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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
आयकर अपीलीय अधिकरण “SMC” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य BEFORE SRI MAHAVIR SINGH, JUDICIAL MEMBER Aayakr ApIla saM./ ITA No. 3082/Mum/2018 (inaQa-arNa baYa- / Assessment Year 2012-13) J.R.D Tata Trust, The Income Tax Officer, Bombay House, 24, Homi 2(4), Mody Street, Fort, [Now assessed by the Mumbai-400 001 Deputy Commissioner of Vs. Income-tax (Exemptions)- 2(1), Mumbai, Piramal Chambers, Lalbaug, Parel, Mumbai-400 012 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AAATT0165F
Aayakr ApIla saM./ ITA No. 3154/Mum/2018 (inaQa-arNa baYa- / Assessment Year 2012-13)
The Income Tax Officer, 2(4), J.R.D Tata Trust, [Now assessed by the Deputy Bombay House, 24, Homi Commissioner of Income-tax Mody Street, Fort, Vs. (Exemptions)-2(1), Mumbai, Mumbai-400 001 Piramal Chambers, Lalbaug, Parel, Mumbai-400 012 (ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent) अपीलाथी की ओर े / Appellant by : Shri Percy Pardiwala, Sukh Sagar Sayal, ARs प्रत्यथी की ओर े / Respondent by : Shri Rajat Mittal, DR ुनवाई की तारीख / Date of hearing: 24.06.2019 घोषणा की तारीख / Date of pronouncement : 13.09.2019 महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM: These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-1, Mumbai [in short CIT(A)], in Appeal No CIT(A)-I/I.T./ITO/E-2(4)/159/2015-16 vide order dated 23.02.2018. The Assessment was framed by the Income Tax Officer (Exemptions)-Ward 2(4), Mumbai (in short ‘ITO/ AO’) for the A.Y. 2012-13 vide order dated 23/03/2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’). 2. The First issue in this appeal of assessee is against the order of CIT(A) in upholding the action of the AO in concluding that the assessee has violated the provisions of section 13(1)(d) and 13(2)(h) of the Act. Briefly stated facts are that the assessee is a registered charitable trust with DIT(Exemptions), Mumbai under section 12A of the Act vide registration No. TRT 240 dated 28.09.1975. The assessee trust filed its return of income for the relevant AY 2012-13 on 20.09.2012 along with Income and Expenditure Account, Balance Sheet and Audit Report in Form No. 10B. During the course of assessment proceedings, the AO noted that the assessee has received dividend from the shares/ units in the following investment: - No. of Amount of Dividend shares/ units investment (₹) received (₹) Tata sons Ltd. 16,200 6,75,000 12,96,00,000 Tata Chemicals Ltd. 46,999 1,53,076 4,66,990 Tata Power Co. Ltd. 14,520 15,346 16,500 Tata Motors Ltd. 1,26,336 97,389 4,21,120 CRTs Units of UTI 75,000 85,15,900 4,81,332 Total 94,56,711 13,09,85,942
This income of Rs.13,05,04,610/- earned as dividend income from above four companies was claimed as exempt u/s 10(34) of the Act by the assessee. The assessee also earned dividend income of Rs. 4,81,332/- from the units of Unit Trust of India held by it, which was claimed as exempt under section 10(35) of the Act. Further, the assessee received interest income and sundry income of Rs. 3,06,62,484/- and Rs. 90342/- respectively, which were claimed as exempt under section 11 of the Act.
According to AO, the assessee is hit by the provisions of section 13(1)(d) of the Act of as the Trust had made investment in equity shares in violation of section 13(1)(d) of the Act and thus exemption under section 11 and 12 of the Act will not be allowable in respect of income of the assessee trust. According to AO, the assessee’s total receipts are to the tune of ₹ 16,17,38,768/- is taxable at maximum marginal rate under section 164 of the Act. The assessee claimed that the dividend on shares and units is not includible in the total income because the dividend income of shares and mutual funds and long term capital gain on sale of shares are exempted under section 10(34), 10(35) and 10(38) of the Act respectively and also cannot be brought to tax by applying the provisions of section 11 and 13 of the Act. But according to AO, section 13(1)(d) of the Act is an exception, wherein the exemption under section 11 is not applicable to certain cases prescribed in the section. He noted that the provisions of section 13(1)(d) states that if any funds of the trust or institution are invested or deposited otherwise then anyone or more of the forms or modes specified in section11(5) of the Act after 28.02.1983 then exemption under section 11 of the Act is to be denied. According to AO, the assessee has invested in shares of Tata Sons Limited, Tata Chemicals Limited, Tata Motors Limited and Tata Power Company Limited, the assessee has also violated the provisions of section 13(2)(h) of the Act. According to him, the assessee’s trust was founded by Shri GRD Tata. Shri. Ratan N Tata was the chairman of the Tata Group from 1991 to 2012. After 28.12.2012, Shri Ratan N Tata holds the position of Chairman Emirates of the Group which is honorary and advisory position. He noted that during the relevant Assessment Year, Shri. Ratan N Tata, was one of the trustees of the assessee trust and founder trustee. As founder trustee, he is invested funds in a concern where he is chairman. Accordingly, the AO noted that Tata Sons Limited is a interested party in term of section 13(3)(b) of the Act as it has continued to assessee’s trust more than Rs. 50,000/-. Hence, he noted that this transaction is hit by section 13(2)(h) of the Act. Finally, the AO held that the assessee has violated the provisions of section 13(1)(d) and 13(2)(h) of the Act. Hence, income from these investments is taxable and nothing contains in section 11 or 12 of the Act shall operate, not to include in the total income of the previous year of the assessee. Aggrieved, assessee preferred the appeal before CIT(A).
The CIT(A) held that the assessee has violated the provisions of section 13(1)(d) and 13(2)(h) of the Act and denied the claim of exemption under section 11 and 12 of the Act by observing in para 6.3 to 6.3.4 as under: -
“6.3 I have considered the facts of the case and also submissions made by the appellant. The assessee is a charitable trust. During the year the AO observed that the assessee had shown investment in 2,04,055/- ordinary shares of TATA Sons Ltd. and other TATA group companies from which it has received dividend of Rs. 13,05,04,610/-. This implies that the assessee had invested in prohibited mode of investment as per the provision of Section 13(I)(d) of the Income Tax Act, 1961. The assessee was specifically asked by the AO vide order sheet noting dated 11.05.2015 as to why the provisions of Section 13(I)(d)(i) should not be invoked as regards investment in shares of company which was not a public sector company. The assessee submitted that investment in the shares of the Tata Sons Limited and group companies does not attract the provision of 13(l)(d)/13(2)(h) as this asset are held by the assessee trust as purpose as on beheld as assets by the trust. Any accretion to such shares by way of bonus is also permitted to be held by the assessee trust as per proviso to section 13(1)(d)(iii) of I.T. Act. However, the appellant trust has invested in the shares of Tata Sons Ltd. and others and the same have been held by the assessee trust during the year, the provision of Section 13(l)(d) clearly specify that the trust cannot hold any funds as investment otherwise than in any one or more of trie forms or modes specified in the Section 11(5) of the Income Tax Act. Hence, the AO disallowed exemption u/s 11 and 12 of the Income Tax Act. By investing in shares of Tata Sons Ltd., the assessee has also violated Section 13(2)(h) as Tata Sons Ltd. is an interested party in term of section 13(3)(b) as it has contributed to assessee trust more than Rs 50,000/-. In view of the above, the AO disallowed exemption u/s 11 on dividend income of Rs. 4,81,332/- and Rs. 13,05,04,610/-. The income of the assessee was charged at Maximum Marginal Rate u/s 164(2) of the Income Tax Act.
6.3.1. Here, the appellant submitted various details and stated that the Trust was holding shares of Tata Sons Ltd. and other groups companies. These shares were not invested by the trust but were received as bonus shares and are permitted to be held by the assessee. Since, these investments on shares has been made prior to the year 1973, hence the TATA group shares should not attract the provisions of section 13(l)(d)(iii) of the Act and accordingly, utilization of the dividend income arising from such shares should also not attract the provisions of section 13(l)(d)(i) of the Act. Hence, the Trust cannot be held to be in violation of section 13(l)(d)(i), 13(l)(d)(iii) and 13(2)(h) of the Act and hence the benefits of section 11 cannot be denied to the Trust. Further, the appellant has submitted that during the AY 2012-13, since the appellant trust has earned dividend from the above investments, even if the teamed AO's contention that the Trust is violative of section 13 is to be accepted, only income from the prohibited investments i.e. dividend income in this case should be denied the exemption benefits under section 11 of the Act. Furthermore, the appellant has relied on decision of the Hon'ble Supreme Court in the case of Director of Income Tax, Chennai vs Working
6.3.2. I consider the appellant submission and facts of the case, On identical issues in the case (JTT), the JTT had filed appeal against the order of CIT(A) for assessment year 2010-11 before the Hon’ble ITAT Mumbai in ITA No. 7006/Mum/2013 order dated 26.03.2014, where it was held by the Hon'ble Tribunal that "8.4 Following the above decision we hold that the brooch of section 130(d) and 23(2)(h) would lead to forfeiture of exemption of income derived from such investment and not the entire income would be subjected to maximum marginal rate of tax u/s. 164(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 yea' for such purpose of charitable trust.'
6.3.3 Thus, as per the above decision of the Hon’ble ITAT in a group case of the appellant trust, the income which is derived from the investments made in Instruments in violation of provisions of Section 13(l)(d) and 13(2)(h) would lead to forfeiture of exemption of income derived from such investment which in this year is the dividend income received from the shares of the TATA Sons Ltd. and other TATA Group Companies. 6.3.4 Respectfully, following the decisions of Hon'ble Supreme Court in the case of Director of Income Tax, Chennai vs Working Women's Forum [2015] 63 taxmann.com 324 (SC) and the Hon'ble ITAT order, the AO is directed to compute the income of the appellant trust accordingly for the assessment year under consideration. However, AO is also directed to incorporate the rulings in Para 5.3 (Supra) for Grounds no. 1 to 3 in respect of exemption of dividend income in the instant case while arriving at the total income of the appellant trust.”
Aggrieved, by the order of CIT(A) upholding the order of AO for violation of section 13(1)(d) and 13(2)(h) of the Act assessee preferred appeal before Tribunal. For this assessee has raised the following two grounds: -
“1. On the facts and under the circumstances of the case and in law, the learned Commissioner of Income-lax (Appeals) [CIT(A) has erred in upholding the action of the Income- tax Officer (Exemptions) - 2(4) (the learned AO) in concluding that the assessee has violated provisions of Section 13(1)(d) and 13(2)(h) of the Act.
The Appellant prays that the conclusion reached by the learned CIT(A) and the learned AO, 13(1)(d) and 13(2)(h) of the Act be declared as erroneous.
On the facts and under the circumstances of the case and in law, the learned CIT(A) has erred in not considering the submission of the Appellant that the shares held by the Appellant were held prior to 1 June 1973 and hence not in violation as per clause (i) and (ia) of the proviso to section 13(1)(d) read with section 11(5) of the Act.
The Appellant prays that it be held that the shares held by the Appellant are not in violation under clause (i) and (ia) of the proviso to section 13(1)(d).”
I noted that the AO as well as CIT(A) held that the assessee is hit by the provisions of section 13(1)(d) and 13(2)(h) of the Act as the assessee’s trust has made investment in the instruments from where it is deriving income and therefore these provisions would lead to forfeiture of exemption of income derived from such investment. Even, this year the dividend income received from shares of Tata Sons Limited and other Tata Group of Companies is clearly hit by the provisions of section 13(1)(d) and 13(2)(h) of the Act. I noted the fact that the assessee’s trust held investment in the following shares during the year under consideration: -
Name of the company Number of shares Tata Motors Limtied – Quoted Shares 1,05,280 Tata Power Limited- Quoted Shares 13,200 Tata Chemicals Limited –Quoted Shares 46,699 Tata Sons Limited –Unquoted shares 16,200 6. The fact stated was that the investment in these shares have been made period prior to the year 01.06.1973 and the assessee’s trust fulfill the condition as mentioned in the proviso (i) and (ia) to section 13(1)(d)(iii) of the Act. The learned Counsel for the assessee now drew our attention to the provisions of section 13 (1) of the Act as under: -
“Section 11 not to apply in certain cases.
(1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof—“
13(d)
(d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any 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 …………….
(iii) any shares in a company, other than—
(A) shares in a public sector company;
(B) shares prescribed as a form or mode of investment under clause (xii) of sub- section (5) of section 11,
are held by the trust or institution after the 30th day of November, 1983:
The learned Counsel for the assessee took us through the proviso that noting contained in this clause i.e. clause 13(1)(d) will apply in relations to assets held by trusts or institution where as the investment form part of the corps of the trust or institution as on 01.06.1973 and further, as per clause (ia) an accretion to the shares forming part of the corpus mentioned in clause (i) by way of bonus shares allotted to the trusts or institutions. The learned Counsel for the assessee explained as per proviso (i) to section 13(1)(d)(iii) of the Act, where any assets are held by assessee as corpus as on 01.06.1973, such assets are permitted to be held as assets by the Trust. In accretion to such shares by way of bonus is also permitted to be held by that assessee under clause (i)(a) of the Act by the proviso to section 13(1)(d)(iii) of the Act. In view of this, it was explained by the learned Counsel that on combined reading of proviso (i) & (ia) with section 13(1)(d) of the Act, if the trust holds its investment prior to 01.06.1973, then such assets shall qualify as compliant investment and the trust is permitted to hold the same. section 13(1)(d) of the Act. Hence, benefit of section 11 of the Act cannot be denied to the assessee’s trust. Before us, the learned Counsel for the assessee also filed 95th Annual Report of Tata Sons Limited for FY 2012-13, wherein he took us through the details of shares in the company held by each shareholders holding more than 5 % of shares but none of the below shareholder is named as Shri. Ratan N Tata.
Name of the shareholders No. of Ordinary shares held 31-Mar-2013 31-Mar-2012 Sir Dorabji Tata Trust 1,13,067 1,13,067 Sir Ratan Tata Trust 95,211 95,211 Sterling Investment Corporation 37,122 37,122 Private Limited Cyrus Investments Private Limited 37,122 37,122 No of CRPS held Name of the Shareholders 31-Mar-2013 31-Mar-2012 Jamsetji Tata Trust 2,45,00,000 2,45,00,000 Navajbai Ratan Tata Trust 1,50,15,000 1,50,15,000 8. Similarly, the learned Counsel took us through the 67th Annual Report of Tata Motors for the FY 2011-12, wherein the details of shareholding is given from where noted that Shri Ratan Tata is not the investor. Similarly, the learned Counsel for the assessee drew our attention to the 93rd Annual Report of Tata Computer Company for FY 2011-12, wherein top ten shareholders of the Tata Computer Company as on 31.03.2012 is given. In this year also, there is no one in the name of Shri Ratan N Tata. The assessee has also filed the details of Tata Chemicals Limited statement showing the share of shareholders etc. in the category of promoters and promoters Trust. I noted that the assessee has submitted various details and the trust was holding shares of Tata Sons limited and other group of companies. These shares were not invested by the Trusts but was received as bonus shares and are permitted to be held by the assessee since these investments of share has been made prior to the year 1973 and hence, these Tata Group shares should not hit the provisions of Section 13(1)(d)(iii) of the Act. Accordingly, utilization of the dividend income arising from such shares are also not target the provisions of section 13(1)(d)(i) of the Act. The relevant clause of section 13(1)(d)(i) read ad under: -
“(d) In the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any 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 …………….”
The learned Counsel for the assessee also drew our attention to provisions of section 13(2)(h) of the Act and also to the provisions of section 13(3) which read as under: -
“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 day of June, 1973;
(ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution;”
13(2)(h)
2) Without prejudice to the generality of the provisions of clause (c) 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), —
(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;
(b) any person who has made a substantial contribution to the trust or institution, that is to say, any person thousand rupees;
(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.
The learned counsel for the assessee stated Shri Ratan N. Tata is not the founder of the Tata Sons, whereas founder was Jamshedji Tata. He was chairman of Tata Sons Limited from 1991 to 2012 and after 28.12.2012, he holds the position of chairman of emirates of the group which is honorary and advisory positions no doubt that Shri Ratan N Tata was one of the trustees of the assessee’s trust. The learned Counsel for the assessee also drew our attention to the details of investments made by the trust along with year of acquisition, from where it is noted that the investments have been made prior to 1973 and hence, the same along with the clause (i) and (ia) of the proviso of section 13(1)(d)(iii) of the Act. It is also a fact that one of the trustee does not hold substantial interest of 20% or more in any of the companies where the trustees has investment and hence, findings given by the AO and CIT(A) on this issue is completely erroneous. In the above given facts, I are of the view that the trust has not violated the provisions of section 13(1)(d) and 13(2)(h) of the Act.
I have gone through the entire provisions, csae records and arguments. I noted that the AO was of the opinion that the assessee's holding of shares in the four companies mentioned above, was in violation of section 13(l)(d) of the Act, and consequently, its entire income was taxable at the maximum marginal rate under section 164 of the Act. In coming to the conclusion that the assessee's shareholding in the four companies is in violation of section 13(l)(d) of the Act, he relied on the decision of the Tribunal in the case of Jamsediji Tata Trust ('ITA No. 7006IMum/2013) (AY 2010-11). It was brought to the notice of both the AO and the CIT(A) that the case of the assessee is covered by clauses (i) and (ia) of the proviso to section 13(1)(d) of the Act and, accordingly, the disabling provisions contained in section 13(l)(d) do not apply to the assessee qua its shareholding in the four companies. The relevant portion of the proviso to section 13(1)(d) is reproduced above. I noted that the shares held during the year in the four companies consisted of the assessee's holding of such shares (which were received by it prior to the year 1973 and held as corpus) and the bonus shares received thereon over the subsequent years. In this regard, a statement of the assessee's shareholding in the four companies over the years was filed before the lower authorities as well as before the Tribunal (Page 38 of the paper book). A perusal of the same would show that the assessee's original shareholding in each of the four companies originates from a period prior to 1st June, 1973 and has accretions by way of bonus issues made subsequently. Therefore, the case of the assessee is covered by clauses (i) and (ia) of the proviso to section 13(1)(d) and the shares are not held in violation of the section. The CIT(A) specifically noted the assessee's arguments regarding its case being covered by the proviso to section 13(1)(d) in paras 6.2, 6.3 and 6.3.1 of his order, yet the benefit of the proviso was not granted and the findings of the AO were confirmed by relying on the Tribunal order in the case of Jamsesji Tata Trust (supra). In this regard, it is submitted that the dispute in the case of Jamsetji Tata Trust (supra) was limited to the application of the main part of section 13(i)(d) and the question of the applicability of the proviso was not raised therein as admittedly the benefit of the proviso was not available to that Trust. This was for the reason that the shares held by that Trusts were received by it after 1st June, 1973. As a matter of fact, Jamsetji Tata Trust itself was settled in the year 1974, therefore, the question of receiving any shares prior to 1st June, 1973 did not arise in the facts of that case. Accordingly, the CIT(A) erred in relying on the decision of Jamseiji Tata Trust (supra) to come to the conclusion that the proviso to section 13(1)(d) is inapplicable. In light of the above, I am of the firm view that the assessee's shareholding in the four companies is not in violation of section 13(1)(d) of the Act.
The AO alleged that the assessee's shareholding in the four companies is also in violation of section 13(2)(h) of the Act. The AO observed that Mr. Ratan N. Tata, who is one of the Trustees of the assessee was also the chairman of Tata Sons Ltd in the relevant financial year. With this background, the AO concluded that being a chairman in Tata Sons Ltd. amounted to his holding a substantial interest' in that company. Accordingly, it was held the assessee was in violation of section 13(2)(h) of the Act as its funds were invested in a concern (Tata Sons Ltd.), in which a person referred to in sub- section (3) (Mr. Ratan N. Tata) had a substantial interest (by virtue of his chairmanship therein). The CIT(A) confirmed the findings of the AO. I am of the view that that 'substantial interest' is not an expression of general import. Its meaning has been set out in section 13 itself. Explanation 3 to section 13 Provides:
“Explanation 3.—For the purposes of this section. a person shall he deemed to have a substantial interest in a concern, —
(ii) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by other persons referred to in sub-section (3);
(ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub- section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent. of the profits of such concern.”
Applying the aforesaid definition to the facts of the present case, the assessee's shareholding in the four companies even if held prior to 1st June, 1973 would have been violative of section 13(2)(h) if any of its trustees [or any other person referred to in sub- section (3)] held shares in the four companies carrying more than 20% voting power. In the course of the proceedings, the Annual Reports of all four companies for the F.Y. 2011-12 were submitted. Reference was made to the schedule containing disclosure of the shareholders holding more than 5% equity shares of the company and it was pointed out that neither Mr. Ratan N. Tata, nor any other persons referred to in sub-section (3) held more than 5% equity/voting power in any of the four companies. Therefore, the question of holding shares carrying more than 20% voting power in the companies does not arise. In light of the above, I am of the view that being a chairman in a company does not amount to holding a 'substantial interest' therein in terms of the clear mandate of Explanation 3 to section 13 of the Act. Hence, I am of the view that the assessee has not violated the provision of section 13(2)(h) of the Act and hence, on both grounds assessee succeeds.
The next issue raised by assessee is as regards to the order of CIT(A) confirming the action of AO in holding that assessee trust has violated section 13(3)(b) of the Act. Assessee raised the following additional ground: -
“3. On the facts and under the circumstances of the case and in law, the learned Commissioner of income-tax (appeals) [CIT(A)] erred in upholding the factually incorrect finding of income tax officer (exemptions)-2(4) (‘the learned AO’) that Tata Sons Ltd (‘TSL”) has made a contribution of more than ₹ 50,000 to the Appellant trust and hence, is a person referred to in clause (b) of sub-section (3) of section 13 of the Income-tax Act, 1961.”
As regards to admissibility of additional ground, Ld Counsel argued that this additional ground is raised under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 as per the settled law that the jurisdictional issue can be raised at any point of time. On this, the learned Sr. DR has not objected to the admission of this additional ground. Hence, we admit this ground and adjudicate.
After hearing both sides, I noted that while dealing with the assessee shareholding in the four companies, the AO made a general observation that Tata Sons Ltd was a person referred to in section 13(3)(b) of the Act as it had contributed to the assessee, a sum exceeding Rs. 50,000/-. The CIT(A) referred to this observation of the AO in para 6.3 of his order, which reads as under: -
“I have considered the facts of the case and also submissions made by the appellant. The assessee is a charitable trust. During the year, the AO observed that the assessee had shown investment in 2,04,055/- ordinary shares of TATA Sons Ltd. and other TATA group companies from which it has received dividend of Rs. 13,05,04,610/-. This implies that the assessee had invested in prohibited mode of investment as per the provision of Section 13(l)(d) of the Income Tax Act, 1961. The assessee was specifically asked by the AO vide order sheet noting dated 11.05.2015 as to why the provisions of Section 13(l)(d)(i) should not be invoked as regards investment in shares o company which was not a public sector company. The assessee submitted that investment in the shares of the Tata Sons Limited and group companies does not attract the provision of 13(l)(d)/13(2)(h) as this assets are held by the assessee trust as purpose as on l June 1973 and such assets are permitted to be held as assets by the trust. Any accretion to such shares by way of bonus is also permitted to be held by the assessee trust as per proviso to section 13(1)(d)(iii) of IT. Act. during the year, the provision of Section 13(l)(d) clearly specify that the trust cannot hold any funds as investment otherwise than in any one or more of the forms or modes specified in the Section 11(5) of the Income Tax Act. Hence, the AO disallowed exemption u/s 11 and 12 of the Income Tax Act. By investing in shares of Tata Sons Ltd., the assessee has also violated Section 13(2)(h) as Tata Sons Ltd. is an interested party in term of section 13(3)(b) as it has contributed to assessee trust more than Rs 50.000/-. In view of the above, the AO disallowed exemption u/s 11 on dividend income of Its. 4,81,332/- and Rs. 13,05,04,610/-. The income of the assessee was charged at Maximum Marginal Rate u/s 164(2) of the Income Tax Act.”
I noted that this finding is factually incorrect. Tata Sons Ltd. has not made any contribution to the assessee, let alone contributing a sum in excess of Rs. 50,000/-. In the course of the assessment proceedings, no question was ever asked nor was any detail called for in this regard by the AO. Hence, I am of the view that this observation is factually incorrect and reversed. This additional ground is decided in favour of assessee. 18. The first issue in the appeal of Revenue is against the allowances of exemption under section 10(34) and 10(38) of the Act. The CIT(A) allowed the claim of the assessee in respect of claim of exemption of dividend income on mutual funds and long term capital gain on sale of shares under section 10(34) and 10(38) of the Act respectively amounting to Rs. 4,81,352/- i.e. dividend of units only by following the decision of Hon’ble Bombay High Court in the case of Director of Income-tax (Exemptions)v. Jasubhai Foundation [2015] 374 ITR 315 (Bombay). 15. The CIT(A) reversed the findings of the AO and held that only the income which is derived from holding of shares of the four companies, i.e. the dividend income loses exemption under section 11 of the Act and that the remaining income of the assessee continues to enjoy exemption under the said section. Reliance in this regard was placed on the judgment of the Hon'ble Madras High Court in the case of CIT Vs. Working Women's Forum (2014) 365 ITR 353 (Mad) and the dismissal of the department's SLP against such judgment by the Hon'ble Supreme Court, reported in 63 taxmann.com 324. It was further held by the CIT(A), that nevertheless, the dividend income is exempt under section 10(34) of the Act. Finally, the CIT(A) allowed the claim of exemption under section 10(34) of the Act on the dividend income received during the year by observing as under:
“5.3.3. In the case of DCIT (E)-2(1), Mumbai v/s. Pirojsha Godrej Foundation in ITA No. 822/Mum/2017' for the A.Y. 2012-13, the I- Hon'ble ITAT, SMC Bench, Mumbai has, relying on the decision of the Hon'ble Bombay High Court in the case of ‘jasubhai Foundation 374 ITR 215', upheld the order of the CIT(A) directing the AO to allow assessee's claim of exemption u/s. 10(34) on dividend income received during the year after due verification.
5.3.4. In view of above, the Assessing Officer is directed to follow the findings of Hon'ble Courts as above and allow the appellant's claim of exemption under section 10 on dividend income received during the year.”
Aggrieved, Revenue came in appeal before Tribunal and raised the following ground No. 1 and 2: -
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. C!T(A) is right in holding that only the income derived from investments violative of investment made in modes other than prescribed under section 11(5) r. w. s. 13(1)(d) of the LT. Act is to be charged at maximum marginal rate and the entire exemption u/s 11 or 12 cannot be denied despite the clear and unambiguous language of section 13(1)d) according to which nothing contained in section 11 or 12 shall operate so as to exclude total income of the previous year in the case of a trust for charitable or religious purposes, any income thereof, if the investment is in violation of clause (i) to (iii) of section I 1(I)(d)..
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in applying the ratio laid down by the Hon’ble Supreme Court in the case of Director of Income Tax, Chennai Vs. Working Women's Forum 12015163 ta.xmann.com 324 (SC) in which the SLP of the department was rejected whereas the Hon tie Apex Court has already held in Bharat Diamond Bourse reported in 259 ITR 280 (SC) that the benefits under section 11 and 12 of the IT Act would be denied totally in the event of any violation of section 13 of the I.T. Act.”
I have heard rival contentions on this issue. I noted that the AO opined that once the shareholding of the assessee in the four companies is held to be in violation of section 13 of the Act, then, the entire income of the assessee becomes taxable at the maximum marginal rate under section 164 of the Act. According to the AO, in such cases the assessee cannot claim exemption under section 11 of the Act for any income, irrespective of whether such other income has any nexus with the allegedly violative investments or not. Accordingly, it was held that even the interest income of Rs. 3,06,62,484/- and sundry income of Rs. 90,342/- cannot be claimed as exempt under section 11 of the Act. But, the CIT(A) reversed the findings of the AO and held that only the income which is derived from holding of shares of the four companies, i.e. the dividend income loses exemption under section 11 of the Act and that the remaining income of the assessee continues to enjoy exemption under the said section. Reliance in this regard was placed on the judgment of the Hon'ble Madras High Court in the case of CIT Vs. Working Women's Forum (2014) 365 ITR 353 (Mad) and the dismissal of the department's SLP against such judgment by the Hon'ble Supreme Court, reported in 63 taxmann.com 324. It was further held by the CIT(A), that nevertheless, the dividend income is exempt under section 10(34) of the Act. Finally, the CIT(A) allowed the claim of exemption under section 10(34) of the Act on the dividend income received during the year. I noted that revenue before me argued that CIT(A) has erred in relying on the judgment in the case of Working Women's Forum (supra) and that it should have instead followed the judgment of the Hon’ble Supreme Court in the case of DIT vs. Bharat Diamond Bourse (259 ITR 280) (2003) (SC). I noted that the assessee's shareholding in the four companies. as discussed above, is not in violation of section 13 of the Act. Therefore, any question of denial of exemption under section 11 of the Act does not arise and these grounds of the department are actually infructuous.
But, even if it is held that such shareholding is in fact violative of section 13 of the Act, it is only the income from such shares, i.e. the dividend income, which goes out of the purview of section 11 of the Act. On this allegation alone, the entire income of the assessee cannot be denied exemption under section 11 of the Act. Further, this issue is no longer res-integra in view of a series of judgments in favour of the assessee, including those of the Hon’ble Bombay High Court in the case of DIT vs. Sheth Mafatlal Gagalbhai Foundation Trust (249 ITR 533) (2001) (Bom) and in the case of CIT vs. Audyogik Shikshan Mandal (261 Taxman 12) (2019) (Bom). The limited issue in that case was whether the objects of that Trust were charitable or not and whether the person to whom a loan was granted in that case, was a person covered under section 13(3) of the Act or not. As a matter of fact, the Hon'ble Bombay High Court has specifically dealt with the department's reliance on Bharat Diamond Bourse (supra) in its judgment in the case of Audyogik Shikshan Mandal (supra) and held that this judgment does not deal with the issue of limited versus complete denial of exemption under section 11 of the Act. The relevant observations of the High Court in Audyogik Shikshan Mandal (supra) are extracted hereunder:
“7.We find that the impugned order of the Tribunal has placed reliance upon the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra), after having noted that the the decision of the Supreme Court in Bharat Diamond Bourse (supra) does not very clearly specify whether it is only the income diverted as loans to a person specified under Section 13 of the Act, which was denied the benefit of Section 11 of the Act or the entire income was denied the benefit of exemption under Sect ion 11 of the Act. We have closely Diamond Bourse (supra) and it does not extend the benefit of Section 11 of the Act to the Trust. However, it is not clear whether it is only to the extent of income diverted or the entire income. This, for the reason that the dispute between the parties therein was not as arising in this case. The basic dispute in the above case was - whether the objects of the Trust were charitable and whether the person to whom the loan was given was a person covered by Section 13 of the Act. The decision of the Karnartaka High Court in Fr. Mullers Charitable Institutions (supra), dealt with the very issue herein viz. the denial of exemption of entire income under Section 11 of the Act, or is the denial restricted only to the quantum of diverted funds. This, as it is hit by Section 13 of the Act. The Court held that the benefit of Section 11 of the Act will not be available only in respect of the diverted income. The above decision of Karnataka High Court was the basis for the view in the impugned order of the Tribunal. Moreover, we note that the order of Karnataka High Court in case of Fr. Mullers Charitable Institutions (supra) inter alia, places reliance upon the decision of this Court in DIT(Exemption) v. Sheth Mafatlal Gagalbahai Foundation Trust [2001] 114 Taxman 19/249 ITR 533 (Bom.) and the Delhi High Court in the case of IT (Exemption) v. Agrim Charan Foundation [2002] 253 ITR 593/[2001] 119 Taxman 569. Moreover, on a plain reading of Sections 11 and 13 of the Act, it is clear that the legislature did not contemplate the denial the benefit of Section 11 of the Act to the entire income of the Trust. If the interpretation sought to be advanced by the Revenue is accepted, it would lead to grave injustice as any mistake minor and/or misdemnour involving a small amount takes place by the Trust, the consequence would be denial of the benefit of exemption to the entire income otherwise admittedly used for charitable purposes. It is pointed out to us that the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra) was carried by the Revenue to the Supreme Court and its SLP was dismissed on 19th September, 2014 Fr. Mullers Charitable Institutions (supra).”
In view of the above I am of the view even on alternative also the exemption under section 11 of the Act is not to he denied to the entire income of the assessee. However, I have held that the assessee in the present case has not violated any part of section 13 of the Act. Hence, this issue of revenue’s appeal is dismissed. 22. The second issue in this appeal of Revenue is as regards to the allowance of carry forward deficit on account of excess expenditure while granting benefit under of section 11 of the Act by the CIT(A). For this Revenue has raised the following ground No. 3, 4 and 5: -
“3. Whether, on the facts of the case and in law, the Ld. CIT(A) erred in allowing the carry forward of deficit of Rs. 11,06,82,874/-, and directing the Assessing Officer to allow carry forward of deficit on account of excess expenditure without appreciating the fact that this would have the effect of granting double benefit to the assessee, first as 'accumulation' of income u/s. 11(1)(a) or as corpus donation u/s 11(1)(d) in earlier years/current year and then as 'application' of income u/s 11(l)a in the subsequent years which was legally not permissible.?
Whether, on the facts of the case and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit by relying upon the judgment of Hon’ble Bombay High Court in the case of Institute of Banking Personnel Selection, ignoring the fact that the Department has not accepted the said decision of the jurisdictional High Court on merit of the was not filed before Hon'ble Supreme Court. However, on this issue the department has filed SLPs in other cases before the Hon'ble Apex Court inclusive the case of MIDC (SLP (Civil) 9891 of 2014) in which leave has been granted and the issue is pending for adjudication before the Hon'ble Supreme Court and the case has not reached finality.
Whether, on the facts and in the circumstances of the case and law, the ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit, ignoring the fact that there was no express provisions in the IT Act, 1961 permitting allowance of such claim.”
At the outset, it is noted that this issue is covered by the decision of Hon’ble Bombay High Court in the case of CIT vs. Institute of Banking Personnel Selection (2003) 264 ITR 110 (Bom.) and also in assessee’s own case in ITA No 7122/Mum/2017 for AY 2011-12, wherein Tribunal has considered the judgement of Hon’ble Bombay High court and other judgements and allowed the claim of the assessee by dismissing the appeal of Revenue vide Para 5 as under: -
“5. We have heard the rival submissions and perused the relevant material on record. We find that the Revenue has filed this appeal the order of judgment of Hon’ble Bombay High Court in the case of Institute of Banking Personnel Selection, and MIDC, which has been relied on by the Ld. CIT (A). Since the SLP filed by the Revenue stands dismissed by the Hon`ble Supreme Court. Therefore, the order passed by the Ld. CIT (A) is as per law. We find that the Revenue has also mentioned this fact of SLP in the grounds of appeal so taken as enumerated above. In view of this matter, the issue in appeal are covered by the decision of Hon`ble Supreme Court in appeal in the case of MIDC(SLP (Civil) 9891 of 2014 dated and in Civil Appeal No. 7186 of 2014 dated December 13,2017 in the case of CIT-III Pune v. Rajasthan And Gujarat Charitable Foundation Poona and others various assessee`s including MIDC (copy of order filed).The learned counsel for the assessee also submitted that similar view was taken in the case of CIT v. Subros Education Society [2018] 7 Supreme Court Cases 548. Therefore, following the ratio of above decision, we held the Ld. CIT (A) has rightly allowed the appeal of the assessee, therefore, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Accordingly, the appeal of the revenue on all the above grounds of appeal are therefore, dismissed.” 24. I noted that this issue of denial of carry forward of deficit is covered. I noted facts that during the financial year the relevant income of the assessee which entered the computation under section 11 of the Act and which was to be applied to charitable objects of the Trust was Rs. 2,56,74,090/-, whereas the actual income which was applied by the assessee towards its charitable objects was Rs. 13,63,56,964/-. Therefore, in this year, the assessee applied all sum of Rs. 11,06,82,874/- towards its charitable objects. This excess application or deficit was sought to be carried forward by the assessee to the subsequent years. The same was denied by the AO in his assessment order. But the CIT(A) reversed the findings of the AO and allowed the claim of carry forward of such deficit by relying on several judgments, including those of the Hon'ble Bombay II High Court in the case of Ratan Tata Trust (ITA 158912014) (2017) (Bom) and in the case of CIT vs. Institute of Banking Personnel Selection (1BPS) (264 ITR 110) (2003) (Bom). Before me also now revenue admitted that this issue is covered in favour of the assessee by the jurisdictional High Court in the case of IBPS (supra), however, it argues that an SLP has been filed by the Department in another case (MIDC) and the same is pending before the Hon'ble Supreme Court.
In this regard, it is submitted by Ld Counsel that the issue is not only covered by several decisions of the jurisdictional High Court but also the departments SLP referred to in ground no. 4 has been dismissed on merits by the Hon’ble Supreme Court. The SLP in the case of MJDC was bunched with several other SLPs and the issue miscellaneous application filed by the Revenue in CIT vs. Subros Educational Society, vide MA No. 941 of 2018, in Civil Appeal no. 5171 of 2016, in order dated 16" April. 2018, observing as under:
"In this application filed by the Income Tax Department it is stated that Civil Appeal no.5171 of 2016 arises out of Special Leave Petition (C) ... CC no.8982/2016 was tagged with other appeals and the batch matters were decided by this Court on 13.12.2017. However, the following question was also raised in this instant appeal which was not the subject matter of these appeals.
"('a) whether any excess expenditure incurred by the trust / charitable institution in earlier assessment year could be allowed to be set off against income of subsequent years by invoking section Ii of the Income-tax Act, 1961."
To this extent, Mr. K. Radhakrishnan, learned senior counsel appearing on behalf of the applicant/appellant is correct. Therefore, we have heard him on the aforesaid question of law as well but did not find any merit therein. The miscellaneous application is dismissed.”
In view of the above position, we allow the carry forward of the ‘deficit’ and dismiss this issue of revenue’s appeal. 27. In the result, the appeal of Revenue is dismissed and that of the assessee is allowed. Order pronounced in the open court on 13-09-2019. (महावीर स िंह /MAHAVIR SINGH) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 13.09.2019 दीप रकार, व.यिजी धिव / Sudip Sarkar, Sr.PS आदेश की प्रयिसलपप अग्रेपिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त(अपील) / The CIT(A) 3. आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधि, आयकर अपीलीय अधिकरण, मुिंबई / DR, ITAT, 5. Mumbai गार्ड फाईल / Guard file. 6. आदेशाि ार/ BY ORDER, त्यावपत प्रयत //// उप/ हायक पुंजीकार (Asstt.