DY.CIT (E) -2(1) , MUMBAI vs. MUMBAI EDUCATIONAL TRUST, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI RAHUL CHAUDHARY, JM

ITA No. 1828 to 1831/MUM/2022

(Assessment Years 2008-09 to 2011-12)

Mumbai Education Trust DY.CIT (E)-2(1) Room No. 608, 6th Floor, MTNL General Arun Kumar Vaidya Chowk, Bandra Reclamation, Exchange Bldg, Cumballa Hill, Vs. Pedder Rd, Mumbai-400 026 Bandra (W), Mumbai-400 050 (Respondent) (Appellant) PAN No.AAATM0985G

Assessee by : Sh. Rajesh Dharap, Revenue by : Ms. Achal Sharma CIT DR Date of hearing: 22.09.2022 Date of pronouncement : 30.09.2022 O R D E R PER BENCH :-

i. with respect to use of Bunglow, the learned Assessing Officer has not been able to make out a cash by collecting the evidences that same is used for the purposes of the residence of Bhujbal family and therefore, relying on the finding of the learned Joint Charity

ii. With respect to the premises provided to Ideen Furniture Pvt. Ltd. without any charge, he affirmed that there is a violation of the provision of Section 13 of the Act.

iii. He further held that despite the above violation, the exemption of the Section 11 of the Act cannot be withdrawn on the total income. Therefore, he held that assessee is entitled to exemption under Section 11 and 12 of the Act. However, with respect to fare, rent and expenses of the property used by the above company is required to be taxed at the maximum marginal rate. He therefore, partly allowed the claim of the assessee.

―5. Ground of appeal 3 is against the action of the A.O. withdrawing the exemption under section 11 of the Income Tax Act, 1961. The appellant stated that AO erred in withdrawing the exemption U/s 11 of Act as property held under trust was given to interested party as defined in section 13(3) of the Act. The appellant further submitted in this ground of appeal without prejudice to the above ground to allow the benefit of the exemption U/s 11 of the Act to the extent of the acts resulting into non violation of section 13 of the Act.

5.1 The Assessing officer in the assessment order u/s 143(3) rws 148 dated 31.03.2016 for AY 2010-11 observed as under:

"The return of income was filed on I5,10.2010 by declaring total income at Rs. NIL. The assessment was completed u/s, 143(3) on 30.03,2012 by determining total income at Rs.Nil and exemption u/s 11 of the IT of the IT. Act, was allowed to the assessee.

Thereafter, the information and evidence has been received in the form of various documents like sub-metered bill, telephone bill, copy of return of income for A.Y. 2009-10 and A.Y. 2010-11 of M/s Ideen furniture Pvt. Ltd., etc. which shows that M/s . Ideen furniture Pvt Ltd. had occupied the 8* floor of Mumbai Education Trust at Bandra Reclamation, • 'It is farther noticed ihat.th& Mumbai Education Trust had not received any payment, whatsoever in. the form of rent, lease rent, or compensation from M/s. Ideen Furniture Pvt Ltd. It is also noticed thai M/s. Ideen Furniture Put. Ltd. is a related concern of Shri Samir Bhnjbal and Shri Pankoj Bhujbal i.e. Smt. Vishako. Pankaj Bhujbal (Wife of Shri Pankgj Bhujbal) and. Smt. Vishaka Pankaj Bhujbal (wife of Shri Pankaj Bhujbal) and smt. Shefali samir Bhujbal (wife of Shri Samir Bhujbal) who are the trustees of Mumbai Education Trust. From the evidences, it is

(Here whole of section is reproduced as it is and for the sake of brevity we have not reiterated here).

……

….

….

(Here whole of section is reproduced as it is and for the sake of brevity we have not reiterated it here).

The assessee filed a reply objecting re-opening of assessment vide letter dated: 16/12/2015. The assessee mainly objected on the ground that assessee has furnished full disclosure during the course of assessment while order is passed under section 143(3). The contention of assessee was rejected vide speaking letter dated 18/01/2016.The contention of assessee is considered and found grossly incorrect. The information available indicates that the property of the trust was used "Free of Cost" by specified

The assessee further submitted vide its letter dated: 15/03/2016 as follows;

With regard to your honour's show cause as to why provision of section 13(3) and 13(2) should not be invoked in assessee's case as property of the trust is used by related party M/s. Ideen Furniture Pvt. Ltd and violated provisions U/s 13 of the Act,

(2) Without prejudice to the generality of the provisions of clause (c)10 and clause (d) of sub-section: (1), the income, or the property of the trust or institution or any part of such income: or property shall, for the purposes of that clause, be deemed to have, been used or applied for the benefit of a person referred to in sub-section (3),"

(a)…..

(b) if any land, building or other property*1 of the trust Or institution is, or continues to be, made available, for the use of any person referred to in sub- section (3), for any period during, the previous year without charging adequate rent or other compensation;

Further we would like to reproduce the provision of section of Section 13(3) which is as under:

(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following namely:

(a) the author of the trust or the founder of the institution;

(c) where such author, founder or person is a Hindu undivided family, a member of the family;

(cc) any trustee of the trust or manager (by whatever name called) of the institution;

(d) any relative of any such author, founder, person, member, trustee or manager as aforesaid;

(e) any concern in which any of the persons referred to in clauses (a),(b),(c),(cc) and (d) has a substantial interest.

In this regard reliance is place on the following case law:

George Educational, Medical and Charitable Society Vs. Asst. Director of Income Tax (2002) 80 ITD 619 (Coch)

Charitable Trust-Exemption under s. 11- Bar of s. 13(1)(c)- Assessee society and using the residential house of its chairman as a guest- house for accommodating the chairman and governing council members whenever they visited Madras and also to her guests-It was not used as exclusive residence of the chairman after it was acquired on lease by the assessee- Provisions of s. 13(1) © and s. 13(2) were not attracted-Property in question was not made available of the use of any person referred to in sub-s.(3) of s. 13 within the meaning of s. 13(2) even if no rent or compensation was charged-Installation of various equipments in the guest house had also not benefited- Equipments were not installed at the personal residence of the specified persons-Assessee entitled for exception under s. 11-A.O. was not justified in adopting a segmented approach and allowing exemption to income from activities in Kerala and denying the exemption for the activities in Tamil nadu

Main activity of assessee was to construct a building to provide space to various institutions engaged in the ‘Habitat’ concept which was subject to approval of Government and A.O. having held that assessee was entitled to exemption under s. 11 after detailed enquiry. CIT was not justified in the facts and circumstances of the case to exercise revisionary jurisdiction on the ground that provisions of s. 13 were violated.

Charitable Trusts-Exemptions-Income of approved staff welfare funds- allowability Validity of Assessee filed return of income for assessment year 200-01 declaring total income as Nil by claiming exemption u/s 11 and 12/10(23AAA)- on scrutiny of Income and Expenditure Statement and Balance sheet, it was notice that assessee had made deposits with financial institutions-A.O. held that, as deposits of amount was not made as specified u/s 11(5), assessee was not entitled to benefit under said provision- Appellate

Commissioner of Income Tax Vs. Fr. Mullers Charitable Institutions(2014) 363 ITR 0230: 28 Taxman 0319 (Karn)

Commissioner of Income Tax Vs. Orpat Charitable Trust (2015) 230 TAXMAN 0066(Gujarat)

Charitable Trusts-Income From Property Held for Charitable or Religious Purposes-Denial of Exemption- Assessee filed it return of income of different assessment years-AOs examined case of Assessee and denied exemption to Assessee on respective amount in connection with deposits made by it in contravention of S. 11(5) read with S. 13(1)-CIT(A) directed A.O. to restrict disallowance of exemption

Liability in special cases- Assessment of trust- maximum marginal rate under s. 164(2), Proviso –As per proviso to s. 154(2) where whole or any part of relevant income of the trust is not exempt under s. 11 or s. 12 because of contravention of s. 13(1)(d), tax is chargeable on such income or part thereof at the maximum marginal rate-only the non-exempt portion of income would fall in the net of tax as if it was the income of an AOP- said proviso categorically refers only to that part of income which has forfeited exemption and not the entire income- This is also clarified by Circular No. 387, dt. 6th July, 1984- Assessee trust was required to dispose of the shares held by it in a company by 31st March, 1993 in view of s. 13(1)(d)(iii)- same not done- Maximum marginal rate will apply only to dividend income and not to entire income.

Commissioner Of Income-Tax Vs. Working Women's Forum (2014)

Charitable Trust-Procedure for registration – Assessee was a trust registered under Section 12 AA and was providing employment to poor women, assisting weaker section of the society for personal development, maintaining destitute homes, rehabilitation of victim of national calamities, etc- Assessee had invested a sum of Rs.20,000 in the share of MIOT Hospital Ltd- AO had passed an order

We would like to state that some portion of the premises was intermittently used for some period and for such usage without prejudice to our contention on the facts, disputes in various judicial forums and our stand therein, Market value of Compensation not charged (inclusive of Rent, Electricity and Water Charges) is worked out as under:

F.Y. 2007-2008 Rs. 31,18,800/- PA

F.Y. 2008-2009 Rs. 34,15,080/- PA

F.Y. 2009-2010 Rs. 37,48,176/- PA

F.Y. 2010-2011 Rs. 41,12,424/- PA

It is submitted that the same should be taxed in the relevant years. 8. Further with regard to usage of 10th floor of MET campus at Bandra by private residence by Bhujbai family and no compensation was paid MET, in this regard it is submitted that we are enclosing the sample copies of requisition form for occupancy of Guest Room which shows that the said guest house was used for the purpose of Trust- activities only. It is further submitted that rip such evidence was found regarding the usage of this guest house by the trustees and allegation were made 'only on the basis of .conjectures and surmises.

Forfeiture of Exemption for use of property by specified persons:

The reply of the assessee is considered and it is concluded that the assessee trust property was used by specified persons defined in Section 13. of the Act. It is also evident from the reply that assessee trust has admitted the fact that the property was used by the specified persons or the concern wherein specified persons are directors. Under the circumstances, Market value of Compensation not charged (inclusive of Rent, Electricity and Water Charges be included in the income of the trust for the year. Further in view of provisions of section 13, exemption availed earlier and available under section 11 is denied for the year under consideration. Therefore as a consequence accumulation under section 11 (l) and,(2) is also not available to the assessee.

5.2. The appellant vide its submission dated 09.02.2022 for AY 2010-11 submitted as under:

"4.2 With regard to the above ground of appeal we would like to brief certain facts which are as under+

 Your appellant has is engaged in providing the education in form of various courses and has

 Further your appellant has rented few areas of its building located at Bandra Reclamation to outside parties from whom Rent and License fees are accounted in the books of accounts and which have been duly offered to tax. The copy of return of income, computation of total income and the copy of Annual accounts are enclosed as Annexure A

 For the year under consideration it was alleged that 8th floor of the said appellant building was occupied by a company namely Ideen Furniture Pvt. Ltd without any consideration.

 Further it was also alleged that 10th Floor of the appellant building was allegedly utilized for the family members of the Trustees.

 With regard to facts of the case, it is submitted that at the outset, appellant trust prima facie does not accept that entire 8th floor has been used by M/s. Ideen Furniture Pvt. Ltd. We would like to state that M/s. Ideen Furniture Pvt. Ltd. was incorporated on 22.5.2006. We state that both the directors of M/s. Ideen Furniture Pvt. Ltd. i.e. Mrs. Shephali S Bhujbal as well as Mrs. Vishakha P Bhujbal were rendering honorary services to Mumbai

 It is pointed out that Income tax returns of Ideen Furniture Pvt. Ltd. for A.Y. 2009-2010 to A.Y. 2011-12 has been filed with address of 8th Floor, MET Building. In such case, it is to clarify that copy of return of Income filed for A.Y. 2008-2009 as well as for A.Y. 2012-13 till A.Y. 2014-2015 are enclosed for your ready perusal. It reflects the address other than MET address and therefore, for said assessment year, it can be inferred that the said M/s. Ideen Furniture Pvt. Ltd. was not occupying the said premises for A.Y. 20092010. Pls refer the Annexure B

 It is submitted that Sales Tax Registration Certificate as well as Service Tax Registration Certificate also reflects the reflects registered office as 5th Floor, Militia Apartments, M. P. Road, Mazgaon Mumbai - 400 010 and not of MET address (copies enclosed). Annexure C

 Further it is submitted that balance sheet of the Ideen Furniture Pvt Ltd also mentions the address other than MET (Appellant Trust). It is further submitted that books of accounts were

 It is submitted that as explained above that M/s. Ideen Furniture Pvt. Ltd. has not occupied 8th Floor for all the above mentioned years. It is submitted that all of the above details we filed before the Ld. AO vide submission dated 15.03.2016 which is enclosed at Annexure E

 Further we would like to state that MET (Appellant Trust) as such is created for granting of education and which is the main activities / objects of the trust. It is submitted that no where it can be held that letting out of property concern where trustees are beneficiaries are not in accordance of the objects of the trust. It is submitted that without prejudice, even assuming that there is utilization of the trust property than in such cases, trust can be made liable for taxation of the such sum which has not been taken from trustees. However, the same cannot be considered as base to held that activities of the trust are neither genuine not carried out as per object of the trust and therefore it cannot be said that appellant trust

 It is submitted that the Ld. AO in the assessment order has merely stated that Appellant’s Trust Property was used by specified persons defined in section 13 of the Act without going in to the facts of the case. It is submitted that the appellant had duly made the submissions discussing the provisions of section 13 of the Act during the course of assessment proceedings and the same were not referred by the Ld. AO while passing the assessment order. Ld AO had abruptly mentioned that trust property was used by specified persons as defined in section 13 of the Income Tax Act, 1961.

4.3 In this regard we would like to reproduce the provisions of section 13(2)(b) of Income Tax Act, 1961 as under:

"(2) Without prejudice to the generality of the provisions of clause (c) inland clause (d)] of sub- section (1), the income or the property11 of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),"

made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation;"

Further we would like to reproduce the provision of section of Section 13 (3) which is as under:

(3) The persons referred to in clause (c) of sub- section (1) and sub-section (2) are the following, namely:

(cc) any trustee of the trust or manager (by whatever name called) of the institution;

4.4 In this regard it is submitted that the applicability of section 13(2)(b) arises when any property of the trust is made available to specified persons exclusively. If the property is made available to everyone irrespective of whether they are specified persons or not, then provisions of section 13(2)(b) of the Income Tax Act, 1961 do not apply. It is submitted that your Appellant has given the premises on rent to other persons other than M/s Ideen Furniture’s Pvt. Ltd as well. In view of the same it is submitted that the provisions of section 13(2)(b) are not applicable to the appellant.

In this regard reliance is place on the following case law:

• George Educational, Medical and Charitable Society Vs. Asst. Director of Income Tax (2002) 80ITD 619 (Coch)

Charitable trust-Exemption under s. 11'-Bar of s. 13(1)(c)-Assessee-society using the residential house of its chairman as a guest-house for accommodating the chairman and governing council members whenever they visited Madras and also other guests- it was not used as exclusive residence of the chairman after it was acquired on lease by the assessee-Provisions of s. 13(1)(c) and s. 13(2) were

• India Habitat Centre Vs. Joint Director of Income Tax (2004) 87 TTJ (Del) 76.

Main activity of assesses was to construct a building to provide space to various institutions engaged in the 'Habitat' concept which was subject to approval of Government and AO having held that assessee was entitled to exemption under s. 11 after detailed enquiry, CIT was not justified in the facts and circumstances of the case to exercise revisionary jurisdiction on the ground that provisions of s. 13 were violated.

4.5 Further without prejudice we would like to state that even if it is presumed that in the case of appellant trust, trustee has used the Property of the trust then in such case, without giving up the right of the trust to dispute on facts, trust would be made liable for Income for the relevant years where there

4.6 We would like to state that some portion of the premises was intermittently used for some period and for such usage without prejudice to our contention on the facts, disputes in various judicial forums and our stand therein, Market value of Compensation not charged (inclusive of Rent, Electricity and Water Charges) is worked out as under:

F.Y. 2007-2008 Rs.31,18,800/- PA

F.Y. 2008-2009 Rs.34,15,080/- PA

F.Y. 2009-2010 Rs.37,48,176/- PA

F.Y. 2010-2011 Rs.41,12,424/- PA

It is submitted that the same was taxed in the relevant years in the relevant assessment orders. The working of the same were submitted during the course of assessment proceedings. Annexure F

4.7 In this regard we would like to state that your appellant does not accept that entire 8th floor has been used by M/s. Ideen Furniture Pvt. Ltd. We would like to state that M/s. Ideen Furniture Pvt. Ltd. is incorporated on 22.5.2006. We state that both the directors of M/s. Ideen Furniture Pvt. Ltd. i.e. Mrs. Shephali S Bhujbal as well as Mrs. Vishakha P Bhujbal were rendering honorary services to Mumbai Education Trust in their Administrative as well as conducting Cultural and Social programs being integral part of Academics of the overall Educational

4.9 It is submitted that without prejudice even if the Appellant has violated the provisions of section 13(2) or 13(3), then the Ld. AO should have tax the defaulted amount at maximum marginal rate without denying the benefit of exemption U/s 11 of the Income Tax Act, 1961. It is submitted that to the extent of violation, the exemption shall be denied and in this regard we are relying on the following case laws:

Director Of Income Tax Vs. Agrim Charan Foundation (2002) 253ITR 0593

Commissioner Of Income Tax Vs. Ksrtc Employees Death -Cumretirement Benefit Fund (2014) 98 DTP 0133 (Karn) : (2014) 225 TAXMAN 113 (Karnataka)

Charitable Trusts-Exemptions-Income of approved staff welfare funds- Allowability-Validity of-Assessee filed return of income for assessment year 200001 declaring total income as Nil by claiming exemption u/s 11 and 12/10(23AAA)- On scrutiny of Income and Expenditure Statement and Balance Sheet, it was noticed that assesses had made deposits with financial institutions-AO was of view that, said Institutions did not purview of s 11(5)-AO held that, as deposits of amount was not made as u/s 11(5), assessee was not entitled to benefit under said provision-Authority held that, violation of s 11(5) is due to mistaken impression of Secretary of Fund- Appellate Authority restricted denial of exemption u/s

Commissioner Of Income Tax Vs. Fr. Mullers Charitable Institutions (2014) 363 ITR 0230 : (2015) 28 TAXMAN 0319 (Karn)

Revision - Revision by commissioner of orders prejudicial to revenue - Assessee Charitable Trust

Commissioner Of Income Tax Vs. Orpat Charitable Trust (2015) 230 TAXMAN 0066 (Gujarat)

Charitable Trusts-Income From Property Held For Charitable Or Religious Purposes-Denial of Exemption-Assessee filed it return of income for different assessment years-AOs examined case of Assessee and denied exemption to Assessee on respective

amounts in connection with deposits made by it in contravention of S. 11 (5) read with S. 13(1)-CIT(A) directed AO to restrict disallowance of exemption

Director Of Income Tax (Exemptions) Vs. Sheth Mafatlal Gagalbhai Foundation Trust (2001) 249 ITR

Director Of Income Tax (Exemptions) Vs. Sheth Mafatlal Gagalbhai

Foundation Trust (2001) 249 ITR 0533

Liability in special cases—Assessment of trust— Maximum marginal rate under s. 164 (2), proviso—As per proviso to s. 164(2) where whole or any part of relevant income of the trust is not exempt under s. 11 or s. 12 because of contravention of s. 13(1)(d), tax is chargeable on such income or part thereof at the maximum marginal rate—Only the non-exempt portion of income would fall in the net of tax as if it was the income of an AOP—Said proviso categorically refers only to that part of income which has forfeited

Commissioner Of Income-Tax Vs. Working Women's Forum (2014) 365 ITR 0353 (Madras)

Charitable Trust —Procedure for Registration— Assessee was a trust registered under section 12AA and was providing employment to poor women, assisting weaker sections of the society for personal development, maintaining destitute homes, rehabilitation of victim of national calamities, etc — Assessee had invested a sum of Rs.20,000 in the share of MIOT Hospitals Ltd — AO had passed an order denying the exemption u/s 11 and 12 on ground that Since section 13(1)(d) recognizes investment only in specified assets, Failure to invest in such specified business would disentitle the assessee for exemption— CIT(A) had allowed the assessee's appeals that the entirety of the income of the assessee could not be denied of exemption — On appeal Referring to the decision of the Bombay High Court in DIT (Exemptions) v. Sheth Mafatlal Gagalbhai Foundation Trust ,the Tribunal had rejected the Revenue's appeals — Held, in (Exemptions) v. Sheth Mafatlal Gagalbhai Foundation Trust ,it was held by Bombay High Court that violation of section

4.10 Further it is submitted that during the course of inspection ordered by the Hon'ble Charity Commissioner at the appellant trust premises. It was found out that the 8th and 10th floor is vacant and not occupied by anyone and same has been specifically mentioned in the inspection report issued by the Hon'ble Charity Commissioner dated 11.04.2012. Annexure H. The said inspection report is in Marathi Language and the same is translated in English for better understanding enclosed at Annexure I. It is submitted that in such report of Hon'ble Charity Commissioner has stated that the 8th floor and 10th Floors were not occupied by anyone.

4.11 It is submitted that the appellant trust has been continuously working towards achieving the objectives of trust and not to provide individual benefit to the specified persons or a particular section

"charitablepurpose" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—

4.12 From the above definitions and discussions it can substantiated that the objects of the Trust are the charitable object as the assesse trust is engaged

4.13 We further place reliance in the case of IILM Foundation Vs Asst. Director of Income Tax (Exemption) (ITAT Delhi) (ITA No.1142/DEU2011 Date of order 24/12/2020) where it was held that where there was violation o f the provision o f section 13, the entire exemption under section 11 would not be denied instead expenditure which could not be treated as application of income and in violation under section 13, same should alone be disallowed.

4.14 Also in case of Span Foundation vs. ITO Delhi HC 178 Taxman 436 held that in case of alleged violation u/s. 13, benefit under section 11 would not be available only to this extent of application of income of property for the benefit of person referred to in section 13(3)

4.15 Conclusion

In view of the above facts, case laws and clarifications, it is prayed that since trust is carrying out the activities as per the Objects of the trust and

5.2.1 The appellant vide its submission dated 04.05.2022 for AY 2010-11 submitted as under:

"With reference to the above, we would like to submit additional submission w.r.t submission dated 09/02/2022 under Ground No. 3, as under:

Before the assessee is charged and held liable on the ground of utilising the trust property for the persons specified in section 13(3) of Income Tax Act and further holding the same as its violation and withdrawing the exemption under section 11 –

It is pertinent to note that Mr. Sun// Karve ,£x Trustee of the Mumbai Educational Trust (hereinafter referred to as the "said trust" for the sake of brevity) who had been ceased to be a trustee on 27.02.2012, had filed a bogus, baseless, vexatious and false case in the year 2012 against the said trust and other trustees of the said trust before the Hon'ble Charity Commissioner, Maharashtra State at Mumbai, thereby alleging misuse of trust property premises situate at 8th floor of said trust building by the trustees for the purpose and for the benefit of M/s Ideen Furniture and have further alleged that the same has resulted

It is necessary to consider that 8th Floor premises of the said trust building was absolutely vacant and unused till 2007, rather the same could not have been used or let out for commercial purpose. The said ex trustee was in day to day management and in charge of affairs and administration of trust and its properties, who himself suggested and encouraged the other trustees to use the said 8th floor premises temporarily for M/s Ideen Furniture as Godown till it is put in use for educational purpose. Relying upon and having a full faith in said ex trustee, the said trust allowed M/s Ideen to use the said 8th floor premises. Accordingly, at some portion few material was stored and some employees were using the said premises. M/s Ideen was using some portion of one wing of 8th floor which was unused by the said trust. For some period M/s Ideen had occupied the said premises and as soon as M/s Ideen had come to know that the said trust required the said premises for its educational purpose, the said M/s Ideen had vacated the said 8th floor premises prior to February, 2012. The said ex trustee keeping and having grudge in mind towards other trustees and to usurp the said trust and its properties had filed a false case against the said trust before Charity Commissioner,

The said trust while defending the said cases filed by ex-trustee have candidly and honestly made submission before Charity Commissioner, Mumbai, as to use of some portion of 8th floor premises for some period by M/s Ideen furniture and have further submitted all evidences and proofs to substantiate and justify that the act to permit M/s Ideen was never intentional and or deliberate to cause any losses to the said trust and or to make any personal gains or benefit. The said trust has also represented that said trust did not yield any kind of income or rent nor any trustees of the said trust made any personal gains our of such use. In fact at relevant period said trust was not allowed and permitted to let out the said 8th floor premises to any one and could not charge any rent from it and therefore, question of causing any losses to trust or making personal income which could not be accounted for objects of trust does not arises at all.

The said trust has also represent that M/s Ideen was always ready to compensate the said trust, if at all the said trust was losing its income but the said trust was not in a position to let out the same and yield any income therefrom which can be utilized for the objects of the said trust. The said trust has also

It is to be noted that that while defending the said cases filed against the trust before the Charity Commissioner, Mumbai, the said trust has candidly and honestly made admissions and submissions as to use of 8th floor premises by M/s Ideen since the said trust and its trustees had never any ill motive and or intention to appropriate the same for personal gains and or benefits and the said 8th floor was vacated immediately on the requirement of the said trust to utilise the same for educational purpose. During the inquiry of the said cases against trust and trustees, in the month of April, 2012, the Charity Commissioner had also make inspection of the said 8th floor through its appointed officer, upon which the said officer found that the 8th floor had already been put to use by said trust for educational purpose and the construction of class room was in progress at the relevant time.

It is pertinent to note that after long battle of 10 years the said cases filed against the said trust have been concluded and decided by Order dated 30.03.2022 passed by the Hon'ble Charity Commissioner, Mumbai, by which the issues of

While passing the said order the Ld. Charity Commissioner, Mumbai, has disapproved the allegation of misuse of 8th floor premises and further held in order that the same was not malafide and ill motive. The Ld. Charity Commissioner, Mumbai, have also disapproved the allegation that the trustees have improperly dealt with the trust properties causing loss to the said trust and thereby benefiting gain to themselves and their family members. The Ld.

Charity Commissioner, Mumbai, have also disapproved the allegation that the said 8th floor premises and the said trust could have yield and or achieve rent by letting out for same for commercial use on rent.

In the light of observations, inferences and conclusions drawn by the Ld. Charity Mumbai, while deciding the issues related to misuse of 8th floor premises of baking t is proved and established that at no point of time the said trust could any rent from the said premises which could have been utilised for the said tartherproved and established that the act of the said trust permitting M/s Ideen to occupy the 8th floor premises for some period and to some extent was not dishonest and coupled with ill motive to derive personal gains.

The assess is aware that various representations have been made before this authority (IT authority) on behalf of the said trust wherein the said trust has consistently taken up stand that 8th Floor premises was occupied by M/s Ideen for some period and to some extent, however, the stand maintained by the assess was in line with the candid and honest disclosure by the assess before the Ld. Charity Commissioner, Mumbai, as to incidences which had taken places in respect of the said trust which were non deliberate on the part of the said trust and in view of the said stand and admissions the Assess has been charged with levy by computing the notional rent in respect of 8th floor premises of the said trust, which is assumed that it could have been yield by the

Further the appellant has also submitted the copy of order of Joint Charity Commissioner, Greater Mumbai, Region, Mumbai dated 30.03.2022 (Page 1 to 193)

5.3 The reassessment order, submissions made by the appellant and various judicial pronouncements relied upon by the appellant and the assessing officer in the assessment order have been carefully considered. The A.O. has given a finding that the concern wherein specified persons are directors i.e.

5.3.1 The appellant has made various contentions vide submissions dated 09.02.2022 and 04.05.2022. The submissions of the appellant can be categorized into following contentions.

1) The appellant prima facie does not accept that entire 8th floor has been used by M/s. Ideen Furniture Pvt. Ltd. Both the directors of M/s. Ideen Furniture Pvt. Ltd. Mrs. Vishaka P. Bhujbal and Mrs. Shefali S. Bhujbal were rendering honorary services to the M.E.T in its administrative work as well as they were conducting cultural & social programs for the students of M.E.T.

2) The returns of income of M/s Ideen Furniture Pvt. Ltd. for AY 2008-09 as well as for AY 2012-13 till AY 2014-15 have been filed with the address other than MET address. Further Sales Tax Registration Certificate as well as Service Tax Registration Certificate of M/s. Ideen Furniture Pvt. Ltd. reflect the

4) The applicability of Section 13(2)(b) arises when any property of the trust is made available to specified persons exclusively. If the property is made available to everyone irrespective of whether they are specified persons or not, then provisions of Section 13(2)(b) of the Act do not apply. It has given the premises on rent to other other than M/s Ideen Furnitures Pvt Ltd as well, in view of the same the provisions of section 13(2)(b) are not applicable to the appellant. In this regard appellant has placed reliance on two case laws:-

(i) George Educational, Medical and Charitable society vs DIT(2002) 80 ITD 619(Cochin)

(ii) India Habitat Centre vs Joint Director of I.T.(2004)87 TTJ76(Delhi)

5) The Ld. A.O. in the assessment order has merely stated that the Trust property was used by the specified persons defined in Section 13 of the Act without going in to the facts of the case. The AO had abruptly

5.3.2 The appellant vide submission dated 04.05.2022 made additional submission which gives the background of the legal cases of M.E.T. which were filed before the Hon'ble Charity Commissioner, Maharashtra State at Mumbai in the year 2012 by the ex-trustee of the MET Shri Sunil Karve. The applicant Sh. Sunil Karve alleged before the Charity Commissioner that misuse of the Trust property by the four trustees resulting in the losses to the trust. The respondent Trust and its four trustees have defended the charges before the Joint Charity Commissioner, Mumbai. The appellant has also submitted the copy of the order of Joint Charity Commissioner dated 30.03.2022. The appellant has made further contention which is as under :-

"the Hon'ble Charity Commissioner, Mumbai, after appreciation and consideration of all material, proofs and evidences submitted by the said trust, having detail inquiry as to facts and circumstances, has settled the said issue and the said trust's act allowing M/s Ideen to occupy 8th floor premises of the said trust is decided and declared as non-deliberate act and further held that the said trust has not improperly dealt with the said premises by allowing M/s Ideen, which consist of family members of trustees of the said trust and therefore, even for the purpose of the present

5.3.3 Without prejudice to the above contentions, even if the appellant has violated the provisions of Section 13(2) or 13(3), then the A.O. should have taxed the defaulted amount at the maximum marginal rate without denying the benefit of

exemption u/s. 11 of the Act. The appellant has relied on the following case laws in this regard:

(i) Director of Income Tax Vs. Agrim Charan Foundation (2002) 253 ITR 0593

(ii) Commissioner Of Income Tax Vs. Ksrtc Employees Death –Cum retirement Benefit Fund (2014) 98 DTR 0133 (Karn): (2014) 225 TAXMAN 113 (Karnataka)

(iii) Commissioner of Income Tax Vs. Fr. Mullers Charitable Institutions (2014) 363 ITR 0230 : (2015) 28 TAXMAN 0319 (Karn)

(iv) Commissioner of Income Tax Vs. Orpat Charitable Trust (2015) 230 TAXMAN 0066 (Gujarat)

(vi) Commissioner of Income-Tax Vs. Working Women's Forum (2014) 365 ITR 0353 (Madras)

(vii) IILM Foundation Vs Asst. Director of Income Tax (Exemption) (ITAT Delhi) (ITA No. 1142/DEL/2011 Date of order 24/12/2020)

(viii) Span Foundation vs. ITO Delhi HC 178 Taxman 436

5.3.4 Before proceeding further the admissibility of additional submission/evidence dated 04.05.2022 requires to be adjudicated. The additional submission points to the fact that The ex-trustee Shri Sunil Karve filed various draft charges along with evidences in the proceeding No.4 of 2012 under section 41D of the Maharashtra Public Trust Act, 1950 before the Charity Commissioner, Maharashtra. The information and evidence received by the A.O. in the form of various documents like sub-metered bill, telephone bill, copy of return of income for AY 2009-10 and AY 2010-11 of M/s. Ideen Furniture Pvt. Ltd. is identical to the documents/evidences furnished before the Hon'ble Charity Commissioner, Maharashtra. This fact makes it abundantly clear that the reasons for reopening of assessments for AY 2008-09 to AY 2011-12 originate from the evidences furnished before the Charity Commissioner, Maharashtra. After a long legal battle of 10 years the said cases filed against the trust have been concluded and decided by the Joint Charity Commissioner, Greater Mumbai Region, Mumbai vide

5.3.4.1 The Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. Vs. CIT I87 ITR 688 (S.C) has observed and held as under:

"The Act does not contain any express provision debarring an assessee from raising an additional ground in appeal and there is no provision in the Act placing restriction on the power of the appellate authority in entertaining an additional ground in appeal. In the absence of any statutory provision, the general principle relating to the amplitude of appellate authority's power being co-terminus with that of the initial authority should normally be applicable. If the tax liability of the assessee is admitted and if the ITO is afforded opportunity of hearing by the appellate authority in allowing the assessee's claim for deduction on the settled view of law, there appears to be no good reason to curtail the powers of the appellate authority under section 251(1) (a). Even otherwise an appellate authority while hearing appeal against the order of subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence

5.3.4.2 Hon'ble Karnataka High Court in the case of Shri Shankar Khandasari Sugar Mills vs. CIT 193 ITR 669(Karnataka) has observed as under:

"The revenue must act fairly in the matter of assessment as much as it is interested in collecting the tax. In the absence of any prejudice to the revenue, and since the basis of tax under the Act is to levy tax, as far as possible, on the real income, the approach should be to be liberal in applying the

5.3.4.3 Hon'ble Bombay High Court in the case of Smt. Prabhavati S. Shah vs. CIT 231 ITR 1 (Bombay) has observed as under:

"On a plain reading of rule 46A, it is clear that the same is intended to put fetters on the right of the appellant to produce before the AAC any evidence, whether oral or documentary, other than the evidence produced by him during the course of the proceedings before the 1 TO except in the circumstances set out therein. It does not deal with the powers of the AAC to make further enquiry and to report the result of the same to him. This position has been made clear by sub-rule (4) which specifically provides that the restrictions placed on the production of additional evidence by the appellant would not affect the powers of the AAC to call for the production of any document or the examination of any witness to enable him to dispose of the appeal.

Further, under sub-section (4) of section 250 of the Act, the AAC is empowered to make such further inquiry as he thinks fit or to direct the ITO to make further inquiry and to report the matter to him.

It is, thus, clear that the powers of the AAC are much wider than the powers of an ordinary court of appeal. The scope of his powers is coterminous with that of

In other words, the message from Bombay High Court is that if prima facie an information/evidence is necessary to be examine the claim of the assessee, the CIT(A) should consider the necessary evidence in exercise of power u/s 250(4). It is pertinent to note here that in the present case the appellant has not raised any additional ground but has only submitted additional submission/evidence in form of the order of Joint Charity Commissioner, Mumbai dated 30.03.2022. The said order is very recent and passed after the completion of reassessment proceedings therefore it was not possible for the appellant to produce the same before the A.O. In such circumstances and as per the ratio laid down at 187 ITR 688 (SC) in the case of Jute Corporation of India Ltd. the additional evidence in the form of order of Joint Charity Commissioner Mumbai dated 30.03.2022 is hereby admitted in exercise of power u/s 250(4).

"Thus from the documents and submissions of the applicant it has proved that Ideen Furniture Pvt. Ltd. was occupying the 8th floor of the Trust premises, which has also admitted by the respondent trustees. However, the exact period of the occupation could not be established as the applicant has submitted his application at Exh. 1 para No. 18 that in 2006 the 8th floor was occupied by the Ideen Furniture. The applicant relied upon the statements of the staff of Ideen Furniture given to ACB where they have stated that the commercial unit was occupying 8th floor since 2005. Thereafter in his correspondence he has shown that till 2012 he was demanding the 8th floor be vacated. The applicant submitted that the telephone numbers 2226440030 & 2226440032 were used by Ideen Furniture at 8th floor. He has also relied on MTNL Bills at page No. 163, 165 & 167. He has also relied on photo copy of picture taken of Google page which is filed at page No. 169 to 174. However, on perusal of MTNL Bill it shows the address of Ideen Furniture Pvt. Ltd. 8th floor dated 1/2/2012,

The draft charges 9, 10 and 11 are as under:-

"In order to deal with the present charges this authority perused page No. 309 of the compilation referred and relied by the applicant in his submission that the 10th floor was used by the respondents for their residence purpose. The document at page No. 309 is a voucher. The signature could not be located. However, from the voucher at Part 1, Exh.34 to 39, Page 309 that vouchers signature is certainly not of the respondents. The voucher particular states that "being amount paid to Nikita for purchase fabric 10th floor sopha and chairs Sixteen Thousands Sixty only". The amount is also stated in figure as 16060/-. Nowhere the voucher reveals that it is for residence purpose of the respondents neither the same is signed by the respondents. The particulars also cannot be assume/presume to be for residential purpose only. The voucher at page A/o.340 as stated hereinabove reads "Samirbhaucha pentla bakkal lavale Rs.20". The entire voucher do not reflects any residence or Trust or any institute. The signature is of M. R. Gurav and one more signature which could not be tress out. However, this voucher cannot be said to be related to the respondents only. Mere the name written Sameer does not related to the respondent No.4 only. The voucher referring 10th floor cannot be said as trust premises only. Voucher at page No. 316 is from the chemist or medical store. Patient name is written Chhagan Bhujbal, Dr. name H. O. Lilavati. No signature on the voucher could be tress out, name of

5.3.5 Now the various contentions of the appellant as enumerated in para 5.3.1 and para 5.3.2 above are being taken-up for discussion and deliberations in the subsequent paras.

5.3.5.1 The first contention of the appellant is that the entire 8th floor has not been used by M/s. Ideen Furniture Pvt. Ltd. and both the directors of M/s. Ideen Furniture Pvt. Ltd. i.e. Mrs. Vishakha P. Bhujbal and Mrs. Shefali S. Bhujbal were rendering honorary services to the Mumbai Educational Trust in its administrative work as well as conducting Cultural and Social programs for the students of Mumbai Educational Trust. In this contention the appellant is trying to indicate that the thrust was receiving honorary services from both the directors of M/s. Ideen Furniture Pvt. Ltd. and in lieu of their services the MET had allowed the portion of 8th floor to be

5.3.5.2 The second contention of the appellant is that the returns of income of M/s Ideen Furniture Pvt. Ltd. for AY 2008-09 as well as for AY 2012-13 till AY 2014-15 have been filed with the address other than MET address. Further the Sales Tax Registration Certificate and Service Tax Registration Certificate of M/s Ideen Furniture Pvt. Ltd. reflects the address as 5th floor, Militia Apartments, M.P. Road, Mazgaon, Mumbai and not MET. Furthermore the books of a/c of M/s Ideen Furniture Pvt. Ltd. were maintained at

5.3.5.3. The third contention of the appellant is with regard to the usage of 10th floor of MET campus at Bandra by the family of the Trustees as their private residence without paying any compensation to the trust. The appellant submitted that the 10th floor of MET building was used as guest house for the faculty and sample copies of requisition slips were furnished during the course of re-assessment proceedings.

5.3.5.4 The fourth contention of the appellant is that the applicability of section 13(2)(b) arises when any property of the trust is made available to specified persons exclusively. If the property is made available to everyone irrespective of whether they are specified persons or not, then provisions of section 13(2)(b) of the act do not apply. The appellant further submitted that it has given the premises on rent to other persons other than M/s Ideen Furnitures Pvt Ltd as well, in view of the same the provisions of section

(i) George Educational, Medical and Charitable society vs DIT(2002) 80 ITD 619(Cochin)

(ii) India Habitat Centre vs Joint Director of I.T.(2004)87 TTJ76(Delhi)

This contention of the appellant has been considered carefully and found to be not acceptable due to the peculiar facts of the case. In this case the specified person M/s Ideen Furniture Pvt. Ltd. falling under Section 13(3)(e) has occupied the Trust property on 8th Floor, MET Building without paying adequate rent or other compensation. The appellant Trust has given the premises on other floors of MET Building for which the Trust is charging monthly lease rental whereas the Trust is not charging any rent or compensation from the specified person M/s Ideen Furnitures Pvt Ltd. In view of the fact that the Trust is not charging any rent from the specified person the provisions of section 13(2)(b) get attracted in this case. The reliance on the case laws i.e. George Educational, Medical and Charitable society vs DIT(2002) 80 ITD 619(Cochin) and India Habitat Centre vs Joint Director of I.T.(2004)87 TTJ76(Delhi) is misplaced as the facts of the present case are distinguishable from the facts of the cases relied upon by the appellant.

In view of the above discussion, this contention of the appellant is not acceptable.

5.3.5.6 The next contention of the appellant is that the Hon'ble Charity Commissioner, Mumbai, after appreciation and consideration of all material, proofs and evidences submitted by the said trust, having detailed inquiry as to the facts and circumstances, has settled the said issue and the said trust's act allowing M/s Ideen Furniture Pvt. Ltd. to occupy 8th floor premises of the said trust is decided and declared as non-deliberate act and further held that the said trust has not improperly dealt with the said premises by allowing M/s Ideen Furniture Pvt. Ltd.,

"Therefore, though it is admitted by the respondents that the 8th floor of trust premises was occupied by the commercial unit run by the family members of the respondents without compensating the trust. However, the ill- motive of the respondents for grabbing the trust property or putting the trust in the financial loss could not be established. From the

……………

"The punishment of either suspension, removal of dismissal, as the case may be, has to be proportionate to the gravity of the charge/charges held to be proved. It is not the every lapse or every act of misconduct, which invites the punishment of dismissal. The Charity Commissioner is, therefore, bound to record reasons for imposing a particular punishment. For taking a drastic action of removal, suspension and dismissal of a person from the post of trustee, a very high degree of proof is required and the person seeking removal has to prove that the irregularities within the scope of section 41D(1) of the Bombay Public Trusts Act are beyond any manner of doubt. In the present case the default / deviation by the trustees as admitted by the respondent trustees is used of 8th floor of the Trust premises at

………..

"Secondly it is also incumbent to see that whether such acts and omission could be rectified and attempt should be first made to resort to the same. Thus from the provisions of the MPT Act, from various guidelines given in the case laws referred hereinabove, circular of the Hon'ble Charity Commissioner it is clear the act or omission on the part of the trustees should be with dishonest intention and if the same could be rectified such opportunity be given to the trustees. Every lapse or every act of misconduct shall not invite punishment or dismissal. Therefore charge No. 1 stands disapproved."

From the above findings of the Jt. Charity Commissioner it becomes crystal clear that M/s. Ideen Furniture Pvt. Ltd. was using one wing of 8th floor of the trust premises without compensating the

5.3.5.7 In view of the above discussion and deliberations with regard to the main contentions of the appellant, it is held that the appellant Trust has not charged any compensation from the commercial unit, run by the family members of the trustees, which occupied one wing of 8th floor of MET Building. Therefore, the assessing officer's finding regarding inclusion of market value of compensation not charged (inclusive of rent, electricity and water charges) is held to be correct as per the facts of the case. The commercial unit M/s. Ideen Furniture Pvt. Ltd. is a person specified u/s. 13(3)(e) which has not paid any lease rental or compensation for use of the portion of trust property which tantamounts to violation of the provisions of Section 13(1)(c)of the l.T. Act, 1961.

5.3.6 Without prejudice to the main contentions made above, the appellant has alternatively submitted that even assuming there was a violation of Section 13(2) or 13(3) then entire exemption under Section 11 and

(i) Director of Income Tax Vs. Agrim Charan Foundation (2002) 253 ITR 0593

(ii) Commissioner Of Income Tax Vs. Ksrtc Employees Death –Cum retirement Benefit Fund (2014) 98 DTR 0133 (Karn): (2014) 225 TAXMAN 113 (Karnataka)

(iii) Commissioner of Income Tax Vs. Fr. Mullers Charitable Institutions (2014) 363 ITR 0230 : (2015) 28 TAXMAN 0319 (Karn)

(iv) Commissioner of Income Tax Vs. Orpat Charitable Trust (2015) 230 TAXMAN 0066 (Gujarat)

(v) Director of Income Tax (Exemptions) Vs. Sheth Mafatlal Gagalbhai Foundation Trust (2001) 249 ITR 0533

(vi) Commissioner of Income-Tax Vs. Working Women's Forum (2014) 365 ITR 0353 (Madras)

(vii) IILM Foundation Vs Asst. Director of Income Tax (Exemption) (ITAT Delhi) (ITA N0.1142/DEL/2011 Date of order 24/12/2020)

5.3.6.1 The alternative contention of the appellant that even if the provisions of section 13 have been violated by the appellant, the assessing officer should have taxed the defaulted amount at Maximum Marginal Rate without denying the benefit of exemption u/s. 11 of the Act, has been considered and various aspects are discussed in the subsequent paras.

5.3.6.2 Section 13 spells out certain circumstances in which the exemption provided under section 11/ 12 is not applicable. Further, Section 164(2) and 164(3) which reads as under:-

"[(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 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)

(3) In a case where the relevant income is derived from property held under trust in part only for charitable or religious purposes or is of the nature referred to in sub-clause (iia) of clause (24) of section 2 or is of the nature referred to in sub-section (4A) of section 11, and either the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are indeterminate or unknown, the tax chargeable on the relevant income shall be the aggregate of—

(a) the tax which would be chargeable on that part of the relevant income which is applicable to charitable or religious purposes (as reduced by the income, if any, which is exempt under section 11) as if such part (or such part as so reduced) were the total income of an association of persons; and

(b) the tax on that part of the relevant income which is applicable to purposes other than charitable or religious purposes, and which is

5.3.6.3 The aforesaid sections provide that income of trust will be taxable at 'maximum marginal rate of tax' on following event:

i. If any fund of the organization has been invested or deposited, for any part of the year, as per section 13(1 )(d) read with section 11 (5) of the Act;

ii. If any part of income has been applied directly or indirectly for the benefit of any of the excluded persons under section 13(1)(c) r.w.s. 13(3) of the Act.

However, the section categorically provides that tax shall be charged on the 'relevant income' or 'part of relevant income' which has forfeited exemption at the maximum marginal rate.

5.3.6.4 Thus, on a conjoint reading of section 13(1) and section 164 of the Act, it can be seen that taxability of the income of an organization forfeiting exemption under section 13(1)(c) or 13(1)(d), shall be charged at maximum marginal rates of tax only on that part of income which has forfeited exemption. Thus, where the trust contravenes the provisions of section 13(1)(c) or (d) of the Act, the maximum marginal rate will apply only to that part of the income which has forfeited exemption.

5.3.6.6 The appellant has relied upon catena of judicial pronouncements where in the courts have upheld the proposition that in case of any alleged violation u/s. 13, the benefit of Section 11 would not be available to the extent of quantum of undue benefit to the specified person as per Section 13(3) and the entire exemption cannot be forfeited/denied.

5.3.6.7 Recently Hon'ble ITAT Jaipur Bench has dealt the issue in detail in the case of Deputy Commissioner of Income-tax (Exemptions) Circle Jaipur v. Central Academy Jodhpur Education Society [2020] 119 taxmann.com 355 (Jaipur - Trib.) dated 09.09.2020. The relevant portion of the decision is reproduced below:-

"Now the question before us for consideration is that if there is a violation u/s 13 of the Act then the entire surplus is to be charged to tax or only a part of income which is not exempt u/s 11 by virtue of

2.12 In order to decide this controversy, considering the facts of the present case, it is relevant to consider section 164 of the Act which deals with charge of tax and where the share of beneficiary is unknown. Section 164(2) of the Act deals with the charge of tax on the income of the trust which is derived by it from the property held wholly for charitable or religious purposes. The proviso to this section which is relevant for deciding the present case reads as under-

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 section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate".

From the plain reading of this proviso, it is evident that where the whole or any part of the relevant income is not exempt u/s 11 or 12 because of the provisions of the section 13(1)(c) or 13(1)(d), tax is chargeable on the relevant income or part of the relevant income at the maximum marginal rate (MMR). Therefore, in case there is violation of sec. 13 of the Act then the entire income of the trust is not liable to tax at MMR, but only the relevant part of the income which violates sec. 13 attracts the MMR. In

(1) DCIT v. Working Women's Forum [2015] 235 Taxman 516 (SC) :~Assessee was a trust registered under section 12AA and was providing employment to poor women, assisting weaker sections of the society for personal development, maintaining destitute homes, rehabilitation of victim of national calamities, etc. It invested a sum of Rs. 20,000 in the share of MIOT Hospitals Ltd. AO denied the exemption u/s 11 and 12 on ground that since section 13(1)(d) recognizes investment only in specified assets, failure to invest in such specified business would disentitle the assessee for exemption. CIT(A) allowed the assessee's appeals that the entirety of the income of the assessee could not be denied of exemption. On appeal, referring to the decision of the Bombay High Court in DIT (Exemptions) v. Sheth Mafatlal Gagalbhai Foundation Trust, the Tribunal rejected the Revenue's appeals. High Court held that in DIT (Exemptions) v. Sheth Mafatlal GagalbhaiFoundation Trust, it was held

(2) CIT v. Fr. Mullers Charitable Institutions [2014] 227 Taxman 369 (SC) :-High Court by impugned order held that in case of charitable trust, it is only income from investment or deposit which had been made in violation of section 11(5) that was liable to be taxed and that violation u/s 13(1)(d) does not tantamount to denial of exemption u/s 11 on total income of assessee trust. Special leave petition filed against impugned order was to be dismissed

(3) CIT v. Fr. Mullers Charitable Institutions [2014] 363 ITR 230 (Kar.) (HC). In this case the facts as narrated in para 8 of the order reads as under-

On these facts the Hon'ble High Court in para 11 held as under-

"With regard to second and third substantial questions of law are concerned, reading of section 13(l)(d) of the Act makes it clear that it is only the income from such investment or deposit which has been made in violation of Section 11 (5) of the Act that is liable to be taxed and that violation under section 13(l)(d) does not tantamount to denial of exemption under section 11 on the total income of the assessee. An identical question came before the Bombay High Court in the case reported in

Sec. 164(2) refers to the relevant income which is derived from property held under trust wholly for charitable or religious purposes. If such income consists of severable portions, exempt as well as taxable, the portion which is exempt is to be left out and the portion which is not exempt is charged to tax as if it is the income of an AOP. Therefore, a proviso was inserted by the Finance Act, 1984 w.e.f 1st April 1985, under which in cases where the whole or any part of the relevant income is not exempt under s. 11 or s. 12 because of the contravention of s.13 (l)(d), the 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 fail in the net of tax as if it was the income of an AOP. The phrase 'relevant income or part of the relevant income' in the proviso is required to be

A similar view has been taken by the Delhi High Court in a judgment reported in [2002] 253 ITR 593 (supra).Reading of the proviso to Section 142 is very clear that the legislature has clearly contemplated that in a case, where the whole or part of the relevant income is not exempted under section 11 by virtue of violation of Section 13(1)(d) of the Act, tax shall be levied on the relevant income or a part of the relevant income at the maximum marginal rate. The said analogy is applicable to the facts of the present case".

(4) CIT v. Orpat Charitable Trust [2015] 230 Taxman 66 (Guj.) (HC) :-Assessee filed it return of income for different assessment years. AOs examined the case of assessee and denied exemption to assessee on respective amounts in connection with deposits made by it in contravention of sec.11(5) read with sec.13(1). CIT(A) directed AO to restrict disallowance of exemption u/s11 in respect of deposits in contravention of sec. 11 (5) r.w.s. 13(1)(d) as against denial of exemption on entire income by AO. ITAT upheld the order of

(5) DIT(E) v. Sheth Mafatlal Gagalbhai Foundation Trust 249 ITR 533 (Bom.) (HC) :-ln

"Sec. 164 does not create a charge on the income of a discretionary trust. The word 'charge' in s. 164 means 'levy'. Sec. 164(2) refers to the relevant income which is derived from property held under trust wholly for charitable or religious purposes If such income consists of severable portions, exempt as well as taxable, the portion which is exempt is to be left out and the portion which is not exempt is charged to tax as if it is the income of an AOP. Therefore, a proviso was inserted by the Finance Act, 1984 w.e.f. 1st April, 1985, under which in cases where the whole or any part of the relevant income is not exempt under s. 11 or s. 12 because of the contravention of s. 13(1)(d), then the 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 it was the income of an AOP. Sec. 11(5) lays down various modes or forms in which a trust is required to deploy its funds. Sec. 13(1) lays down cases in which s. 11 shall not apply. Under s. 13(1)(d)(iii), it has been laid down that any share in a company, not being a Government company, held by the trust after 30th Nov., 1983, shall result in forfeiture of exemption. By virtue of the proviso (Ha) it has been laid down that any asset which

(6) DCIT v. Mahatma Gandhi Charitable Society for Education & Research [ITA No. 359/JP/19 dt. 23-1-2020] (Jaipur) (Trib.) -Hon'ble ITAT in Para 3.4.1 held as under

3.4.1 Similarly, we are also of the view that the even if it is held that assessee has violated the provisions of section 13 of the Act, even then the exemption u/s 11 or 12 of the Act cannot be denied nor the surplus as such can be charged to tax at Maximum Marginal Rate. Even

(7) Global Institute of Technology Society v DCIT(E) [ITA No. 1066/JP/2018order dt. 5-11- 2018] (Jaipur) (Trib.) :-The Hon'ble ITAT held

(8) Rajkala Charitable Trust v. ACIT [ITA No. 140/JP/15 dt. 28-4-2016] (Jaipur) (Trib.) In this case it was held that where there is violation of section 13, the entire income of the trust is not chargeable to tax at maximum marginal rate and it is only that income which has violated section 13 which shall suffer maximum marginal rate as per proviso to section 164(2) of the Act. Further, the appellant has submitted that the amount of Rs. 20,00,000/- with interest of Rs. 2,16,000/- ie. Rs. 22,16,000/- was received back by the trust and the interest income of Rs. 2,16,000/- was offered in the return for AY 2012-13 and there is no income generated on amount of Rs. 20 lacs advanced to M/s Rajakala Industries Limited during the year. There is nothing on record to controvert the said submissions of the appellant. Thus, there is no income during the

5.3.6.8 More recently Hon'ble ITAT Chennai Bench has dealt the issue in detail in the of Jaya Educational Trust v. Deputy Commissioner of Income-tax, Central e-1(2), Chennai [2021] 130 taxmann.com 225 (Chennai - Trib.) dated 16.07.2021. The relevant issue has been adjudicated in para 14 of the decision which is reproduced below:

"14. The provisions of section 13(1)(c) imposed certain restriction on utilization of income of the trust which claims exemption u/s 11 of the Act. As per clause (c) of sub.sec (1) of section 13, if any part of income or any property of the trust or the institution, is used or applied directly or indirectly for the benefit of any person referred in sub. Section (3), then the trust is not entitled to exemption u/s 11 of the Income-tax Act, 1961. The specified persons has been referred to u/s 13(3) of the Act, and as per said

5.3.6.9 In view of the legal precedents relied upon by the appellant and the judicial pronouncements in the cases of Central Academy Jodhpur Education Society (supra) and Jaya Educational Trust (supra) it becomes abundantly clear that the courts/tribunals have upheld the proposition that in case of any alleged violation u/s. 13, the benefit of Section 11/12 would not be available to the extent of quantum of benefit to the specified person as per section 13(3) and the entire exemption cannot be forfeited/denied. Thus it is held that in the event of any violation of provisions of Section 13, the entire exemption u/s. 11 cannot be denied and would be restricted to the extent of benefit given to the specified persons by the appellant Trust. Therefore. the assessing officer was not justified in completely denying the exemption u/s.

5.3.6.10 Importantly, the Assessing Officer in none of the subsequent years i.e. AY 2013-14 to AY 2017-18, has denied the entire exemption claimed u/s 11 by the appellant. In fact, in the subsequent years, the Assessing Officer has added the Notional House Property Income and has allowed the exemption u/s 11. The relevant portion of assessment order of AY 2014-15 is reproduced below:

"In this regard, vide order sheet noting dated 06/12/2016, assessee was asked to submit the details regarding space used by Ideen Furniture and the rent details. Assessee vide letter dated 15/12/2016 has submitted a two line reply, has stated that Mumbai Education Trust has not given any space on lease/rent to M/s. Ideen Furniture during the FY 2013-14, A. Y. 2014-15. Assessee's two line reply is considered but cannot be accepted because of the fact that has been established in assessment orders of A. Y. 2009-10, 2010-11 and 2011-12. Assessee has not produced anything to the contrary of this fact. Income is computed accordingly.

F.Y. 2007-08 ₹31,18,800/- F.Y. 2008-09 ₹34,15,080/- F.Y. 2009-10 ₹37,48,176/- F.Y. 2010-11 ₹41,12,424/- F.Y. 2011-12 ₹45,23,666/- F.Y. 2012-13 ₹49,76,032/- F.Y. 2013-14 ₹54,73,635/-

Mumbai Education Trust Computation of Income Income from other sources 823207434 Income from Notional 5473635 House Property Add: Dividend income as 5000 828686069 discussed above in para 2. Less: Application of income amount applied to the 709568514 object Less: ii) Depreciation as 86332719 623235795 discussed above in para 1 25450274 Accumulation under Section 11(1)(a) @ 15% of ₹828686069/- i.e. ₹124302910/- Total Income 81147364 Round off 81147370 From the above it becomes abundantly clear that the Assessing Officer have applied different yardsticks in the subsequent assessment years with regards to the claim of exemption under Section 11. The principle of consistency has not been followed by the AOs. The allowing of exemption under Section 11 and making addition to the gross receipts of the trust by way of Notional House Property Income also supports the alternative contention of the appellant that in the event of any violation of provisions of Section 13, the

Order pronounced in the open court on 30.09.2022.

Sd/- Sd/- (RAHUL CHAUDHARY) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 30. 09.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT DR, ITAT, Mumbai 5. 6. Guard file. BY ORDER, True Copy//

Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai