INCOME TAX ACT, 1961

Section 11

Charitable trust - Exemption under section 11 - Relevant income or part of income was not exempt under section 11 due to violation of section 13(1)(c) or 13(1)(d) - Taxing entire income at Maximum Marginal Rate (MMR) or relevent income at MMR

Revenue challenged order of CIT(A) allowing benefit of exemption under sections 11 and 12 to assessee. Revenue contended that assessee-trust provided undue benefit in lieu of salary and allowances to the persons specified under section 13(3) and thus provisions of section 13(1)(c)(ii) read with section 13(2)(g) were clearly attracted in case of assessee. Held: Provision of section 164(2) lays down that where relevant income or part of the income is not exempt under section 11 due to violation of section 13(1)(c) or 13(1)(d), then in that eventuality tax shall be charged on the relevant income or part of the relevant income at MMR (Maximum marginal rate) and not that entire income of the trust would be charged to tax at MMR. Therefore, in case there is violation of section 13, then entire income of the trust is not liable to tax at MMR, but only the relevant part of the income which violates section 13 attracts the MMR. In case of assessee, even if it was held that there was violation of section 13, then only the amount of benefit given to the persons specified under section 13(3) out of the income of the trust was chargeable to tax at MMR. Thus, action of AO in taxing the surplus at maximum marginal rate without considering the provisions of sections 11 and 12 was bad in law.

REFERRED : CIT v. Rajasthan & Gujarati Charitable Foundation Poona (2017) 402 ITR 441 (SC) : 2017 TaxPub(DT) 5384 (SC), DIT v. Bharat Diamond Bourse (2013) 126 Taxman 365 (SC) : 2003 TaxPub(DT) 841 (SC), CIT v. Army Wives Welfare Association Lucknow (2020) 116 Taxmann.com 215 (All.) : 2019 TaxPub(DT) 8235 (All-HC), CIT v. Orpat Charitable Trust (2015) 230 Taxman 66 (Guj.-HC) : 2015 TaxPub(DT) 1610 (Guj-HC), DIT v. Charanjiv Charitable Trust (2014) 43 Taxmann.com 300 (Del-Court) : 2014 TaxPub(DT) 1767 (Del-HC), CIT v. FR Mullers Charitable Institutions (2014) 363 ITR 230 (Karn-HC) : 2014 TaxPub(DT) 1568 (Karn-HC), CIT v. Audh Educational Society (2011) 13 Taxmann.com 235 (All-HC) : 2012 TaxPub(DT) 224 (All-HC), CIT v. Gurukul Ghatkeswar Trust (2011) 13 Taxmann.com 68 (AP-HC) : 2011 TaxPub(DT) 1044 (AP-HC), DIT v. Agrim Charan Foundation (2002) 253 ITR 593 (Del) : 2002 TaxPub(DT) 0570 (Del-HC) DIT v. Sheth Mafatlal Gagalbhai Foundation Trust (2001) 249 ITR 533 (Bombay- HC) : 2001 TaxPub(DT) 681 (Bom-HC), DIT v. Shardaben Bhagubhai Mafatlal Public Charitable Trust (2000) 164 CTR 0097 (Bom) : 2001 TaxPub(DT) 631 (Bom-HC), Dy. CIT v. Mahatma Gandhi Charitable Society for Education and Research [ITA No. 359/JP/2019, date of order 23-1-2020 ITAT Jaipur Bench) : 2020 TaxPub(DT) 780 (Jp-Trib), Global Institute of Technology v. Dy. CIT [ITA No. 1066/JP/2018, date of order 5-11-2018 ITAT Jaipur Bench], Free Trade Union Multipurpose Project Trust v. ITO (2018) 95 Taxmann.com 297 (Mum-Trib) : 2018 TaxPub(DT) 4185 (Mum-Trib), Little Flower Educational Society v. ITO (2016) 71 Taxman.com 153 (Chen)(Mag) : 2016 TaxPub(DT) 3358 (Chen-Trib) Rajkala charitable Trust v. Asstt. CIT [ITA No. 140/JP/2015, date of order 28-4-2016 ITAT Jaipur Bench], Dy. DIT v. India Cements Educational Society Dhun Buildings (2016) 67 Taxmann.com 236 [ITAT Chennai Bench 'C'] : 2016 TaxPub(DT) 1416 (Chen-Trib), Hyderabad Stock Exchange Ltd. v. ADIT (2011) 10 Taxmann.com132 (Hyd 'B'-Trib) : 2012 TaxPub(DT) 1112 (Hyd-Trib), Little Tradition v. Dy. DIT (2009) 119 ITD 127 (Del 'B'-Trib) : 2009 TaxPub(DT) 506 (Del-Trib), DIT v. Working Women's Forum (2015) 235 Taxman 516 (SC) : 2015 TaxPub(DT) 5509 (SC) and CIT v. FR. Mullers Charitable Institutions (2018) 227 Taxman 369 (SC) : 2018 TaxPub(DT) 3191 (SC).

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