S/s. 10, 11 to 13 – Benefit of section 10 cannot be denied by invoking the provisions of s/s. 11 to 13. Therefore, dividend income on shares and mutual funds and long term capital gains on sale of shares which are exempt u/s. 10(34), 10(35) and 10(38), respectively cannot be brought to tax by applying s/s. 11 to 13.
When short term capital gain arising from sale of shares subjected to STT is chargeable to tax at 15% then the maximum marginal rate on such income cannot exceed the maximum rate of tax provided under the Act.
Facts I :
The assessee, a charitable trust, claimed dividend income on shares and units as well as long term capital gain on sale of shares to be exempt u/s. 10(34), 10(35) and 10(38) of the Act. The Assessing Officer (AO) denied the exemption on the ground that the income was derived from property held by the trust and not by any other person. According to him, section 11 exclusively deals with the income from property held under trust and not section 10(34), 10(35) and 10(38). He held that there is a violation under s. 13 and as a result he denied the exemption u/s. 11. He denied the alternative claim that the said income is exempt u/s. 10(34), 10(35) and 10(38) on the ground that these sections do not deal with property held under trust. He observed that if the income of the trust which is not held exempt under s/s. 11, 12 and 13 is allowed to be exempt under other s/s.of section 10, it will lead to open ground for trust to exercise (sic-earn) long term securities income and dividend income and claim exemption of the same under other s/s.s of section 10 of the Act.
Aggrieved the assessee preferred an appeal to CIT(A) who upheld the action of the AO.
Aggrieved the assessee preferred an appeal to the Tribunal.
Held I:
The exemption u/s.10 is income specific irrespective of the status/class of person whereas the exemption u/s. 11 is person specific though on the income derived from the property held under the trust. Further, the exemption u/s. 11 is subject to the application of income and modes or form of deposit and investment.
The Tribunal noted that the Delhi High Court in the case of CIT vs. Divine Light Mission (278 ITR 659) (Del) was dealing with a question whether agricultural income from property held under the trust can be denied exemption u/s.11 of the Act. The Court in that case held that the agricultural income shall not be included in the computation of total income of the previous year in view of section 10(1) of the Act. Therefore, this income was held not required to be considered for the purpose of section 11 of the Act. The Court noted that the Madras High Court in the case of His Holiness Silasri Kasivasi Muthukumara Swami Thambiran & Ors vs. Agrl. ITO & Ors. (113 ITR 889)(Mad) has held that agricultural income derived by charitable or religious trust is exempt u/s. 10 could not be said to be brought to tax under sections 11 to 13. It observed that a similar view has been taken in series of decisions where the question involved was allowability of exemption u/s/s. 10(22), 10(23) vs. sections 11 and 13.
The Tribunal held that exemption u/s.11 is available on the income of the public charitable/religious trust or institution which is otherwise taxable in the hands of other persons. Thus the income which is exempt u/s. 10 cannot be brought to tax by virtue of section 11 and 13 of the Act because no such pre-condition is provided either under sections 10 or 11 to 13 of the Act. Therefore, sections 11 to 13 would not operate as overriding effect to section 10 of the Act. The language of these provisions does not suggest that either section 10 is subject to the provisions of sections 11 to 13 or sections 11 to 13 has any overriding effect over section 10. Therefore, the benefit of section 10 cannot be denied by invoking the provisions of sections 11 to 13 of the Act. Once the conditions of section 10 are satisfied then no other condition can be fastened for denying the claim u/s. 10 of the Act.
The Tribunal held that dividend income on shares and mutual funds and long term capital gain on sale of shares are exempt u/s. 10(34), 10(35) and 10(38) respectively and cannot be brought to tax by applying sections11 and 13 of the Act. This ground of appeal filed by assessee was allowed.
Facts II:
The Assessing Officer (AO) while assessing the total income of the assessee, a charitable trust, denied exemption u/s. 11 of the Act and applied maximum marginal rate of tax to the entire income which included short term capital gains arising from sale of equity shares for which section 111A prescribes the rate to be 15 %. Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal where it was contended that the rate of tax on short term capital gain arising from sale of shares shall be the rate prescribed under the Act u/s.111A and not the maximum marginal rate.
Held :
The Tribunal noted that the rate of tax on short term capital gain arising from sale of equity shares is provided u/s. 111A as 15 %. However, relevant income which is derived from the property held under trust wholly for charitable or religious purpose is charged to tax as per provisions of section 164(2) which does not prescribe the rate of tax but mandates the maximum marginal rate as prescribed under the provisions of the Act. It observed that section 111A is a special provision for rate of tax chargeable on short term capital gain arising from sale of equity shares.
The Tribunal held that when the short-term capital gain arising from the sale of shares subjected to STT is chargeable to tax at 15 % then the maximum marginal rate on such income cannot exceed the maximum rate of tax provided under the Act. It held that the short term capital gain on sale of shares already subjected to STT, is chargeable to tax at maximum marginal rate which cannot exceed the rate provided u/s. 111A of the Act.
This ground of appeal was decided in favor of the assessee.
