By TIOL News Service

MUMBAI, APRIL 18, 2015: THE issue before the Bench is - Whether exemption u/s 10 can be granted to an assessee, whose income forms a part of the income from property held under trust. And the verdict favours the assessee.

Facts of the case

The assessee is a trust. It was submitted by the Revenue's counsel that AO had not committing any error in dealing with the issue that exemption in respect of income from property held under trust is allowable u/s 11 only if such income has been applied for charity and not u/s 10. During assessment, the AO held that for the purposes of fulfillment of the conditions of section 11 and section 12, particularly on application of the income derived from property held under trust wholly for charitable or religious purpose had not been further subjected to any exclusion. AO was of the view that the return of income which was filed along with income and expenditure account, balance sheet, audited report and by assessee claiming to be a charitable organization needs scrutiny in the light of the legal provision and namely section 11. AO noted that a sum of Rs 25,96,287/- received on account of dividend income was claimed as exempt u/s 10(33). However, this income forms a part of the income from trust property and, therefore, can only be claimed to be exempt u/s 11 if applied for charity and not u/s 10(33). Claim of exemption under section 10(33) is, therefore, not allowable. Similar was the position with regard to the sum received on account of long term capital gain on redemption of mutual fund investment. That cannot be claimed as exempt u/s 10(38). This finding of AO was based only on reading of sections 10, 11, 12 and 13. In his view, if the provisions of section 11, 12, and 13 were the governing provisions and relate to exemption claimed by charitable institutions, then, the assessee had no option to choose whether it wants to avail the exemption u/s 10(33) or section 11. He relied upon a circular of 1968 issued by the CBDT. AO also relied upon the language of section 11(1) and the expression "total income" defined in section 2(45), as the total amount of income computed in the manner laid down in this Act. The AO was of the view that the word "income" used in section 11(1)(a) does not have the same meaning as has been specifically assigned to the expression "total income" vide section 2(45).

Held that,

++ upon a perusal of the order of AO and that of the Commissioner upholding it, we are of the view that the Tribunal was correct in setting aside these concurrent orders. The language of the two sections is plain and clear. The provisions, namely, sections 10 and 11 fall under a Chapter which is titled "Incomes Which Do Not Form Part of Total Expenditure" (Chapter III). Section 10 deals with incomes not included in total income whereas section 11 deals with income from property held for charitable or religious purposes. 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 assessee. That may be a person who receives or derives income from property held under trust wholly for charitable or religious purposes. Thus, the income which is not to be included in computation of the total income is a matter dealt with by section 10 and by section 11 the case of an assessee who has received income derived from property held under trust only for charitable or religious purposes to the extent to which such income is applied to such property in India and that any such income is accumulated or set apart for application for such purposes in India to the extent of which the income so accumulated or set apart in computing 15% of the income of such property, is dealt with. Therefore, it is a particular assessee and who is in receipt of such income as is falling under clause (a) of sub-section (1) of section 11 who would be claiming the exemption or benefit. That is a income derived by a person from property. It is that which is dealt with and if the property is held in trust for the specified purpose, the income derived therefrom is exempt and to the extent indicated in section 11(1)(a). There is nothing in the language of sections 10 or 11 which says that what is provided by section 10 or dealt with is not to be taken into consideration or omitted from the purview of section 11. If we accept the argument of Mr. Malhotra and the Revenue, the same would amount to reading into the provisions something which is expressly not there. In such circumstances, the Tribunal was right in its conclusion that the income which in this case the assessee trust has not included by virtue of section 10, then, that cannot be considered u/s 11;

++ in the circumstances and when the income from property held for charitable or religious purpose is not a matter covered or dealt with by section 10 that the Tribunal's view cannot be termed as perverse or vitiated by any error or law apparent on the face of the record. The clear language of these provisions enables us to uphold the order of the Tribunal. It is, accordingly, upheld. The Revenue's appeal does not raise any substantial question of law. Even with regard to other two matters, we do not think that the Tribunal order raises any substantial question of law. The Tribunal has interfered with the direction of the Commissioner. That was a direction which was not called for according to the Tribunal. Thus, a remittance or remand back to the Assessing Officer was unnecessary because all factual materials were already on record and before the Commissioner as also the Tribunal. In the circumstances and when there was no dispute on facts that the Commissioner's order was interfered with. The same also does not raise any substantial question of law. As a result of the above discussion, the appeal fails and is dismissed.

(See 2015-TIOL-941-HC-MUM-IT)