HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 60 / 2015 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur-V Appellant Versus Santokba Durlabhji Trust Fund, 139, Johri Bazar, Jaipur (Raj.) Respondent Connected With D.B. Income Tax Appeal No. 130 / 2015 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur, 302005, Jaipur. Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur(Raj.) Respondent D.B. Income Tax Appeal No. 140 / 2015 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur, 302005, Jaipur. Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur(Raj.) Respondent D.B. Income Tax Appeal No. 16 / 2016 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur-V Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur(Raj.) Respondent D.B. Income Tax Appeal No. 19 / 2016 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur-V Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur(Raj.) (2 of 7) [ ITA-60/2015] Respondent D.B. Income Tax Appeal No. 275 / 2016 Commissioner of Income Tax (Exemptions) Kailash Heights, 3rd Floor, Lal Kothi, Tank Road, Jaipur 302015. Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur. Respondent Appellant(s) : Mr. Sameer Jain For Respondent(s) : Mr. Gunjan Pathak HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 12/09/2017 Since these appeals arise out of same order, they are being decided by this common order. By way of these appeals, appellant has challenged judgment and order of Tribunal whereby Tribunal has allowed appeal of assessee. This court while admitting Income Tax Appeal No.60/2015 on 06.08.2015, framed following substantial questions of law:- I) Whether on facts and in circumstances of case learned ITAT was correct in holding that tax at margin rate as per provisions of Section 164(2) is to be levied on income earned from non-exempt asset? II) Whether on facts and circumstances of case more holding of ineligible assets is sufficient to attract provisions of Section 13 (1)(d)(iii) of Act and it is immaterial whether funds of trust were used or not? (3 of 7) [ ITA-60/2015] This court while admitting Income Tax Appeals No.130/2015 & 140/2015 on 24.07.2017, framed following substantial question of law:- Whether on facts and circumstances of case and in law, assessee is eligible to claim under Section 11 even though provisions of Section 13(1)(d)(iii) are attracted. This court while admitting Income Tax Appeal No.16/2016 on 14.09.2016, framed following substantial questions of law:- 1.Whether, on facts and circumstances of case and in law, Ld. ITAT was correct in quashing revision order passed u/s 263 by holding it as neither erroneous nor prejudicial to interests of revenue? 3.Whether, on facts and in circumstances of case and in law, Ld. ITAT was correct in holding that issue of applicability of Section 13(1)(d)(iii) was settled in favour of respondent assessee vide its own order, notwithstanding that said order has already been challenged before this Hon ble Court and appeal is pending adjudication as on date? 4.Whether on facts and in circumstances of case Hon ble ITAT was correct in holding that denial of exemption u/s 13(1)(d)(iii) is to be restricted to only income earned from shares to be taxed at marginal rate u/s 164(2), and not entire income of respondent assessee merely by following its own order for another Assessment Year notwithstanding that issue has not attend finality and same is pending adjudication before this Hon ble Court? This court while admitting Income Tax Appeal No.19/2016 on 18.10.2016, framed following substantial (4 of 7) [ ITA-60/2015] questions of law:- 1.Whether, on facts and circumstances of case and in law, Ld. ITAT was correct in quashing revision order passed u/s 263 by holding it as neither erroneous nor prejudicial to interests of revenue? 2.Whether, on facts and in circumstances of case and in law, Ld. ITAT was correct in holding that issue of applicability of Section 13(1)(d)(iii) was settled in favour of respondent assessee vide its own order, notwithstanding that said order has already been challenged before this Hon ble Court and appeal is pending adjudication as on date? 3.Whether on facts and in circumstances of case Hon ble ITAT was correct in holding that denial of exemption u/s 13(1)(d)(iii) is to be restricted to only income earned from shares to be taxed at marginal rate u/s 164(2), and not entire income of respondent assessee merely by following its own order for another Assessment Year notwithstanding that issue has not attend finality and same is pending adjudication before this Hon ble Court? This court while admitting Income Tax Appeal No.275/2016 on 19.11.2016, framed following substantial questions of law:- 1.Whether, on facts and circumstances of case and in law, ld. ITAT was correct in quashing revision order passed u/s 263 by holding it as neither erroneous nor prejudicial to interests of revenue? 2.Whether, on facts and in circumstances of case and in law, ld. ITAT was correct in holding that issue of applicability of Section 13(1)(d)(iii) was settled in favour of respondent- assessee vide its own order, notwithstanding that said order has already been challenged before this Hon ble Court and appeal is pending (5 of 7) [ ITA-60/2015] adjudication as on date? 3.Whether on facts and in circumstances of case Hon ble ITAT was correct in holding that denial of exemption u/s 13(1)(d)(iii) is to be restricted to only income earned from shares to be taxed at marginal rate u/s 164(2), and not entire income of respondent assessee merely by following its own order for another Assessment Year notwithstanding that issue has not attend finality and same is pending adjudication before this Hon ble Court? facts of case are that assessee filed its return of income on 30.9.2008 declaring Nil income. assessee is Trust and runs hospital namely Santokba Durlabhji Memorial Hospital cum Research Institute. case of assessee was picked up for scrutiny and order u/s 143(3) was passed on 27.12.2010 determining total income of assessee as Rs.6,23,44,980/-. Respondent is trust where they received gift of TISCO Ltd. shares which were subsequently written off. Tribunal while considering matter in para 4.2 observed as under:- 4.2 ld. CIT (DR) contends that I. Assessee Consciously violated statutory provision of continuing with investment of shares in non public sector company, In this eventuality law will take its course as per plain meaning once assessee trust violates specific provision of sec. 13(1)(d); it leads to denial of benefits of sec 11 & 12 to entire trust come. ii. assessee was under obligation to dispose off or convert TISCO shares in to permissible investments by 31st March, 1993 which it failed to do and thereby contravened S. 13(1)(d) (6 of 7) [ ITA-60/2015] iii. It was claimed that these shares were purchased out of sale proceeds of old shares. This plea was also rejected as there was no sale of shares during year under consideration. And if it was in earlier years then it is further established that Trust had invested money out of its own funds. iv. assessee has further claimed that had Trust not opted to subscribe for rights issue it would have resulted in big loss to Trust. Trustees are in fiduciary position and had to act for benefit of Trust. v. AO observed that assessee was trying to compare case of company with that of Trust. functions of Trust are altogether different from functions of company. Trust gets tax benefit under Act only if it satisfies certain conditions laid down in Section 11,12 & 13 and it is not meant for profit motive. On contrary, in case of company profit is most powerful driving force in its functions. vi. shares forming part of corpus were received by it after 1st June, 1973 and even then accretion was not necessarily by wayof bonus shares. assessee had grossly ignored phrase by way of bonus while st4ressing on definition of word accretion statute has allowed accretion oly by way of bonus shares and that too in caes when such shares were with trust on 1st July, 1973. When shares are forming part of corpus after 1st June, 1973, question of accretion does not even arise. Clearly investment in right-issue cannot, by any stretch of imagination, by equated with phrase accretion by way of bonus shares. Ld. DR in order to buttress his arguments relied on following judgments:- I. CIT v. Kumudam Endownments 242 ITR 159 (Madras) ii. DIT (E) v. M. Ct. Muthiah Cheetiar Family trust. Iii. DIT(E0 v. Shardaben Bhagubhai Mafatlal Public Trust NO. 8 and ors. 164 CTR (Bom) 97. (7 of 7) [ ITA-60/2015] These case laws are relied for proposition that in case investments held earlier are not converted into specified investments entire benefits u/s 11 & 12 can be denied on this violation of sec13(1)(d) provisions. Further reliance is placed on: I. Tulsiram Gilda Public Charitable Trust v. ACIT 44 ITD 341 (Hyd) 2. ITO v. Gurjar Pushkarana Vidyotejak Mandal 30 TTJ (Ahd) 610; For proposition that even if proviso to sec. 164(2) inserted from 1-4-85 is considered, it implies that clauses c or d of sec. 13(1) are attracted, in that case trust income is to be taxed at maximum marginal rates. Counsel for respondent supported order of Tribunal. We have heard both parites. Taking into consideration above facts, we are of opinion that view taken by Tribunal is just and proper. In peculiar facts of this case, We are confirming view of Tribunal only in this case and it will not be treated as precedent. issues are answered in favour of assessee and against department. appeals stand dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Chouhan/72-77 Commissioner of Income-tax (Exemptions), Jaipur-V v. Santokba Durlabhji Trust Fund