2 Section 11 & 13(1)(d) – It is only the income from such investment or deposit which has been made in violation of section 11(5), that is liable to be taxed; violation of section 13(1)(d) does not result in the denial of exemption u/s. 11 to the total income of the assessee.

[2018] 194 TTJ (Del) 715

ITO vs. The Times Centre for Media and
Management Studies

ITA No.: 
1389/Del/2015

A. Y.: 
2010-11    Dated: 31^st
May, 2018

Section 11 & 13(1)(d) – It is only the
income from such investment or deposit which has been made in violation of
section 11(5), that is liable to be taxed; violation of section 13(1)(d) does
not result in the denial of exemption u/s. 11 to the total income of the
assessee. 

FACTS

The assessee was a charitable institution in
terms of section 25 of the Companies Act, 1956 and also registered u/s. 12AA(1)
of the Income-tax Act, 1961. During the year under consideration the assessee
had received a donation of 50,000 shares worth Rs.2,00,000 from Angelo Rhodes
Ltd. (United Kingdom) way back in 1996 and had received dividend income of
Rs.2,36,000.

The AO proceeded to deny the exemption u/s. 11(1) of the Income-tax Act, 1961
for violation of provision of section 13(1)(d) r.w s. 11(5) of the Income-tax
Act, 1961 pertaining to mode of investment.

Aggrieved by the assessment order, the
assessee preferred an appeal to the CIT(A). The CIT(A) granted the assessee the
benefit of exemption on all income except the impugned amount of Rs.2,36,000.

HELD

The Tribunal held that it was well settled
that where investments or deposits had been made by a charitable trust which
were in violation of section 11(5), the benefit of exemption u/s. 11 would not
be denied on the entire income of the assessee and only the
investments/deposits made in violation of provisions of section 11(5) would
attract maximum marginal rate of tax.

The Tribunal followed the ratio of the
Hon’ble High Court decision in the case of CIT vs. Fr. Mullers Charitable
Institutions (2014) 102 DTR (Kal) 386 wherein while dealing with an
identical issue it was held that a reading of section 13(1)(d) made it clear
that it was only the income from such investment or deposit which had been made
in violation of section 11(5) that was liable to be taxed and that the
violation u/s. 13(1)(d) did not tantamount to denial of exemption u/s. 11 on
the total income of the assessee.

The Tribunal relying upon the judgement of
the Hon’ble High Court, held that in the present case the maximum marginal rate
of tax would apply only to the dividend income from shares held in
contravention of section 13(1)(d) and not to the entire income.