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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI S. RIFAUR RAHMAN, AM
PER ABY T. VARKEY, (JM): These aforesaid appeals preferred by the assessee and revenue are against the common order of the Ld. CIT(A)-01, Mumbai dated 23.02.2018 for the A.Y.2012-13. 2. At the outset, it was brought to our notice that the issues involved are no longer res-integra, since the issues are covered in the cases of Group Trust cases where in identical facts & law were involved. On this submission of the Ld. AR of the assessee Shri Sukhsagar Sayal, the revenue could not controvert the same. In the light of this back-drop, we note that before us, there are two cross- appeals preferred by two assessee trusts & Revenue for AY.2012-13. Therefore, the decision in the lead case will decide the outcome of the other cross appeals also. The lead case, we take into consideration is (ITA. No.3152/Mum/2018) M/s. Tata Social Welfare Trust for A.Y.2012-13. 3. First of all, will deal with the revenue appeal ground nos. 1, 2 & 4 which reads as under: - “1.“On the facts and circumstances of the case and in law, the Ld CIT(A) erred in allowing exemption u/s.10(34) of the Income tax Act to the tune of Rs. A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
12,06,15,478/-. On the dividend income without appreciating the fact that the income derived by the assessee trust is from the properties held under the trust and claimed exemption u/s.11 of the I T Act which is denied by the AO due to violation of provisions of section 13(1)(d) and 13(2)(h) of the Act. The violation of section 13 has not changed the status of the Trust i.e, from being Trust to private person. The violation of section 13 has not changed the nature of the income i.e. from being the income J) derived from the property held under Trust to Private Income. The violation “ u/s.13 has changed only the eligibility of exemption of income derived from property held under Trust, u/s.
The assessee claimed alternative exemption u/s.10(34) which was not allowed by the AO because section 10(34) does not deal with income derived from property held under trust.”
“On the facts and circumstances of the case and in law, the Ld.CIT{A) erred in allowing exemption u/s.10(34) of the Income tax Act to the tune of Rs. 12,06,15,478/- on the dividend received on shares and units without appreciating the fact that the income derived by the assessee trust is from properties held under the trust and claimed exemption u/s.11 of the I. T Act. Section 11 starts with the words “income derived from property held under Trust” which means that section which exclusively deals with income derived from property held under trust is section 11 and not any other section. The assessee trust cannot claim alternative exemption under section 10(34) because section 10(34) does not deal with income derived from property held under trust.”
“ On the facts and circumstances of the case and in law, the Ld CIT(A) erred relying upon the decision of Hon’ble ITAT in the case of a TATA Group rust viz. Jamsetji Tata Trust (JTT) for A Y 2010-11 regarding short fall in the application of funds due to investment in non-permitted mode of investment. In the instant case for the year under consideration Ld. CIT has failed to appreciate the fact that the assessee has received Rs.17,46,45,721/-, but applied an amount of Rs.12,55,91,477/- only towards objects of the trust which is less than 85% of the receipts as required by the provisions of section 11 of the Act. Further, assesse failed to fulfill the conditions laid in section 11(2).” A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
We note from perusal of the aforesaid grounds that the revenue is aggrieved by the action of the Ld. CIT(A) deleting the action of the AO denying exemption claimed by the assessee u/s 10(34) of the Income Tax Act, 1961(hereinafter “the Act”) on the dividend income received by the assessee trust.
At the outset, the Ld. AR of the assessee drew our attention to the fact that in the assessee’s own Group trust case an identical issue arose, and the AO’s similar action of denying the exemption claim u/s 10(34) of the Act in respect of dividend income was not accepted by the Ld. CIT(A), who was pleased to allow the same. Against the action of Ld. CIT(A), the revenue preferred similar/identical grounds of appeal raised (supra) in the present assessee’s case/appeals before this Tribunal, and the Tribunal upheld the action of Ld. CIT(A). For that the Ld. AR drew our attention to the decision of Tribunal in assesses Group trust case i.e. M/s. Navajbhai Ratan Trust (ITA. No.1301/Mum/2018 for A.Y.2011-12), ITA. No.1316/Mum/2018 for A.Y.2011-12, ITA. No.1302/Mum/2018 for A.Y.2012-13, ITA. No.1314/Mum/2018 for A.Y.2012-13, ITA. No.2115/Mum/2018 for A.Y.2013-14, ITA. No.2161/Mum/2018 for A.Y.2013-14, ITA. No.2116/Mum/2018 for A.Y.2014-15 & ITA. No.2162/Mum/2018 for A.Y.2014-15 wherein the cross appeals/appeal preferred by the revenue has been dismissed by this Tribunal by order dated A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
2022 wherein similar grounds appeal was raised by the revenue for A.Y.2011-12 which reads as under: -
“(i) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing exemption u/s.10(34) of the Income tax Act to the tune of Rs.115,47,80,338/- on the dividend received on shares without appreciating the fact that the income derived by the assessee trust is from the properties held under the trust and claimed exemption u/s. 11 of the I.T. Act.
(ii) On the facts and circumstances of the case and in law, the Ld CIT(A) erred in allowing exemption u/s.10(34) of the Income tax Act to the tune of Rs. 115,47,80,338/- on the dividend received on shares without appreciating the fact that the income derived by the assessee trust is from the properties held under the trust and claimed exemption u/ S. 11 of the I T Act which is denied by the AO due to violation of provisions of section 13(l)(d) and 13(2)(h) of the Act. The violation of section 13 has not changed the status of the Trust i.e, from being Trust to private person. The violation of section 13 has changed the nature of the income i.e. from being the income derived from the property held under Trust to Private Income. The assessee claimed alternative exemption u/s. 10(34) which was not allowed by the AO because section 10(34) does not deal with income derived from property held under trust.
(iii) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing exemption u/s.10(34) of the Income tax Act to the tune of Rs.115,47,80,338/- on the dividend received on shares without appreciating the fact that the income derived by the assessee trust is from the properties held under the trust and claimed exemption u/s. 11 of the I T Act. Section 11 starts with the words "income derived from property held under Trust" which means that section which exclusively deals with income derived from property held under trust is section 11 and not any other section. The assessee trust cannot claim alternative exemption under section 10(34) because section 10(34) does not deal with income derived from property held under trust. A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
(iv) On the facts and circumstances of the case and in law, the Ld CIT(A) erred in allowing depreciation without appreciating the fact that the assessee has claimed the deduction twice. The assessee trust claimed depreciation and also capital expenditure viz addition to fixed assets in the computation of income which amounted to double deduction.
(v)The appellant prays that the order of the A.O. should be restored and order of the CIT(A) should be set aside."
From a perusal of the aforesaid grounds raised by the revenue in the Group Trust case Navajbhai Ratan Trust (supra), we find that similar grounds of appeal has been raised by the revenue in the present both appeals before us. We further note that the aforesaid grounds raised by the revenue has been adjudicated in assessee’s favour by this Tribunal holding as under: -
“11. The first issue to be decided in Revenue‟s appeal is with regard to the claim of exemption under section 10(34) of the Act on dividend income received on shares by the assessee.
1 The brief facts of the case pertaining to this issue as emanating from record are: During the year under consideration, the assessee trust had received dividend income of Rs. 115,47,80,338 which was claimed as exempted under section 10(34) of the Act.
2 The AO vide order dated 18.03.2014 held that the assessee trust is not entitled to claim exemption under section 10(34) as assessee‟s entire income derived from the property held under trust is governed by the provision of section 11 of the Act. The AO further held that once there is violation under section 13 and as a result of same, exemption under section 11 is denied, assessee cannot claim alternative exemption under section 10(34) because section 10(34) of the Act does not deal with income derived from property held under trust. A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
3 In appeal against the aforesaid disallowance, the CIT(A) vide order dated 18.12.2017 following the decision of Hon‟ble Juri ictional High Court in the case of DIT (Exemption) v. Jasubhai Foundation: 374 ITR 315, interalia, allowed the appeal of the assessee and directed the AO to grant benefit of provision of section 10(34) of the Act in respect of dividend income of Rs. 115,47,80,338. 11.4 Being aggrieved by aforesaid findings of the CIT(A), Revenue is in appeal before us. It is pertinent to note that section 10 and section 11 of the Act fall under the Chapter III which deals with “Incomes which do not form part of Total Income”. Section 10 deals with incomes not included in total income whereas section 11 deals with income from property held for charitable or religious purpose. Accordingly, where income is already required to be excluded by virtue of section 10 (in case of dividend), the same cannot be brought within the ambit of section 11 of the Act. In respect of similar issue, Hon‟ble Juri ictional High Court in the case of Jasubhai Foundation (supra), observed as under:-
“…..We have not found anything in the language of the two provisions nor was Mr. Malhotra able to point out as to how when certain income is not to be included in computing total income of a previous year of any person, then, that which is excluded from section 10 could be included in the total income of the previous year of the person/assessee. That may be a person who receives or derives income from property held under trust wholly for charitable or religious purposes.”
5 It is pertinent to note that vide Finance (No.2) Act, 2014, sub-section (7) was inserted in section 11 of the Act whereby it has been provided that benefits of exemption provided in section 10 shall not be available to any Trust/Institution registered and claiming the benefit of section 11 of the Act. This amendment was brought w.e.f. 1st April, 2015 and therefore, is only applicable to assessment year 2015-16 and onwards. Thus, respectfully following the aforesaid decision of Hon‟ble Juri ictional High Court, order passed by the CIT(A), inter-alia, granting benefit of exemption under section 10(34) of the Act in respect of dividend income received by assessee is upheld. Accordingly, ground nos. (i) to (iii) raised in Revenue‟s appeal are dismissed.” A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
Respectfully following the ratio of the decision of this Tribunal in Group Trust case i.e. M/s. Navajbhai Ratan Trust (supra), we are inclined to follow it since the department could not point out any change in facts or law. So on the same reasoning mutandis mutandis, we concur with the action of the Ld. CIT(A) allowing the claim of exemption u/s 10(34) of the Act and dismiss the ground nos. 1, 2 & 4 of the revenue appeal.
Coming to the ground no. 3 of revenue which reads as under: -
“3 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing exemption u/s 11 with respect to the interest income and other income of Rs.3,22,98,856/- without appreciating the fact that the main purpose of the trust is defeated as there is violation to the provision of section 13(1)(d) and 13(2)(h) of the Act.”
In respect of the aforesaid ground of appeal of the revenue, the Ld. AR drew our attention to the page no. 10 of the same order (supra) wherein this Tribunal has up held the action of Ld. CIT(A) and thus held in favour of the assessee by holding as under: -
“6. The next issue to be decided in assessee‟s appeal is with regard to denial of benefits of section 11 of the Act only in respect of the income from prohibited investments. 6.1 The brief facts of the case pertaining to this issue as emanating from record are: During the course of assessment proceedings, assessee on without prejudice submitted that even if the assessee trust is held to violate any provision of section 13 of the Act, then in such a case only the income from prohibited investments be A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
denied exemption benefit under section 11 of the Act instead of entire income of the assessee.
2 The AO vide order dated 18.03.2014 rejected the without prejudice submission of the assessee and held that when there is a violation of section 13 of the Act, benefit of section 11 and 12 shall be denied to the assessee trust on the entire income.
3 In appeal, the CIT(A) vide order dated 18.12.2017 held the issue to be mere academic in nature and not requiring specific adjudication. 6.4 During the course of hearing, learned counsel, submitted that this issue is no longer res integra and has been decided in favour of the taxpayer by Hon‟ble Juri ictional High Court in the case of DIT(Exemption) v. Sheth Mafatlal Gagalbhai Foundation Trust: 249 ITR 533. 6.5 On the other hand, learned D.R. vehemently relied upon the order passed by the AO.
6 We have considered the rival submissions and perused the material available on record. In the present case, the assessee had made investment in redeemable preferential shares of Tata Sons Ltd. which the AO, inter-alia, held to be in violation of provision of section 13(1)(d) of the Act. The income that could be derived from such an investment would be dividend income or the capital gains on sale of such investment. However, due to violation of provisions of section 13, income derived from property held under trust is not exempted under section 11 of the Act. The issue which arises in the present case is whether the entire income of the trust shall become ineligible for exemption under section 11 of the Act or it is restricted to only the income derived from prohibited investments.
7 Similar issue arose for consideration before the Hon‟ble Juri ictional High Court in the case of Sheth Mafatlal Gagalbhai Foundation Trust(supra), wherein the Hon‟ble Court observed as under:
“……..the Legislature has clearly indicated its mind in the proviso to section 164(2) when it categorically refers to forfeiture of exemption for breach of section 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax.” Further, Hon‟ble Juri ictional High Court in the case of CIT v. Audyogik Shikshan Mandal: 261 Taxmann 12 held that on a plain reading of sections 11 and 13 of the Act, it is clear that the legislature did not contemplate the denial of benefit of section 11 of the Act to the entire income of the Trust. Following the decisions of Hon‟ble Juri ictional High Court, similar view was also expressed by the Co-ordinate Bench of the Tribunal in assessee‟s own case in ITAs No. 1317/Mum/2018 and 1299/Mum/2018 for the assessment year 2008-09. 6.8 Thus, respectfully following the aforesaid decisions of Hon‟ble Juri ictional High Court, we direct the AO to only consider income from prohibited investments while denying the benefits of section 11, and, at the same time, grant the exemption under section 11 of the Act on interest income and income earned from non- prohibited investments by the assessee. Accordingly, ground nos. 2 to 4 raised in assessee‟s appeal are allowed.”
Respectfully following the order of the co-ordinate bench of this Tribunal in the assessee’s own Group trust (supra), we note that the Ld. CIT(A)’s impugned action is in conformity with para no. 6.8 (supra) wherein the Tribunal has directed the AO to grant the exemption u/s 11 of the Act on interest income and other income earned from non-prohibited investments by the assessee trust. Therefore, we are inclined to dismiss the appeal of the revenue on the same reasoning mutatis mutandis. Therefore, the revenue ITA. No. 3152/Mum/2018 stands dismissed.
Coming next to the assessee trust’s cross appeal, the Ld. AR submitted that since both the aforesaid grounds are covered against A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
the revenue,(supra); and in such an event once the revenue appeal stands dismissed, then the assessee’s grounds of appeal become academic in nature. This contention of Ld. AR could not be controverted by the revenue. Therefore, we are not inclined to adjudicate the same. Therefore, assessee trust appeal ITA. No. 3079/Mum/2018 has become infructuous in the light of the revenue cross-appeal being dismissed.
Coming to the revenue appeal ITA. No.3153/Mum/2018 (M/s. Tata Education Trust) for A.Y.2012-13 we note that the facts and the law involved are identical, and the grounds of appeals raised by revenue are also identical. So relying on the same reasoning, we dismiss the appeal of the revenue. And on the very same reasoning, the assessee’s appeal ITA. No.3080/Mum/2018 has also become infructuous/academic and therefore it also stands dismissed. In the result, both the appeals of the assessee’s and revenue 13. stands dismissed. Order pronounced in the open court on 14/06/2022. (S. RIFAUR RAHMAN) (ABY T. VARKEY) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 14/06/2022. Vijay Pal Singh/Sr. P.S. A.Y. 2012-13 Tata Social Welfare Trust & Tata Education Trust
आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //// उि/सहधिक िंजीकधर /(Dy./Asstt.