N OTHING HAS BEEN BROUGHT BEFORE US TO SHOW THAT THE SHORTFALL OF MOR E THAN 446 CRORES HAS JAMSETJI TATA TRUST 15 BEEN APPLIED IN THE IMMEDIATE FOLLOWING YEAR. THERE FORE, APPARENTLY THE ASSESSEE TRUST HAS NOT APPLIED THE SHORTFALL OF MOR E THAN 446 CRORES IN THE IMMEDIATE NEXT YEAR IN TERMS OF THE EXPLANATION TO SECTION 11(1) OF THE ACT. BECAUSE THE ASSESSEE HAS ALREADY APPLIED THE ENTIRE BALANCE AMOUNT IN THE SHARES OF TATA SONS LTD., THEREFORE, THE QUESTION O F 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)(I II) AND SECTION 13(2)(H). SO FAR AS THE CONDITIONS REQUIRED TO BE FULFILLED U/S 13(1)(D)(III) ARE CONCERNED ANY INCOME FROM THE SHARES IN A COMPANY 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:- 13.(1) NOTHING CONTAINED IN SECTIN 11 [OR SECTION 12] SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF - (A)-------------- (B)------------ (C)------------- (D) 1[ IN THE CASE OF A TRUST FOR CHARITABLE OR RE LIGIOUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION, ANY INCOME THEREOF, IF FOR A NY PERIOD DURING THE PREVIOUS YEAR- (I) ANY FUNDS OF THE TRUST OR INSTITUTION ARE INVESTED OR DEPOSITED AFTER THE 28TH DAY OF FEBRUARY, 1983 OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUB- SECTION (5) OF SECTION 11; OR JAMSETJI TATA TRUST 16 (II) ANY FUNDS OF THE TRUST OR INSTITUTION INVESTED OR DEPOSITED BEFORE THE 1ST DAY OF MARCH, 1983 OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUB- SECTION (5) OF SECTION 11 CONTINU E TO REMAIN SO INVESTED OR DEPOSITED AFTER THE 30TH DAY OF NOVEMBER, 1983 ; OR (III) ANY SHARES IN A COMPANY[ NOT BEING A GOVERNMENT CO MPANY AS DEFINED IN SECTION 617 OF THE COMPANIES ACT, 19563 (1 OF 1956 ), OR A CORPORATION ESTABLISHED BY OR UNDER A CENTRAL,. STATE OR PROVIN CIAL ACT ARE HELD BY THE TRUST OR INSTITUTION AFTER THE 30TH DAY OF NOVEMBER, 1983 : PROVIDED THAT NOTHING IN THIS CLAUSE SHALL APPLY IN RELATION TO- (I) ANY ASSETS HELD BY THE TRUST OR INSTITUTION WHERE SUCH ASSETS FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION AS ON THE 1ST DA Y OF JUNE, 1973 4[ ]; 7.1 IN THE CASE OF THE ASSESSEE THE DIVIDEND INCOM E, 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 AND TH ERE IS NO DISPUTE THAT HOLDING OF THESE SHARES BY ASSESSEE IS BEYOND THE P ERMITTED LIMIT OF TIME PERIOD PRESCRIBED U/S 13(1)(D). THE LD. SENIOR COUN SEL HOWEVER HAS ARGUED THAT THE BONUS SHARES RECEIVED BY THE ASSESSEE ON 1 9.06.2009 ARE NOT HELD BY THE ASSESSEE BEYOND THE LIMIT PERMITTED BY THE P ROVISO TO SECTION 13(1)(D) OF THE ACT. THIS CONTENTION OF THE LD. SEN IOR COUNSEL IS NOT ACCEPTABLE SIMPLY ON THE REASON THAT THE TIME PERIO D 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 INSER TED 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 CONFORMING TO THE PROVISIONS OF SECTION 11(5) WILL NOT MAKE THE FUND OR TRUST OR INSTITUTION LOSE TAX EXEMPTION IF THE TRU ST/INSTITUTION COVERT THE ASSET NOT CONFORMING TO SECTION 11(5) INTO PERMISSI BLE INVESTMENT WITHIN JAMSETJI TATA TRUST 17 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 WHICHEVER 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) 154 I S RELEVANT ON THIS POINT. PARA 15.2 OF THE SAID CIRCULAR READS AS UNDER:- FURTHER A NEW CLAUSE (IIA) HAS BEEN INSERTED IN T HE PROVISO IN CLAUSE (D) OF SUB SECTION (1) OF SECTION 13 TO SECURE THAT MERE ACCRE TION TO THE EXISTING HOLDING OF SHARES BY WAY OF BONUS SHARES OR ACCEPTANCE OF DONA TIONS IN KIND OR ANY ASSET NOT CONFORMING TO THE PROVISION OF SECTION 11(5) WILL N OT MAKE THE FUND OR TRUST OR INSTITUTION LOSE TAX EXEMPTION. THE TRUSTS OR INSTI TUTIONS WILL, HOWEVER, BE' REQUIRED TO DISPOSE OR CONVERT THE ASSETS NOT CONFORMING TO THE REQUIREMENT OF SECTION 11(5) INTO PERMISSIBLE INVESTMENT WITHIN ONE YEAR FROM TH E END OF THE FINANCIAL YEAR IN WHICH S UCH BONUS SHARES OR OTHER ASSETS ARE RECEIVED OR 31 -3-1992, WHICHEVER IS LATER. 7.2 THUS IT IS CLEAR THAT CLAUSE (IIA) OF THE PROV ISO 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 CONVE RTED INTO PERMISSIBLE INVESTMENT WITHIN ONE YEAR FORM THE END OF THE FINA NCIAL YEAR IN WHICH SUCH ASSETS WERE RECEIVED. DUE TO CERTAIN ANOMALIES AND HARDSHIP ARISING OUT OF THE REQUIREMENT OF THE PROVISO TO SECTION 13(1)(D) CLAUSE (IIA) WAS FURTHER AMENDED VIDE FINANCE ACT 1992 WHEREBY THE PERIOD OF DISINVESTMENT ALLOWED UPTO 31 ST MARCH 1993 OR WITHIN ONE YEAR FORM THE END OF THE FINANCIAL YEAR IN WHICH THE SUCH ASSETS WERE RECEIV ED 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 ASSES SEE CONVERTED THE ASSETS BEING BONUS SHARES OF TCS INTO THE PREFERENTIAL SHA RE OF TATA SONS LTD. JAMSETJI TATA TRUST 18 WHICH IS NOT A CONVERSION INTO THE ASSET/INVESTMENT PERMISSIBLE U/S 11(5) OF THE ACT. THEREFORE, CLAUSE (IIA) OF PROVISO TO SECT ION 13(1)(D) WOULD NOT RESCUE THE ASSESSEE FROM THE MISCHIEF OF SECTION 13 (1)(D) (III) OF THE INCOME TAX ACT. THE INTENT BEHIND THE INSERTION OF CLAUSE (IIA) OF THE PROVISO IS TO EXIT FORM NON PERMISSIBLE INVESTMENT, AND TO CONVER T INTO PERMISSIBLE INVESTMENT AND NOT TO JUST CHANGE ONE NON PERMISSIB LE INVESTMENT TO ANOTHER NON PERMISSIBLE INVESTMENT. IF IT IS PERMIT TED IT WILL DEFEAT THE VERY 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 PE RIOD BEFORE THE 1ST DAY OF JANUARY, 1971 ) IN ANY CONCERN IN WHICH ANY PERSON REFERRED TO IN SUB- SECTION (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 REFERRED IN SUB SECTION 3 HAS SUBSTANTIAL INTEREST. LD. SENIOR COUNSEL THOUGH REI TERATED THE ASSESSEES STAND TAKEN BEFORE THE AUTHORITIES BELOW HOWEVER HE HAS CONTENDED THAT VIOLATION OF SECTION 13(2)(H) WOULD NOT RENDER THE ENTIRE INCOME OF THE TRUST LOSE EXEMPTION U/S 11. IN SUPPORT OF HIS CONT ENTION HE HAS RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF TATA ED UCATION TRUST AND TATA SOCIAL WELFARE TRUST (SUPRA). AS FAR AS THE VIOLATI ON OF CLAUSE (H) OF SECTION 13(2) IS CONCERNED WE FIND THAT THE AUTHOR OF THE ASSESSEE TRUST AND ITS RELATIVE DEFINITELY HAVE A SUBSTANTIAL INTEREST IN THE TATA SONS LTD, THEREFORE, THE INVESTMENT IN THE SHARES OF TATA SONS LTD IS CL EAR VIOLATION OF CLAUSE (H) JAMSETJI TATA TRUST 19 OF SECTION 13(2). WE HAVE GIVEN OUR SERIOUS THOUGHT ON THE ISSUE 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 INVESTMENT IN NON CONFORMING OF SECTION 11(5) BUT NOT THE ENTIRE INCOME 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 A ND 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 U NDER APPEAL, THE ASSESSEE DERIVED ITS INCOME FROM INTEREST AND DIVIDEND. SINC E THE ASSESSEE CONTINUED TO HOLD THE SHARES OF TATA SONS LTD. BEYOND THE PERMIT TED DATE PRESCRIBED FOR DISINVESTMENT U/S 13(1)(D), THE EXEMPTION WAD DENIE D BY THE AO AND THE ENTIRE INCOME OF THE ASSESSEE WAS BROUGHT TO TAX EXCEPT TH E 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 DISQUALIFICATION FOR THE PURPOSE OF SECTION 11 BUT ONLY THE INCOME DERIVED FORM THE INVESTMENTS FALLING IN PROHIBITED CATEGORY WOULD BE CHARGEABLE TO TAX. IN HIS APPELLATE ORDER FOR A.Y. 1996-97, THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THIS TRIBUNAL IN GURU DAYA L BERLIA CHARITABLE TRUST, 34 ITD 489 IN WHICH IT HAS BEEN HELD THAT ONLY THE RELEVAN T INCOME DERIVED FROM IMPERMISSIBLE INVESTMENT WOULD BE SUBJECTED TO TAX AND THE NON-FULFILLMENT OF THE CONDITION STIPULATED IN SECTION 13(1)(D)(III) W OULD NOT DEPRIVE A TRUST OF ITS EXEMPTION FROM TAX IN RESPECT OF OTHER INCOME WHIC H HAS ALREADY BEEN GRANTED TO IT IN EARLIER YEARS. THE ORDER OF THE LD. CIT(A) IS IN CONFORMITY WITH THE ORDER OF THIS TRIBUNAL REFERRED TO BY HIM IN HIS APPELLATE O RDER FOR AY 1996-97. IN THIS VIEW OF THE MATTER,, HIS ORDER IS CONFIRMED. APPEAL FILE D BY THE DEPARTMENT IS DISMISSED. 8.2 WE FURTHER NOTE THAT WHILE DECIDING THE SIMILAR ISSUE THE TRIBUNAL IN THE CASE OF GURU DAYAL BERLIA CHARITABLE TRUST VS. ITO HAS REPRODUCED THE RELEVANT PART OF THE EXPLANATORY NOTE ON THE FINANC E 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 ASSESS EE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR T HE ASSESSEE REITERATED THE SUBMISSIONS, WHICH WERE MADE BEFORE THE I T AUTHORITIES AND STRONGLY URGED THAT THEY SHOULD HAVE ACCEPTED THE ASSESSE E'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 JAMSETJI TATA TRUST 20 DISPUTE THAT BY VIRTUE OF THE PROVISIONS OF S. 11 (5) OF THE ACT, THE ASSESSEE WOULD LOSE EXEMPTION UNDER S. 11 OF THE ACT, AS IT IS HOLDING 12,000 PREFERENCE SHARES OF THE NATIONAL RAYON CORPORATI ON LTD. HOWEVER, HE HASTENED TO STATE THAT THE ASSESSEE WOULD L OSE EXEMPTION UNDER S. 11 OF THE ACT IN RESPECT OF THE DIVIDEND INCOME RECEIVED ON THE SAID SHARES AND NOT IN RESPECT OF OTHER INCOME EARNED BY IT. IN OTHER WORDS THE LEARNED COUNSEL FOR THE ASSESSEE WANTED TO IMPRESS UPON US THAT JUST CA SE THE ASSESSEE WAS NOT IN A POSITION TO DIS POSE OF THE SHARES OF NATIONAL RAYON CORPORATION LTD., IT SHOULD NOT LOSE EXEMPTION CONTEMPLATED UNDER S. 11 OF THE ACT IN RESPECT OF OTHER INCOME EARNED BY IT. IN THIS CONNECTION H INVITED OUR ATTENTION TO CIRCULAR NO. 387 CONTAINING EXPLANATORY NOTES ON THE FINANCE ACT, 1984, MORE PARTICUL ARLY 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 RECEIVED BY TRUSTS AT THE MAXIMUM MARGINAL RATE IS APPLICABLE ONLY IN THE CASE OF PRI VATE TRUSTS HAVING PROFITS AND GAINS OF BUSINESS. SO FAR AS THE PUBLIC CHARITABLE AND RELIGIOUS TRUSTS ARE CONCERNED, THEIR BUSINESS PROFITS ARE NOT EXEMPT FR OM TAX, EXCEPT IN THE CASES FALLING UNDER CL. (A) OR CL. (B) OF S. 11(4A) OF TH E IT ACT. AS THE MAXIMUM MARGINAL RATE OF TAX UNDER THE NEW PROVISO TO S. 164(2) APPL IES TO THE WHOLE OR A PART OF THE RELEVANT INCOME OF A CHARITABLE OR RELIGIOUS TRUST WHICH FORFEITS EXEMPTION BY VIRTUE OF THE PROVISIONS OF THE IT ACT IN REGARD TO INVESTMENT PATTERN OR USE OF THE TRUST PROPERTY FOR THE BENEFIT OF THE SE TTLOR. ETC., CONTAINED IN S. 13(L)(C) AND (D) OF THAT ACT, THE SAID RATE WILL NO T APPLY TO THE BUSINESS PROFITS OF SUCH TRUST WHICH ARE OTHERWISE CHARGEABLE TO TAX . IN OTHER 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 F ORF EITED EXEMPTION UNDER THE SAID P ROVISIONS . 8.3 AFTER CONSIDERING THE EXPLANATORY NOTE THE TRIB UNAL DECIDED THE ISSUE BY HOLDING THAT THE PROVISION OF SECTION 164(2) ALO NG WITH THE PROVISO THERETO WOULD COME INTO OPERATION AND ONLY SUCH INC OME WOULD BE BROUGHT TO TAX AT THE MAXIMUM MARGINAL RATE WHICH C OULD NOT BE TREATED AS EXEMPTION BY VIRTUE OF NON FULFILLMENT OF CONDITION S OF INVESTMENT IN SPECIFIED SECURITIES AS PRESCRIBED U/S 11(5). THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPT ION) VS. SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST (249 ITR 533) AS 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 1 64 MEANS 'LEVY'. SECTION 164(2) JAMSETJI TATA TRUST 21 REFERS TO THE RELEVANT INCOME WHICH IS DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. IF SUC H INCOME CONSISTS OF SEVERABLE PORTIONS, EXEMPT AS WELL AS TAXABLE, THE PORTION WH ICH IS EXEMPT IS TO BE LEFT OUT AND THE PORTION WHICH IS NOT EXEMPT IS CHARGED TO T AX AS IF IT IS THE INCOME OF THE ASSOCIATION OF PERSONS. THEREFORE, A PROVISO WAS IN SERTED BY THE FINANCE ACT OF 1984 WITH EFFECT FROM APRIL 1, 1985, UNDER WHICH IN CASES WHERE THE WHOLE OR ANY PART OF THE RELEVANT INCOME IS NOT EXEMPT UNDER SEC TION 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 WOU LD FALL IN THE NET OF TAX AS IF IT WAS THE INCOME OF THE ASSOCIATION OF PERSONS. ON THE OTHER HAND, SECTION 11(5) LAYS DOWN VARIOUS MODES OR FORMS IN WHICH A T RUST IS REQUIRED TO DEPLOY ITS FUNDS. SECTION 13(1) LAYS DOWN CASES IN WHICH SECTI ON 11 SHALL NOT APPLY. UNDER SECTION 13(1)(D)(III), IT HAS BEEN LAID DOWN THAT A NY SHARE IN A COMPANY, NOT BEING A GOVERNMENT COMPANY, HELD BY THE TRUST AFTER NOVEM BER 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 INVES TMENT UNDER SECTION 11(5) SHALL BE DISPOSED OF WITHIN ONE YEAR FROM THE END O F THE PREVIOUS YEAR IN WHICH SUCH ASSET IS ACQUIRED OR BY MARCH 31, 1993, WHICHE VER IS LATER. IN THE PRESENT CASE, THE ASSESSEE WAS REQUIRED TO DISPOSE OF THE S HARES UNDER THE SAID PROVISO BY MARCH 31, 1995 (SEE THE JUDGMENT OF THIS COURT I N I. T. A. NO. 81 OF 1999, DECIDED ON SEPTEMBER 14, 2000--DIRECTOR OF INCOME-T AX (EXEMPTIONS) V. SHARDABEN BHAGUBHAI MAFATLAL PUBLIC CHARITABLE TRUS T [2001] 247 ITR 1). THE SHARES HAVE NOT BEEN DISPOSED OF EVEN DURING THE AS SESSMENT YEAR IN QUESTION. NOW, UNDER SECTION 164(2) IT IS, INTER ALIA, LAID D OWN THAT IN THE CASE OF RELEVANT INCOME WHICH IS DERIVED FROM PROPERTY HELD UNDER TR UST FOR CHARITABLE PURPOSES, WHICH IS OF THE NATURE REFERRED TO IN SECTION 11(4A ), TAX SHALL BE CHARGED ON SO MUCH OF THE RELEVANT 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, 1989. EARLIER IT WAS OMITTED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987. HOWEVER, THE LEGISLATURE INSERTED A PROVISO B Y THE FINANCE ACT, 1984, WITH EFFECT FROM APRIL 1, 1985. BY THE SAID PROVISO, IT IS, INTER ALIA, LAID DOWN THAT WHERE THE WHOLE OR PART OF THE RELEVANT INCOME IS NOT EXE MPT BY VIRTUE OF SECTION 13(1)(D), TAX SHALL BE CHARGED ON THE RELEVANT INCO ME OR PART OF THE RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE, THE PHRASE 'RE LEVANT INCOME OR PART OF THE RELEVANT INCOME' IS REQUIRED TO BE READ IN CONT RADISTINCTION 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 C LAUSE, IT IS PROVIDED THAT 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 LI ABLE AT THE MAXIMUM MARGINAL RATE. THEREFORE, READING THE ABOVE TWO PHRASES SHOW THAT THE LEGISLATURE HAS CLEARLY INDICATED ITS MIND IN THE PROVISO TO SECTIO N 164(2) WHEN IT CATEGORICALLY REFERS TO FORFEITURE OF EXEMPTION FOR BREACH OF SEC TION 13(1)(D), RESULTING IN LEVY OF MAXIMUM MARGINAL RATE OF TAX ONLY TO THAT PART O F THE INCOME WHICH HAS FORFEITED EXEMPTION. IT DOES NOT REFER TO THE ENTIR E INCOME BEING SUBJECTED TO JAMSETJI TATA TRUST 22 MAXIMUM MARGINAL RATE OF TAX. THIS INTERPRETATION O F OURS IS ALSO SUPPORTED BY CIRCULAR NO. 387, DATED JULY 6, 1984 (SEE [1985] 15 2 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 R ATE 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 DIFFERE NT CONSEQUENCES. IT IS INTERESTING TO NOTE THAT ALTHOUGH THE LEGISLATURE W ITHDREW SECTION 164(2) BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, WHICH PROVIS ION WAS REINTRODUCED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1989, THE LEGISLAT URE DID NOT TOUCH THE PROVISO TO SECTION 164(2) WHICH HAS BEEN ON THE STA TUTE BOOK RIGHT FROM APRIL 1, 1985. THE SAID PROVISO WAS INSERTED BY THE FINANCE ACT, 1984, THE PROVISO SPECI- FICALLY REFERS TO VIOLATION OF SECTION 13(1)(D) AND ITS CONSEQUENCES. IN THE CIRCUMSTANCES, WE FIND MERIT IN THE CONTENTION OF T HE ASSESSEE THAT IN THE PRESENT CASE, THE MAXIMUM MARGINAL RATE OF TAX WILL APPLY O NLY TO THE DIVIDEND INCOME FROM SHARES IN MAFATLAL INDUSTRIES LIMITED AND NOT TO THE ENTIRE INCOME. 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 BREAC H OF SECTION 13(1)(D) AND 13(2)(H) WOULD LEAD TO FORFEITURE OF E XEMPTION OF INCOME DERIVED FROM SUCH INVESTMENT AND NOT THE ENTIRE INC OME WOULD BE SUBJECTED TO THE MAXIMUM MARGINAL RATE OF TAX U/S 1 64(2). THUS THE EXEMPTION U/S 11 IS AVAILABLE TO THE ASSESSEE ONLY ON THE INCOME TO THE EXTENT THE SAME IS DERIVED IN CONFORMITY OF SECTION 11 AND APPLIED DURING THE YEAR 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 EXEMPTION O N THE GROUND THAT THE INCOME DERIVED FROM THE PROPERTY HELD BY THE TRUST AND NOT ANY OTHER PERSON, SECTION 11 EXCLUSIVELY DEALS WITH THE INCOM E DERIVED FROM THE JAMSETJI TATA TRUST 23 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) B ECAUSE THESE SECTIONS DO NOT DEAL WITH INCOME DERIVED FROM THE PROPERTY H ELD UNDER THE TRUST. IF THE INCOME OF THE TRUST WHICH IS NOT HELD EXEMPT U/ S 11, 12 AND 13 IS ALLOWED TO EXEMPT UNDER OTHER SUB SECTIONS OF SECTI ON 10 IT WILL LEAD TO OPEN GROUND FOR TRUST TO EXERCISE LONG TERM SECURIT IES INCOME AND DIVIDEND INCOME AND CLAIMED EXEMPTION OF THE SAME UNDER OTHE R SUB SECTIONS OF SECTION 10 OF INCOME TAX ACT. 9.2 ON APPEAL, CIT(A) CONCUR WITH THE VIEW OF AO. 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 OF HONB LE 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 ISSU E REGARDING AGRICULTURAL INCOME EXEMPT U/S 10(5) OF THE INCOME TAX ACT HELD THAT THIS INCOME IS NOT REQUIRED TO BE CONSIDERED AT ALL EVEN FOR THE PURPO SE OF SECTION 11 OF THE INCOME TAX ACT. THUS THE LD. SENIOR COUNSEL HAS SUB MITTED THAT IF EXEMPTION IS AVAILABLE U/S 10 THEN SECTION 11 IS IR RELEVANT. HE HAS RELIED UPON THE FOLLOWING DECISIONS:- JAMSETJI TATA TRUST 24 (I) COMMISSIONER OF INCOME-TAX. VS. SEETHAKATHI TRUST (295 ITR 520.) (II) BRAHMIN EDUCATIONAL SOCIETY VS ASSISTANT COMMIS SIONER OF INCOME TAX (227 ITR 317) (III) COMMISSINER OF INCOME TAX VS. RAO BAHADUR CALAV ALA CUNNAN CHETTY CHARITIES [1982] ( 135 ITR 485 ) (IV) BAR COUNCIL OF UTTAR PRADESH VS COMMISSIONER OF INCOME-TAX (143 ITR 584) (V) COMMISSIONER OF INCOME-TAX. V. BAR COUNCIL OF MA HARASHTRA. (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 CONTENDED THAT IF THE EXEMPTION IS AVAILABLE TO THE ASSESSEE UNDER TWO PROVISIONS OF T HE ACT, THEN THE ASSESSEE IS ENTITLED TO EXEMPTION UNDER THE 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 TRUST IS COVERED UNDER THIS SECTION AND NOT U/S 10 OF THE INCOME TAX ACT. HE HA S CONTENDED THAT BOTH THESE SECTIONS ARE PART OF CHAPTER III AND, THEREFO RE, SECTION 11 BEING SPECIFIC PROVISION FOR EXEMPTION OF INCOME FROM THE PROPERTY HELD UNDER TRUST WOULD OVERRIDE GENERAL PROVISIONS. HE HAS EMP HASIZED THAT THE PROVISIONS UNDER SAME CHAPTER SHOULD BE CONSIDERED HARMONIOUSLY WHILE DEALING WITH SPECIAL MISCHIEF. SECTIONS 11, 12 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 DEHORS THE APPLICABILITY OF SECTION 11 AND IN THE SAME MAN NER IT WOULD ALSO DEHORS THE APPLICABILITY OF SECTION 10 IF THERE IS A VIOLA TION 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 JAMSETJI TATA TRUST 25 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 MISSION ( 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 SPECIFICALLY PO INTS OUT THAT AGRICULTURAL INCOME SHALL NOT BE INCLUDED IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR AND HENCE THE QUESTION IS REQUIRED TO BE ANSWERED I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THIS INCOME IS NOT REQUIRED TO BE CONSIDERED AT ALL EVEN FOR THE PURPOSE 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 COMPUTATION 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 THE PURPOSE OF SE CTION 11 OF THE ACT. IN THE CASE OF HIS HOLINESS SILASARI KASIVASI MUTHUKUM ARASWAMI THAMBIRAN AVL & ORS. VS. AGRICULTURAL INCOME TAX OFFICER & OR S. (113 ITR 889) THE HONBLE HIGH COURT OF MADRA HAS HELD THAT THE AGRI CULTURAL INCOME DERIVED BY CHARITABLE OR RELIGIOUS TRUST IS EXEMPT U/S 10 C OULD NOT BE SAID TO BE BROUGHT TO TAX U/S 11 TO 13. SIMILAR VIEW HAS BEEN TAKEN IN THE SERIES OF DECISIONS AS RELIED UPON BY THE LD. SENIOR COUNSEL WHEN THE QUESTION INVOLVED WAS THE ALLOWABILITY OF EXEMPTION U/S 10, (22), (23) VS. SECTION 11 AND 13. IN OUR VIEW THE EXEMPTION U/S 11 IS AVAILAB LE ON THE INCOME OF THE PUBLIC CHARITABLE /RELIGIOUS TRUST OR INSTITUTION W HICH IS OTHERWISE TAXABLE IN JAMSETJI TATA TRUST 26 THE HANDS OF OTHER PERSONS. THUS THE INCOME WHICH I S EXEMPT U/S 10 CANNOT BE BROUGHT TO TAX BY VIRTUE OF SECTION 11 AND 13 OF THE ACT BECAUSE 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 THAT EITHER SECTION 10 IS SUBJECTED TO THE PROVIS IONS 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 FOR DENYIN G THE CLAIM UNDER SECTION 10 OF THE ACT. 9.8 IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING THE VARIOUS DECISIONS (SUPRA) WE HOLD THAT THE DIVIDEND 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 AND CANNOT BE BROUGHT TO TAX 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 ASSESSEE ONLY AFTER OBTAINING THE FIRST SEMESTER RESULTS OF THEIR EDUCATION OUTSIDE I NDIA FROM EACH SCHOLAR. THE AO WAS OF THE VIEW THAT THE APPLICATION OF INCO ME AS WELL AS CHARITABLE PURPOSE, BOTH SHOULD BE IN INDIA AND EXECUTION OF C HARITABLE PURPOSE MAY BE INSIDE OR OUTSIDE INDIA. THE AO RELIED UPON THE DECISION OF HONBLE JAMSETJI TATA TRUST 27 DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTION) VS. NATIONAL ASSOCIATION OF SOFTWARE AND SERVICES COMPA NIES (345 ITR 362) AND HELD THAT THE AMOUNT OF RS. 1,53,50,000/- SPENT BY THE ASSESSEE FOR EDUCATION GRANT TO THE STUDENTS IS NOT APPLICATION OF ITS INCOME FOR CHARITABLE PURPOSE IN INDIA AND ACCORDINGLY DISALLO WED THE EXEMPTION U/S 11. 10.2 ON APPEAL CIT(A) CONFIRMED THE ACTION OF THE A O. 10.3 BEFORE US, THE LD. SENIOR COUNSEL HAS SUBMITTE D THAT IT IS SUFFICIENT IF THE INCOME IS APPLIED WITHIN INDIA AND TO THAT EXTE NT THE INCOME WILL BE EXEMPT U/S 11(1)(A). THE LD. SENIOR COUNSEL HAS SUB MITTED THAT THE DECISION RELIED UPON BY THE AO IN THE CASE OF DIRECTOR OF IN COME TAX (EXEMPTION) VS. NATIONAL ASSOCIATION OF SOFTWARE AND SERVICES COMPA NIES (SUPRA) IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE AS IN T HE CASE OF THE ASSESSEE THE GRANT WAS GIVEN TO THE INDIAN STUDENTS AND IN INDIA N RUPEES, THOUGH THE STUDENTS HAVE USED THE SAID GRANT FOR HIGHER EDUCAT ION ABROAD. THE ASSESSEE HAS APPLIED THE MONEY FOR CHARITABLE PURPO SE IN INDIAN AND THE FINAL EXECUTION OF THE PURPOSE MAY BE OUTSIDE INDIA BUT THE SAME WILL NOT AFFECT THE CONDITIONS SATISFIED BY THE ASSESSEE. TH E LD. SENIOR COUNSEL HAS RELIED UPON THE DECISION THE CHENNAI BENCH OF THIS TRIBUNAL IN THE CASE OF BHARATA KALANJI VS. INCOME TAX OFFICER (30 ITD 161) . HE HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF CEO CL UB INDIA VS. DIT (EXEMPTION) (53 SOT 448) (MUM). 10.4 ON THE OTHER HAND, THE LD. DR HAS SUBMITTED TH AT THE ACTIVITY OF THE ASSESSEE DOES NOT END WITH THE SELECTION OF CANDIDA TES FOR ASSISTANCE AND DISBURSING AMOUNT TO HIM BUT NECESSARILY INVOLVES M ONITORING OF THE JAMSETJI TATA TRUST 28 PROGRESS OF THE SCHOLARS EDUCATION OUTSIDE INDIAN AND COMPLETION OF EDUCATION OUTSIDE INDIA SUBJECT TO THE PERFORMANCE OF THE STUDENTS, THE FINANCIAL ASSISTANCE IS GRANTED AND CONTINUED. EVEN ONLY THOSE STUDENTS WERE SELECTED WHO HAVE ALREADY STARTED THEIR EDUCAT ION OUTSIDE INDIA. THEREFORE, THE TRUST IS NOT MERELY HANDING OVER THE GRANT FOR EDUCATION OF THE SCHOLARS BUT IS ACTIVELY MONITORING THE EDUCATI ON OF SCHOLARS ABROAD. THE ASSESSEE HAS NOT APPLIED ITS INCOME FOR CHARITA BLE PURPOSE IN INDIA. MERELY MAKING PAYMENT IN INDIA IS NOT SUFFICIENT BU T THE CHARITABLE PURPOSE SHOULD ALSO HAPPEN WITHIN INDIAN TERRITORY. HE HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTION) VS. NATIONAL ASSOCIATION OF SOFTWARE AN D SERVICES COMPANIES (SUPRA). 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 IN I NDIA AND FOR THE PURPOSE OF EDUCATION OF INDIAN STUDENTS/PERSONS, THUS THE C HARITABLE PURPOSE OF THE GRANT IS EDUCATION OF INDIAN PERSONS. THE APPLICATI ON OF INCOME OF THE ASSESSEE COMPLETES AT THE POINT WHEN THE ASSESSEE R ELEASED THE GRANT WHICH TOOK PLACE IN INDIA. THE DECISION RELIED UPON BY THE REVENUE IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE AS THE APPLICATION OF INCOME TOOK PLACE IN INDIA AND FOR THE PURPOSE OF EDUCATION OF INDIAN STUDENTS/PERSONS. THEREFORE, FOR TAKING EDUCATION BY BENEFICIARY FROM ABROAD WOULD NOT AMOUNT TO APPLICATION OF INCOME OF THE ASSESSEE OUT SIDE INDIA. IN THE CASE OF BHARATA KALANJI VS. INCOME TAX OFFICER (SUPRA) T HE CHENNAI BENCH OF THIS TRIBUNAL WHILE DECIDING A QUESTION ARISING FROM THE PAYMENT OF RS. 1.55 JAMSETJI TATA TRUST 29 LAKH MADE TO A TRAVEL CORPORATION OF INDIAN FOR SEN DING A TROOP ON TOUR. THE AO TREATED THE EXPENDITURE AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE PURPOSE. HOWEVER CIT REVISED THE ASSESSM ENT AND WAS OF THE OPINION THAT THIS EXPENDITURE WAS PROHIBITED AND WA S NOT APPLIED FOR PURPOSE OF TRUST IN INDIA AND, THEREFORE, NOT ELIGI BLE FOR EXEMPTION U/S 11. THE MAIN OBJECT OF THE TRUST WAS TO ADVANCE, PROPAG ATE, INCREASE AND PROMOTION OF INDIAN CLASSICAL AND FOLK ARTS AND IND IAN MUSIC ETC. THE TRUST WAS INVITED BY THE GOVERNMENT OF NIGERIA TO GIVE CE RTAIN DANCE PERFORMANCE ABROAD. ACCORDINGLY THE TRUST SEND A TR OOP AND PAID A SUM OF RS. 1.55 LAKH BEING THE PASSAGE MONEY TO THE TRAVEL CORPORATION OF INDIA. 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 EXEMPT IN THE CASE OF TRUST CREATED BEFORE 1-4-1952 SUBJECT TO THE APPROVAL 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 EXEMPT S SCHOLARSHIPS GRANTED TO MEET THE COST OF EDUCATION WHERE ALSO THE CBDT I TSELF DOES NOT CONSIDER SCHOLARSHIP GRANTED FOR EDUCATION ABROAD A S 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 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 JAMSETJI TATA TRUST 30 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. DIRECTOR OF INCOME TAX (EXEMPTION), CO-ORDINATE BENCH OF THIS TRIBUNAL HA S HELD IN PARA 11 AS UNDER:- THE OTHER OBJECTION OF THE DIT WAS THAT THE ACTIVI TIES 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 CONDITIONS OF APPLICA TION OF MONEY FOR SUCH PURPOSE IN INDIA. 11. GROUND NO. 4 IS REGARDING DENIAL OF DEDUCTION OF IN COME APPLIED TO THE OBJECTS OF THE TRUST IN INDIA AND AD MINISTRATIVE EXPENSES . 11.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE CIT(A) HAS DECIDED THIS ISSUE IN PARA 7 AS UNDER:- GROUND NO.5 OF APPEAL BECOMES INFRUCTUOUS IN THE CO NTEXT OF GROUND NO.1, 2, 3 & 4 OF APPEAL BEING DISMISSED BECAUSE THE CLAIMS OF THE APPELLANT ARE IN RELATION TO 'COMPUTA TION OF APPLICATION OF INCOME' IN THE CONTEXT OF SECTION 11 OF THE LT. ACT, ON WHICH HAVING FAILED FOR EXEMPTION U/S 11 OF THE LT. ACT, THE A.O. HAS COMPUTED THE INCOME IN COMMERCIAL MANNER. THERE IS NO DISALLOWANCE MADE BY THE A.O. IN COMPUT ATION OF JAMSETJI TATA TRUST 31 INCOME IN THE' ASSESSMENT ORDER UNDER THE HEAD 'ADMINISTRATIVE EXPENSES' OF RS.3,65,81,515/- AS TA KEN IN GROUND NO.5 OF APPEAL. THEREFORE, GROUND NO.5 OF AP PEAL IS ALSO DISMISSED 11.2 AS IT IS CLEAR THAT THE AO DENIED THE EXEMPTIO N U/S 11 AND COMPUTED THE INCOME IN COMMERCIAL MANNER. CIT(A) HAS RECORDE D THAT THE AO HAS NOT MADE ANY DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES. HOWEVER WE NOTE THAT THE AO HAS COMPUTED THE TOTAL INCOME B Y TAKING THE INCOME FROM VARIOUS SOURCES AND HAS NOT ALLOWED ANY DEDUCT ION. IN VIEW OF OUR FINDING ON THE QUESTION OF EXEMPTION U/S 11, THIS I SSUE IS SET ASIDE TO THE AO TO RECONSIDER THE CLAIM IN THE LIGHT OF OUR FIND ING ON OTHER ISSUES. 12. GROUND NO. 5 IS REGARDING TDS CREDIT. 12.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE CIT(A)HAS CONSIDERED THIS ISSUE IN PARA 8 AS UNDER:- THE A.O. IS DIRECTED TO VERIFY AND ALLOW CLAIM OF TDS IF ANY, U/S. 154 OF THE I.T. ACT AS AN ALTERNATIVE REMEDY AVAILABLE WITH TH E APPELLANT. THEREFORE, TO THAT EXTENT GROUND NO. 6 SURVIVES FOR DIRECTION AS GIVEN, BUT TREATED AS DIMISSED FOR STATISTICAL PURPOSES . 12.2 AS IT IS EVIDENT FROM THE FINDING OF CIT(A) TH AT THE AO WAS DIRECTED TO VERIFY AND ALLOW THE CLAIM OF TDS, THEREFORE, NO GR IEVANCE ARISES FROM THE IMPUGNED ORDER OF CIT(A). HOWEVER THE AO IS DIRECTE D TO CONSIDER AND DECIDE THE CLAIM OF TDS CREDIT. 13. GROUND NO. 6 IS REGARDING MAXIMUM MARGINAL RATE OF TAX APPLIED TO THE ENTIRE INCOME. JAMSETJI TATA TRUST 32 13.1 WHILE DENYING THE EXEMPTION U/S 11, THE AO HAS APPLIED THE MAXIMUM MARGINAL RATE OF TAX ON THE ENTIRE INCOME A S PER SECTION 164(2). 13.2 ON APPEAL, CIT(A) HAS CONFIRMED THE ACTION OF AO. 13.3 BEFORE US, THE LD. SENIOR COUNSEL HAS SUBMITTE D THAT THE RATE OF TAX ON THE SHORT TERM CAPITAL GAIN ARISING FROM SALE OF SHARES SHALL BE THE RATE PRESCRIBED UNDER THE ACT U/S IIIA AND NOT THE MAXIM UM MARGINAL RATE. 13.4 ON THE OTHER HAND, THE LD DR HAS RELIED UPON T HE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 164(2) ARE APPLICABLE AND, TH EREFORE, THE MAXIMUM MARGINAL RATE WILL BE APPLIED ON THE TAXABLE INCOME OF THE ASSESSEE AND NOT SEPARATE RATE ON SEPARATE NATURE OF INCOME. 13.5 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE RATE OF TAX ON SHORT TE RM CAPITAL GAIN ARISING FROM SALE OF EQUITY SHARES IS PROVIDED U/S IIIA AS 15%. HOWEVER RELEVANT INCOME WHICH IS DERIVED FROM THE PROPERTY HELD UNDE R TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE IS CHARGED TO TAX A S PER THE PROVISIONS OF SECTION 164(2) WHICH READS AS UNDER:- [(2) IN THE CASE OF RELEVANT INCOME WHICH IS DERIV ED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, 52 [OR WHICH IS OF THE NATURE REFERRED TO IN SUB-CLAUSE (IIA) OF CLAUSE (24) OF S ECTION 2 ,] [OR WHICH IS OF THE NATURE REFERRED TO IN SUB-SECTION (4A) OF SECTION 11 ,] TAX SHALL BE CHARGED ON SO MUCH OF THE RELEVANT INCOME AS IS NOT EXEMPT UNDER SECTION 11 [OR SECTION 12], AS IF THE RELEVANT INCOME NOT SO EXEMPT WERE THE INCOME OF AN ASSOCIATION OF PERSONS : [ PROVIDED THAT IN A CASE WHERE THE WHOLE OR ANY PART 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 SECT ION 13 , TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF RELEVANT INCOME AT THE M AXIMUM MARGINAL RATE.]] JAMSETJI TATA TRUST 33 13.6 SECTION 164(2) DOES NOT PRESCRIBE THE RATE OF TAX BUT IT MANDATES THE MAXIMUM MARGINAL RATE AS PRESCRIBED UNDER THE PROVI SION OF ACT. SECTION 111A IS A SPECIAL PROVISION FOR RATE OF TAX CHARGEA BLE ON SUCH INCOME WHICH READS AS UNDER:- 111A. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS, ARISING FROM THE TR ANSFER OF A SHORT TERM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF ANY EQUITY ORIENTED FUND AND (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UN IT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF THE FINAN CE (NO.2) ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRANSA CTION TAX UNDER THAT THAT CHAPTER, THE TAX PAYABLE BY THE ASSESSEE ON TH E TOTAL INCOME SHALL BE THE AGGREGATE OF (I) THE AMOUNT OF INCOME TAX CALCULATED ON SUCH SHORT-T ERM CAPITAL GAINS AT THE RATE OF [FIFTEEN] PER CENT; AN D (II) THE AMOUNT OF INCOME TAX PAYABLE ON THE BALANCE AMO UNT OF THE TOTAL INCOME AS IF SUCH BALANCE AMOUNT WERE THE TOTAL INCOME OF THE ASSESSEE: PROVIDED THAT IN THE CASE OF AN INDIVIDUAL OR A HIN DU UNDIVIDED FAMILY, BEING A RESIDENT, WHERE THE TOTAL INCOME AS REDUCED BY SUCH SHORT-TERM CAPITAL GAINS IS BELOW THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME TAX, THEN , SUCH INCOME AS SO REDUCED FALLS SHORT OF THE MAXIMUM AMO UNT WHICH IS NOT CHARGEABLE INCOME TAX AND THE TAX ON THE BALANCE OF SUCH SHORT TERM CAPITAL GAINS SHALL BE COMPUTED AT THE RAGE OF [FIFTEEN] P ER CENT. 2. WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCL UDES ANY SHORT-TERM CAPITAL GAINS REFERRED TO IN SUB-SECTION (1), THE DEDUCTION UNDER CHAPTER VI-A SHALL BE ALLOWED FROM THE GROSS TOTAL INCOME AS REDUCED BY S UCH CAPITAL GAINS. 3. WHERE THE TOTAL INCOME OF AN ASSESSEE INCLUDES A NY SHORT-TERM CAPITAL GAINS REFERRED TO IN SUB-SECTION(1),, THE REBATE UNDER SE CTION 88 SHALL BE ALLOWED FROM THE INCOME TAX ON THE TOTAL INCOME AS REDUCED BY SU CH CAPITAL GAINS. EXPLANATION FOR THE PURPOSE OF THIS SECTION, THE EXPRESSION EQUITY ORIENTED FUND SHALL HAVE THE MEANING ASSIGNED TO IT IN THE EXPLANATION TO CLAUSE (38) OF SECTION 10.] JAMSETJI TATA TRUST 34 13.7 WHEN THE SHORT TERM CAPITAL GAIN ARISING FROM THE SALE OF SHARES SUBJECTED TO STT IS CHARGEABLE TO TAX AT 15% THEN T HE MAXIMUM MARGINAL RATE ON SUCH INCOME CANNOT EXCEED THE MAXIMUM RATE OF TAX PROVIDED UNDER THE ACT. ACCORDINGLY, WE ARE OF THE VIEW THAT THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES ALREADY SUBJECTED TO STT, IS CHARGEABLE TO TAX AT MAXIMUM MARGINAL RATE WHICH CANNOT EXCEED THE RATE PROVIDED U/S IIIA OF THE INCOME TAX ACT. ACCORDINGLY THIS ISSUE IS DECID ED IN FAVOUR OF THE ASSESSEE. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 /03/ 2014 SD/- SD/- (N.K. BILLAIYA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 26 /03/2014 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI