SMC IN INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI, BEFORE SRI MAHAVIR SINGH, JUDICIAL MEMBER ITA No. 3082/Mum/2018 Assessment Year 2012-13) J.R.D Tata Trust, Income Tax Officer, Bombay House, 24, Homi 2(4), Mody Street, Fort, [Now assessed by Mumbai-400 001 Deputy Commissioner of Vs. Income-tax (Exemptions) - 2(1), Mumbai, Piramal Chambers, Lalbaug, Parel, Mumbai-400 012 Appellant Respondent) PAN No. AAATT0165F ITA No. 3154/Mum/2018 (Assessment Year 2012-13) Income Tax Officer, 2(4), J.R.D Tata Trust, [Now assessed by Deputy Bombay House, 24, Homi Commissioner of Income -tax Mody Street, Fort, Vs. (Exemptions)-2(1), Mumbai, Mumbai-400 001 Piramal Chambers, Lalbaug, Parel, Mumbai -400 012 (Appellant)(Respondent) / Appellant by : Shri Percy Pardiwala, Sukh Sagar Sayal, ARs / Respondent by : Shri Rajat Mittal, DR / Date of hearing: 24.06.2019 Date of pronouncement : 13.09.2019 2 ITA No. 3082 & 3154/Mum/2018 AadoSa /ORDER PER MAHAVIR SINGH, JM: These cross appeals are arising out of order of Commissioner of Income Tax (Appeals)-1, Mumbai [in short CIT(A)], in Appeal No CIT(A)-I/I.T./ITO/E-2(4)/159/2015-16 vide order dated 23.02.2018. Assessment was framed by Income Tax Officer (Exemptions)-Ward 2(4), Mumbai (in short ITO/ AO ) for A.Y. 2012-13 vide order dated 23/03/2015 under section 143(3) of Income Tax Act, 1961 (hereinafter Act ). 2. First issue in this appeal of assessee is against order of CIT(A) in upholding action of AO in concluding that assessee has violated provisions of section 13(1)(d) and 13(2)(h) of Act. Briefly stated facts are that assessee is registered charitable trust with DIT(Exemptions), Mumbai under section 12A of Act vide registration No. TRT 240 dated 28.09.1975. assessee trust filed its return of income for relevant AY 2012-13 on 20.09.2012 along with Income and Expenditure Account, Balance Sheet and Audit Report in Form No. 10B. During course of assessment proceedings, AO noted that assessee has received dividend from shares/ units in following investment: - 3 ITA No. 3082 & 3154/Mum/2018 Investment No. of Amount of Dividend shares/ units investment ( ) received ( ) Tata sons Ltd. 16,200 6,75,000 12,96,00,000 Tata Chemicals Ltd. 46,999 1,53,076 4,66,990 Tata Power Co. Ltd. 14,520 15,346 16,500 Tata Motors Ltd. 1,26,336 97,389 4,21,120 CRTs Units of UTI 75,000 85,15,900 4,81,332 Total 94,56,711 13,09,85,942 This income of Rs.13,05,04,610/- earned as dividend income from above four companies was claimed as exempt u/s 10(34) of Act by assessee. assessee also earned dividend income of Rs. 4,81,332/- from units of Unit Trust of India held by it, which was claimed as exempt under section 10(35) of Act. Further, assessee received interest income and sundry income of Rs. 3,06,62,484/- and Rs. 90342/- respectively, which were claimed as exempt under section 11 of Act. 3. According to AO, assessee is hit by provisions of section 13(1)(d) of Act of as Trust had made investment in equity shares in violation of section 13(1)(d) of Act and thus exemption under section 11 and 12 of Act will not be allowable in respect of income of assessee trust. According to AO, assessee s total receipts are to tune of 16,17,38,768/- is taxable at maximum marginal rate under section 164 of Act. assessee claimed that dividend on shares and units is not includible in total income because dividend income of shares and mutual funds and long term capital gain on sale of shares are exempted under section 10(34), 10(35) and 10(38) of Act respectively and also cannot be brought to tax by applying 4 ITA No. 3082 & 3154/Mum/2018 provisions of section 11 and 13 of Act. But according to AO, section 13(1)(d) of Act is exception, wherein exemption under section 11 is not applicable to certain cases prescribed in section. He noted that provisions of section 13(1)(d) states that if any funds of trust or institution are invested or deposited otherwise then anyone or more of forms or modes specified in section11(5) of Act after 28.02.1983 then exemption under section 11 of Act is to be denied. According to AO, assessee has invested in shares of Tata Sons Limited, Tata Chemicals Limited, Tata Motors Limited and Tata Power Company Limited, assessee has also violated provisions of section 13(2)(h) of Act. According to him, assessee s trust was founded by Shri GRD Tata. Shri. Ratan N Tata was chairman of Tata Group from 1991 to 2012. After 28.12.2012, Shri Ratan N Tata holds position of Chairman Emirates of Group which is honorary and advisory position. He noted that during relevant Assessment Year, Shri. Ratan N Tata, was one of trustees of assessee trust and founder trustee. As founder trustee, he is invested funds in concern where he is chairman. Accordingly, AO noted that Tata Sons Limited is interested party in term of section 13(3)(b) of Act as it has continued to assessee s trust more than Rs. 50,000/-. Hence, he noted that this transaction is hit by section 13(2)(h) of Act. Finally, AO held that assessee has violated provisions of section 13(1)(d) and 13(2)(h) of Act. Hence, income from these investments is taxable and nothing contains in section 11 or 12 of Act shall operate, not to include in 5 ITA No. 3082 & 3154/Mum/2018 total income of previous year of assessee. Aggrieved, assessee preferred appeal before CIT(A). 4. CIT(A) held that assessee has violated provisions of section 13(1)(d) and 13(2)(h) of Act and denied claim of exemption under section 11 and 12 of Act by observing in para 6.3 to 6.3.4 as under: - 6.3 I have considered facts of case and also submissions made by appellant. assessee is charitable trust. During year AO observed that assessee had shown investment in 2,04,055/- ordinary shares of TATA Sons Ltd. and other TATA group companies from which it has received dividend of Rs. 13,05,04,610/-. This implies that assessee had invested in prohibited mode of investment as per provision of Section 13(I)(d) of Income Tax Act, 1961. assessee was specifically asked by AO vide order sheet noting dated 11.05.2015 as to why provisions of Section 13(I)(d)(i) should not be invoked as regards investment in shares of company which was not public sector company. assessee submitted that investment in shares of Tata Sons Limited and group companies does not attract provision of 13(l)(d)/13(2)(h) as this asset are held by assessee trust as purpose as on 6 ITA No. 3082 & 3154/Mum/2018 l June 1973 and such assets are permitted to beheld as assets by trust. Any accretion to such shares by way of bonus is also permitted to be held by assessee trust as per proviso to section 13(1)(d)(iii) of I.T. Act. However, appellant trust has invested in shares of Tata Sons Ltd. and others and same have been held by assessee trust during year, provision of Section 13(l)(d) clearly specify that trust cannot hold any funds as investment otherwise than in any one or more of trie forms or modes specified in Section 11(5) of Income Tax Act. Hence, AO disallowed exemption u/s 11 and 12 of Income Tax Act. By investing in shares of Tata Sons Ltd., assessee has also violated Section 13(2)(h) as Tata Sons Ltd. is interested party in term of section 13(3)(b) as it has contributed to assessee trust more than Rs 50,000/-. In view of above, AO disallowed exemption u/s 11 on dividend income of Rs. 4,81,332/- and Rs. 13,05,04,610/-. income of assessee was charged at Maximum Marginal Rate u/s 164(2) of Income Tax Act. 6.3.1. Here, appellant submitted various details and stated that Trust was holding shares of Tata Sons Ltd. and other groups 7 ITA No. 3082 & 3154/Mum/2018 companies. These shares were not invested by trust but were received as bonus shares and are permitted to be held by assessee. Since, these investments on shares has been made prior to year 1973, hence TATA group shares should not attract provisions of section 13(l)(d)(iii) of Act and accordingly, utilization of dividend income arising from such shares should also not attract provisions of section 13(l)(d)(i) of Act. Hence, Trust cannot be held to be in violation of section 13(l)(d)(i), 13(l)(d)(iii) and 13(2)(h) of Act and hence benefits of section 11 cannot be denied to Trust. Further, appellant has submitted that during AY 2012-13, since appellant trust has earned dividend from above investments, even if teamed AO's contention that Trust is violative of section 13 is to be accepted, only income from prohibited investments i.e. dividend income in this case should be denied exemption benefits under section 11 of Act. Furthermore, appellant has relied on decision of Hon'ble Supreme Court in case of Director of Income Tax, Chennai vs Working 6.3.2. I consider appellant submission and facts of case, On identical issues in case 8 ITA No. 3082 & 3154/Mum/2018 of TATA Group trust viz. Jamsetji Tata Trust (JTT), JTT had filed appeal against order of CIT(A) for assessment year 2010-11 before Hon ble ITAT Mumbai in ITA No. 7006/Mum/2013 order dated 26.03.2014, where it was held by Hon'ble Tribunal that "8.4 Following above decision we hold that brooch of section 130(d) and 23(2)(h) would lead to forfeiture of exemption of income derived from such investment and not entire income would be subjected to maximum marginal rate of tax u/s. 164(2). Thus exemption u/s 11 is available to assessee Only on income to extent same is derived in conformity of section 11 and applied during yea' for such purpose of charitable trust.' 6.3.3 Thus, as per above decision of Hon ble ITAT in group case of appellant trust, income which is derived from investments made in Instruments in violation of provisions of Section 13(l)(d) and 13(2)(h) would lead to forfeiture of exemption of income derived from such investment which in this year is dividend income received from shares of TATA Sons Ltd. and other TATA Group Companies. 9 ITA No. 3082 & 3154/Mum/2018 6.3.4 Respectfully, following decisions of Hon'ble Supreme Court in case of Director of Income Tax, Chennai vs Working Women's Forum [2015] 63 taxmann.com 324 (SC) and Hon'ble ITAT order, AO is directed to compute income of appellant trust accordingly for assessment year under consideration. However, AO is also directed to incorporate rulings in Para 5.3 (Supra) for Grounds no. 1 to 3 in respect of exemption of dividend income in instant case while arriving at total income of appellant trust. Aggrieved, by order of CIT(A) upholding order of AO for violation of section 13(1)(d) and 13(2)(h) of Act assessee preferred appeal before Tribunal. For this assessee has raised following two grounds: - 1. On facts and under circumstances of case and in law, learned Commissioner of Income-lax (Appeals) [CIT(A) has erred in upholding action of Income- tax Officer (Exemptions) - 2(4) (the learned AO) in concluding that assessee has violated provisions of Section 13(1)(d) and 13(2)(h) of Act. Appellant prays that conclusion reached by learned CIT(A) and learned AO, 10 ITA No. 3082 & 3154/Mum/2018 holding Appellant violative of Section 13(1)(d) and 13(2)(h) of Act be declared as erroneous. 2. On facts and under circumstances of case and in law, learned CIT(A) has erred in not considering submission of Appellant that shares held by Appellant were held prior to 1 June 1973 and hence not in violation as per clause (i) and (ia) of proviso to section 13(1)(d) read with section 11(5) of Act. Appellant prays that it be held that shares held by Appellant are not in violation under clause (i) and (ia) of proviso to section 13(1)(d). 5. I noted that AO as well as CIT(A) held that assessee is hit by provisions of section 13(1)(d) and 13(2)(h) of Act as assessee s trust has made investment in instruments from where it is deriving income and therefore these provisions would lead to forfeiture of exemption of income derived from such investment. Even, this year dividend income received from shares of Tata Sons Limited and other Tata Group of Companies is clearly hit by provisions of section 13(1)(d) and 13(2)(h) of Act. I noted fact that assessee s trust held investment in following shares during year under consideration: - Name of company Number of shares 11 ITA No. 3082 & 3154/Mum/2018 Tata Motors Limtied Quoted Shares 1,05,280 Tata Power Limited- Quoted Shares 13,200 Tata Chemicals Limited Quoted Shares 46,699 Tata Sons Limited Unquoted shares 16,200 6. fact stated was that investment in these shares have been made period prior to year 01.06.1973 and assessee s trust fulfill condition as mentioned in proviso (i) and (ia) to section 13(1)(d)(iii) of Act. learned Counsel for assessee now drew our attention to provisions of section 13 (1) of Act as under: - Section 11 not to apply in certain cases. 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from total income of previous year of person in receipt thereof 13(d) (d) in case of trust for charitable or religious purposes or charitable or religious institution, any income thereof, if for any period during previous year (i) any funds of trust or institution are invested or deposited after 28th day of February, 1983 otherwise than in any one or more of forms or modes specified in sub-section (5) of section 11; or 12 ITA No. 3082 & 3154/Mum/2018 . (iii) any shares in company, other than (A) shares in public sector company; (B) shares prescribed as form or mode of investment under clause (xii) of sub- section (5) of section 11, are held by trust or institution after 30th day of November, 1983: 7. learned Counsel for assessee took us through proviso that noting contained in this clause i.e. clause 13(1)(d) will apply in relations to assets held by trusts or institution where as investment form part of corps of trust or institution as on 01.06.1973 and further, as per clause (ia) accretion to shares forming part of corpus mentioned in clause (i) by way of bonus shares allotted to trusts or institutions. learned Counsel for assessee explained as per proviso (i) to section 13(1)(d)(iii) of Act, where any assets are held by assessee as corpus as on 01.06.1973, such assets are permitted to be held as assets by Trust. In accretion to such shares by way of bonus is also permitted to be held by that assessee under clause (i)(a) of Act by proviso to section 13(1)(d)(iii) of Act. In view of this, it was explained by learned Counsel that on combined reading of proviso (i) & (ia) with section 13(1)(d) of Act, if trust holds its investment prior to 01.06.1973, then such assets shall qualify as compliant investment and trust is permitted to hold same. 13 ITA No. 3082 & 3154/Mum/2018 Hence, it cannot be said that trust has violated provisions of section 13(1)(d) of Act. Hence, benefit of section 11 of Act cannot be denied to assessee s trust. Before us, learned Counsel for assessee also filed 95th Annual Report of Tata Sons Limited for FY 2012-13, wherein he took us through details of shares in company held by each shareholders holding more than 5 % of shares but none of below shareholder is named as Shri. Ratan N Tata. Name of shareholders No. of Ordinary shares held 31-Mar-2013 31-Mar-2012 Sir Dorabji Tata Trust 1,13,067 1,13,067 Sir Ratan Tata Trust 95,211 95,211 Sterling Investment Corporation 37,122 37,122 Private Limited Cyrus Investments Private Limited 37,122 37,122 No of CRPS held Name of Shareholders 31-Mar-2013 31-Mar-2012 Jamsetji Tata Trust 2,45,00,000 2,45,00,000 Navajbai Ratan Tata Trust 1,50,15,000 1,50,15,000 8. Similarly, learned Counsel took us through 67th Annual Report of Tata Motors for FY 2011-12, wherein details of shareholding is given from where noted that Shri Ratan Tata is not investor. Similarly, learned Counsel for assessee drew our attention to 93rd Annual Report of Tata Computer Company for FY 2011-12, wherein top ten shareholders of Tata Computer Company as on 31.03.2012 is given. In this year also, there is no one in name of Shri Ratan N Tata. assessee has also filed details of Tata Chemicals Limited statement showing share of shareholders etc. in category of promoters and promoters 14 ITA No. 3082 & 3154/Mum/2018 group but there is no Shri Ratan N Tata or assessee of Trust. I noted that assessee has submitted various details and trust was holding shares of Tata Sons limited and other group of companies. These shares were not invested by Trusts but was received as bonus shares and are permitted to be held by assessee since these investments of share has been made prior to year 1973 and hence, these Tata Group shares should not hit provisions of Section 13(1)(d)(iii) of Act. Accordingly, utilization of dividend income arising from such shares are also not target provisions of section 13(1)(d)(i) of Act. relevant clause of section 13(1)(d)(i) read ad under: - (d) In case of trust for charitable or religious purposes or charitable or religious institution, any income thereof, if for any period during previous year (i) any funds of trust or institution are invested or deposited after 28th day of February, 1983 otherwise than in any one or more of forms or modes specified in sub-section (5) of section 11; or . 9. learned Counsel for assessee also drew our attention to provisions of section 13(2)(h) of Act and also to provisions of section 13(3) which read as under: - Provided that nothing in this clause shall apply in relation to 15 ITA No. 3082 & 3154/Mum/2018 (i) any assets held by trust or institution where such assets form part of corpus of trust or institution as on 1st day of June, 1973; (ia) any accretion to shares, forming part of corpus mentioned in clause (i), by way of bonus shares allotted to trust or institution; 13(2)(h) 2) Without prejudice to generality of provisions of clause (c) and clause (d) of sub-section (1), income or property of trust or institution or any part of such income or property shall, for purposes of that clause, be deemed to have been used or applied for benefit of person referred to in sub-section (3), (3) persons referred to in clause (c) of sub-section (1) and sub-section (2) are following, namely: (a) author of trust or founder of institution; (b) any person who has made substantial contribution to trust or institution, that is to say, any person 16 ITA No. 3082 & 3154/Mum/2018 whose total contribution up to end of relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is Hindu undivided family, member of family; (cc) any trustee of trust or manager (by whatever name called) of institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of persons referred to in clauses (a), (b), (c), (cc) and (d) has substantial interest. 10. learned counsel for assessee stated Shri Ratan N. Tata is not founder of Tata Sons, whereas founder was Jamshedji Tata. He was chairman of Tata Sons Limited from 1991 to 2012 and after 28.12.2012, he holds position of chairman of emirates of group which is honorary and advisory positions no doubt that Shri Ratan N Tata was one of trustees of assessee s trust. learned Counsel for assessee also drew our attention to details of investments made by trust along with year of acquisition, from where it is noted that investments have been made prior to 1973 and hence, same along with 17 ITA No. 3082 & 3154/Mum/2018 bonus shares issued therein are permissible of investments as per clause (i) and (ia) of proviso of section 13(1)(d)(iii) of Act. It is also fact that one of trustee does not hold substantial interest of 20% or more in any of companies where trustees has investment and hence, findings given by AO and CIT(A) on this issue is completely erroneous. In above given facts, I are of view that trust has not violated provisions of section 13(1)(d) and 13(2)(h) of Act. 11. I have gone through entire provisions, csae records and arguments. I noted that AO was of opinion that assessee's holding of shares in four companies mentioned above, was in violation of section 13(l)(d) of Act, and consequently, its entire income was taxable at maximum marginal rate under section 164 of Act. In coming to conclusion that assessee's shareholding in four companies is in violation of section 13(l)(d) of Act, he relied on decision of Tribunal in case of Jamsediji Tata Trust ('ITA No. 7006IMum/2013) (AY 2010-11). It was brought to notice of both AO and CIT(A) that case of assessee is covered by clauses (i) and (ia) of proviso to section 13(1)(d) of Act and, accordingly, disabling provisions contained in section 13(l)(d) do not apply to assessee qua its shareholding in four companies. relevant portion of proviso to section 13(1)(d) is reproduced above. I noted that shares held during year in four companies consisted of assessee's holding of such shares (which were received by it prior to year 1973 and held as 18 ITA No. 3082 & 3154/Mum/2018 corpus) and bonus shares received thereon over subsequent years. In this regard, statement of assessee's shareholding in four companies over years was filed before lower authorities as well as before Tribunal (Page 38 of paper book). perusal of same would show that assessee's original shareholding in each of four companies originates from period prior to 1st June, 1973 and has accretions by way of bonus issues made subsequently. Therefore, case of assessee is covered by clauses (i) and (ia) of proviso to section 13(1)(d) and shares are not held in violation of section. CIT(A) specifically noted assessee's arguments regarding its case being covered by proviso to section 13(1)(d) in paras 6.2, 6.3 and 6.3.1 of his order, yet benefit of proviso was not granted and findings of AO were confirmed by relying on Tribunal order in case of Jamsesji Tata Trust (supra). In this regard, it is submitted that dispute in case of Jamsetji Tata Trust (supra) was limited to application of main part of section 13(i)(d) and question of applicability of proviso was not raised therein as admittedly benefit of proviso was not available to that Trust. This was for reason that shares held by that Trusts were received by it after 1st June, 1973. As matter of fact, Jamsetji Tata Trust itself was settled in year 1974, therefore, question of receiving any shares prior to 1st June, 1973 did not arise in facts of that case. Accordingly, CIT(A) erred in relying on decision of Jamseiji Tata Trust (supra) to come to conclusion that proviso to section 13(1)(d) is inapplicable. In light of 19 ITA No. 3082 & 3154/Mum/2018 above, I am of firm view that assessee's shareholding in four companies is not in violation of section 13(1)(d) of Act. 12. AO alleged that assessee's shareholding in four companies is also in violation of section 13(2)(h) of Act. AO observed that Mr. Ratan N. Tata, who is one of Trustees of assessee was also chairman of Tata Sons Ltd in relevant financial year. With this background, AO concluded that being chairman in Tata Sons Ltd. amounted to his holding substantial interest' in that company. Accordingly, it was held assessee was in violation of section 13(2)(h) of Act as its funds were invested in concern (Tata Sons Ltd.), in which person referred to in sub- section (3) (Mr. Ratan N. Tata) had substantial interest (by virtue of his chairmanship therein). CIT(A) confirmed findings of AO. I am of view that that 'substantial interest' is not expression of general import. Its meaning has been set out in section 13 itself. Explanation 3 to section 13 Provides: Explanation 3. For purposes of this section. person shall he deemed to have substantial interest in concern, (ii) in case where concern is company, if its shares (not being shares entitled to fixed rate of dividend whether with or without further right to participate in profits) carrying not less than twenty per cent of voting power are, at any time during previous year, owned beneficially by such person or partly by 20 ITA No. 3082 & 3154/Mum/2018 such person and partly by one or more of other persons referred to in sub-section (3); (ii) in case of any other concern, if such person is entitled, or such person and one or more of other persons referred to in sub- section (3) are entitled in aggregate, at any time during previous year, to not less than twenty per cent. of profits of such concern. 13. Applying aforesaid definition to facts of present case, assessee's shareholding in four companies even if held prior to 1st June, 1973 would have been violative of section 13(2)(h) if any of its trustees [or any other person referred to in sub- section (3)] held shares in four companies carrying more than 20% voting power. In course of proceedings, Annual Reports of all four companies for F.Y. 2011-12 were submitted. Reference was made to schedule containing disclosure of shareholders holding more than 5% equity shares of company and it was pointed out that neither Mr. Ratan N. Tata, nor any other persons referred to in sub-section (3) held more than 5% equity/voting power in any of four companies. Therefore, question of holding shares carrying more than 20% voting power in companies does not arise. In light of above, I am of view that being chairman in company does not amount to holding 'substantial interest' therein in terms of clear mandate of Explanation 3 to section 13 of Act. Hence, I am of view that 21 ITA No. 3082 & 3154/Mum/2018 assessee has not violated provision of section 13(2)(h) of Act and hence, on both grounds assessee succeeds. 14. next issue raised by assessee is as regards to order of CIT(A) confirming action of AO in holding that assessee trust has violated section 13(3)(b) of Act. Assessee raised following additional ground: - 3. On facts and under circumstances of case and in law, learned Commissioner of income-tax (appeals) [CIT(A)] erred in upholding factually incorrect finding of income tax officer (exemptions)-2(4) ( learned AO ) that Tata Sons Ltd ( TSL ) has made contribution of more than 50,000 to Appellant trust and hence, is person referred to in clause (b) of sub-section (3) of section 13 of Income-tax Act, 1961. 15. As regards to admissibility of additional ground, Ld Counsel argued that this additional ground is raised under Rule 11 of Income-tax (Appellate Tribunal) Rules, 1963 as per settled law that jurisdictional issue can be raised at any point of time. On this, learned Sr. DR has not objected to admission of this additional ground. Hence, we admit this ground and adjudicate. 16. After hearing both sides, I noted that while dealing with assessee shareholding in four companies, AO made general observation that Tata Sons Ltd was person referred to in section 13(3)(b) of Act as it had contributed to assessee, 22 ITA No. 3082 & 3154/Mum/2018 sum exceeding Rs. 50,000/-. CIT(A) referred to this observation of AO in para 6.3 of his order, which reads as under: - I have considered facts of case and also submissions made by appellant. assessee is charitable trust. During year, AO observed that assessee had shown investment in 2,04,055/- ordinary shares of TATA Sons Ltd. and other TATA group companies from which it has received dividend of Rs. 13,05,04,610/-. This implies that assessee had invested in prohibited mode of investment as per provision of Section 13(l)(d) of Income Tax Act, 1961. assessee was specifically asked by AO vide order sheet noting dated 11.05.2015 as to why provisions of Section 13(l)(d)(i) should not be invoked as regards investment in shares o company which was not public sector company. assessee submitted that investment in shares of Tata Sons Limited and group companies does not attract provision of 13(l)(d)/13(2)(h) as this assets are held by assessee trust as purpose as on l June 1973 and such assets are permitted to be held as assets by trust. Any accretion to such shares by way of bonus is also permitted to be held by assessee trust as per proviso to section 13(1)(d)(iii) of IT. Act. 23 ITA No. 3082 & 3154/Mum/2018 However, appellant trust has invested in shares of Tata Sons Ltd. and others and same have been held by assessee trust during year, provision of Section 13(l)(d) clearly specify that trust cannot hold any funds as investment otherwise than in any one or more of forms or modes specified in Section 11(5) of Income Tax Act. Hence, AO disallowed exemption u/s 11 and 12 of Income Tax Act. By investing in shares of Tata Sons Ltd., assessee has also violated Section 13(2)(h) as Tata Sons Ltd. is interested party in term of section 13(3)(b) as it has contributed to assessee trust more than Rs 50.000/-. In view of above, AO disallowed exemption u/s 11 on dividend income of Its. 4,81,332/- and Rs. 13,05,04,610/-. income of assessee was charged at Maximum Marginal Rate u/s 164(2) of Income Tax Act. 17. I noted that this finding is factually incorrect. Tata Sons Ltd. has not made any contribution to assessee, let alone contributing sum in excess of Rs. 50,000/-. In course of assessment proceedings, no question was ever asked nor was any detail called for in this regard by AO. Hence, I am of view that this observation is factually incorrect and reversed. This additional ground is decided in favour of assessee. 24 ITA No. 3082 & 3154/Mum/2018 18. first issue in appeal of Revenue is against allowances of exemption under section 10(34) and 10(38) of Act. CIT(A) allowed claim of assessee in respect of claim of exemption of dividend income on mutual funds and long term capital gain on sale of shares under section 10(34) and 10(38) of Act respectively amounting to Rs. 4,81,352/- i.e. dividend of units only by following decision of Hon ble Bombay High Court in case of Director of Income-tax (Exemptions)v. Jasubhai Foundation [2015] 374 ITR 315 (Bombay). 15. CIT(A) reversed findings of AO and held that only income which is derived from holding of shares of four companies, i.e. dividend income loses exemption under section 11 of Act and that remaining income of assessee continues to enjoy exemption under said section. Reliance in this regard was placed on judgment of Hon'ble Madras High Court in case of CIT Vs. Working Women's Forum (2014) 365 ITR 353 (Mad) and dismissal of department's SLP against such judgment by Hon'ble Supreme Court, reported in 63 taxmann.com 324. It was further held by CIT(A), that nevertheless, dividend income is exempt under section 10(34) of Act. Finally, CIT(A) allowed claim of exemption under section 10(34) of Act on dividend income received during year by observing as under: 5.3.3. In case of DCIT (E)-2(1), Mumbai v/s. Pirojsha Godrej Foundation in ITA No. 822/Mum/2017' for A.Y. 2012-13, I- Hon'ble ITAT, SMC Bench, Mumbai has, relying 25 ITA No. 3082 & 3154/Mum/2018 on decision of Hon'ble Bombay High Court in case of jasubhai Foundation 374 ITR 215', upheld order of CIT(A) directing AO to allow assessee's claim of exemption u/s. 10(34) on dividend income received during year after due verification. 5.3.4. In view of above, Assessing Officer is directed to follow findings of Hon'ble Courts as above and allow appellant's claim of exemption under section 10 on dividend income received during year. Aggrieved, Revenue came in appeal before Tribunal and raised following ground No. 1 and 2: - 1. Whether on facts and in circumstances of case and in law, Ld. C!T(A) is right in holding that only income derived from investments violative of investment made in modes other than prescribed under section 11(5) r. w. s. 13(1)(d) of LT. Act is to be charged at maximum marginal rate and entire exemption u/s 11 or 12 cannot be denied despite clear and unambiguous language of section 13(1)d) according to which nothing contained in section 11 or 12 shall operate so as to exclude total income of previous year in case of trust for charitable or religious purposes, any income thereof, if investment 26 ITA No. 3082 & 3154/Mum/2018 is in violation of clause (i) to (iii) of section I 1(I)(d).. 2. Whether on facts and in circumstances of case and in law, Ld. CIT(A) is right in applying ratio laid down by Hon ble Supreme Court in case of Director of Income Tax, Chennai Vs. Working Women's Forum 12015163 ta.xmann.com 324 (SC) in which SLP of department was rejected whereas Hon tie Apex Court has already held in Bharat Diamond Bourse reported in 259 ITR 280 (SC) that benefits under section 11 and 12 of IT Act would be denied totally in event of any violation of section 13 of I.T. Act. 19. I have heard rival contentions on this issue. I noted that AO opined that once shareholding of assessee in four companies is held to be in violation of section 13 of Act, then, entire income of assessee becomes taxable at maximum marginal rate under section 164 of Act. According to AO, in such cases assessee cannot claim exemption under section 11 of Act for any income, irrespective of whether such other income has any nexus with allegedly violative investments or not. Accordingly, it was held that even interest income of Rs. 3,06,62,484/- and sundry income of Rs. 90,342/- cannot be claimed as exempt under section 11 of Act. But, CIT(A) reversed findings of AO and held that only income which is derived 27 ITA No. 3082 & 3154/Mum/2018 from holding of shares of four companies, i.e. dividend income loses exemption under section 11 of Act and that remaining income of assessee continues to enjoy exemption under said section. Reliance in this regard was placed on judgment of Hon'ble Madras High Court in case of CIT Vs. Working Women's Forum (2014) 365 ITR 353 (Mad) and dismissal of department's SLP against such judgment by Hon'ble Supreme Court, reported in 63 taxmann.com 324. It was further held by CIT(A), that nevertheless, dividend income is exempt under section 10(34) of Act. Finally, CIT(A) allowed claim of exemption under section 10(34) of Act on dividend income received during year. I noted that revenue before me argued that CIT(A) has erred in relying on judgment in case of Working Women's Forum (supra) and that it should have instead followed judgment of Hon ble Supreme Court in case of DIT vs. Bharat Diamond Bourse (259 ITR 280) (2003) (SC). I noted that assessee's shareholding in four companies. as discussed above, is not in violation of section 13 of Act. Therefore, any question of denial of exemption under section 11 of Act does not arise and these grounds of department are actually infructuous. 20. But, even if it is held that such shareholding is in fact violative of section 13 of Act, it is only income from such shares, i.e. dividend income, which goes out of purview of section 11 of Act. On this allegation alone, entire income of assessee cannot be denied exemption under section 11 of Act. Further, 28 ITA No. 3082 & 3154/Mum/2018 this issue is no longer res-integra in view of series of judgments in favour of assessee, including those of Hon ble Bombay High Court in case of DIT vs. Sheth Mafatlal Gagalbhai Foundation Trust (249 ITR 533) (2001) (Bom) and in case of CIT vs. Audyogik Shikshan Mandal (261 Taxman 12) (2019) (Bom). limited issue in that case was whether objects of that Trust were charitable or not and whether person to whom loan was granted in that case, was person covered under section 13(3) of Act or not. As matter of fact, Hon'ble Bombay High Court has specifically dealt with department's reliance on Bharat Diamond Bourse (supra) in its judgment in case of Audyogik Shikshan Mandal (supra) and held that this judgment does not deal with issue of limited versus complete denial of exemption under section 11 of Act. relevant observations of High Court in Audyogik Shikshan Mandal (supra) are extracted hereunder: 7.We find that impugned order of Tribunal has placed reliance upon decision of Karnataka High Court in Fr. Mullers Charitable Institutions (supra), after having noted that the decision of Supreme Court in Bharat Diamond Bourse (supra) does not very clearly specify whether it is only income diverted as loans to person specified under Section 13 of Act, which was denied benefit of Section 11 of Act or entire income was denied benefit of exemption under Sect ion 11 of Act. We have closely 29 ITA No. 3082 & 3154/Mum/2018 read decision of Apex Court in Bharat Diamond Bourse (supra) and it does not extend benefit of Section 11 of Act to Trust. However, it is not clear whether it is only to extent of income diverted or entire income. This, for reason that dispute between parties therein was not as arising in this case. basic dispute in above case was - whether objects of Trust were charitable and whether person to whom loan was given was person covered by Section 13 of Act. decision of Karnartaka High Court in Fr. Mullers Charitable Institutions (supra), dealt with very issue herein viz. denial of exemption of entire income under Section 11 of Act, or is denial restricted only to quantum of diverted funds. This, as it is hit by Section 13 of Act. Court held that benefit of Section 11 of Act will not be available only in respect of diverted income. above decision of Karnataka High Court was basis for view in impugned order of Tribunal. Moreover, we note that order of Karnataka High Court in case of Fr. Mullers Charitable Institutions (supra) inter alia, places reliance upon decision of this Court in DIT(Exemption) v. Sheth Mafatlal Gagalbahai Foundation Trust [2001] 114 Taxman 19/249 30 ITA No. 3082 & 3154/Mum/2018 ITR 533 (Bom.) and Delhi High Court in case of IT (Exemption) v. Agrim Charan Foundation [2002] 253 ITR 593/[2001] 119 Taxman 569. Moreover, on plain reading of Sections 11 and 13 of Act, it is clear that legislature did not contemplate denial benefit of Section 11 of Act to entire income of Trust. If interpretation sought to be advanced by Revenue is accepted, it would lead to grave injustice as any mistake minor and/or misdemnour involving small amount takes place by Trust, consequence would be denial of benefit of exemption to entire income otherwise admittedly used for charitable purposes. It is pointed out to us that decision of Karnataka High Court in Fr. Mullers Charitable Institutions (supra) was carried by Revenue to Supreme Court and its SLP was dismissed on 19th September, 2014 Fr. Mullers Charitable Institutions (supra). 21. In view of above I am of view even on alternative also exemption under section 11 of Act is not to he denied to entire income of assessee. However, I have held that assessee in present case has not violated any part of section 13 of Act. Hence, this issue of revenue s appeal is dismissed. 31 ITA No. 3082 & 3154/Mum/2018 22. second issue in this appeal of Revenue is as regards to allowance of carry forward deficit on account of excess expenditure while granting benefit under of section 11 of Act by CIT(A). For this Revenue has raised following ground No. 3, 4 and 5: - 3. Whether, on facts of case and in law, Ld. CIT(A) erred in allowing carry forward of deficit of Rs. 11,06,82,874/-, and directing Assessing Officer to allow carry forward of deficit on account of excess expenditure without appreciating fact that this would have effect of granting double benefit to assessee, first as 'accumulation' of income u/s. 11(1)(a) or as corpus donation u/s 11(1)(d) in earlier years/current year and then as 'application' of income u/s 11(l)a in subsequent years which was legally not permissible.? 4. Whether, on facts of case and in circumstances of case and in law, Ld. CIT(A) erred in allowing claim of assessee for carry forward of said deficit by relying upon judgment of Hon ble Bombay High Court in case of Institute of Banking Personnel Selection, ignoring fact that Department has not accepted said decision of jurisdictional High Court on merit of 32 ITA No. 3082 & 3154/Mum/2018 case, but due to smallness of tax effect appeal was not filed before Hon'ble Supreme Court. However, on this issue department has filed SLPs in other cases before Hon'ble Apex Court inclusive case of MIDC (SLP (Civil) 9891 of 2014) in which leave has been granted and issue is pending for adjudication before Hon'ble Supreme Court and case has not reached finality. 5. Whether, on facts and in circumstances of case and law, ld. CIT(A) erred in allowing claim of assessee for carry forward of said deficit, ignoring fact that there was no express provisions in IT Act, 1961 permitting allowance of such claim. 23. At outset, it is noted that this issue is covered by decision of Hon ble Bombay High Court in case of CIT vs. Institute of Banking Personnel Selection (2003) 264 ITR 110 (Bom.) and also in assessee s own case in ITA No 7122/Mum/2017 for AY 2011-12, wherein Tribunal has considered judgement of Hon ble Bombay High court and other judgements and allowed claim of assessee by dismissing appeal of Revenue vide Para 5 as under: - 5. We have heard rival submissions and perused relevant material on record. We find that Revenue has filed this appeal 33 ITA No. 3082 & 3154/Mum/2018 contending that SLP has been filed against order of judgment of Hon ble Bombay High Court in case of Institute of Banking Personnel Selection, and MIDC, which has been relied on by Ld. CIT (A). Since SLP filed by Revenue stands dismissed by Hon`ble Supreme Court. Therefore, order passed by Ld. CIT (A) is as per law. We find that Revenue has also mentioned this fact of SLP in grounds of appeal so taken as enumerated above. In view of this matter, issue in appeal are covered by decision of Hon`ble Supreme Court in appeal in case of MIDC(SLP (Civil) 9891 of 2014 dated and in Civil Appeal No. 7186 of 2014 dated December 13,2017 in case of CIT-III Pune v. Rajasthan And Gujarat Charitable Foundation Poona and others various assessee`s including MIDC (copy of order filed).The learned counsel for assessee also submitted that similar view was taken in case of CIT v. Subros Education Society [2018] 7 Supreme Court Cases 548. Therefore, following ratio of above decision, we held Ld. CIT (A) has rightly allowed appeal of assessee, therefore, we do not find any infirmity in order of CIT (A), accordingly, same is upheld. Accordingly, appeal of revenue on all above grounds of appeal are therefore, dismissed. 34 ITA No. 3082 & 3154/Mum/2018 24. I noted that this issue of denial of carry forward of deficit is covered. I noted facts that during financial year relevant income of assessee which entered computation under section 11 of Act and which was to be applied to charitable objects of Trust was Rs. 2,56,74,090/-, whereas actual income which was applied by assessee towards its charitable objects was Rs. 13,63,56,964/-. Therefore, in this year, assessee applied all sum of Rs. 11,06,82,874/- towards its charitable objects. This excess application or deficit was sought to be carried forward by assessee to subsequent years. same was denied by AO in his assessment order. But CIT(A) reversed findings of AO and allowed claim of carry forward of such deficit by relying on several judgments, including those of Hon'ble Bombay II High Court in case of Ratan Tata Trust (ITA 158912014) (2017) (Bom) and in case of CIT vs. Institute of Banking Personnel Selection (1BPS) (264 ITR 110) (2003) (Bom). Before me also now revenue admitted that this issue is covered in favour of assessee by jurisdictional High Court in case of IBPS (supra), however, it argues that SLP has been filed by Department in another case (MIDC) and same is pending before Hon'ble Supreme Court. 25. In this regard, it is submitted by Ld Counsel that issue is not only covered by several decisions of jurisdictional High Court but also departments SLP referred to in ground no. 4 has been dismissed on merits by Hon ble Supreme Court. SLP in case of MJDC was bunched with several other SLPs and issue 35 ITA No. 3082 & 3154/Mum/2018 was finally set at rest by Supreme Court while deciding miscellaneous application filed by Revenue in CIT vs. Subros Educational Society, vide MA No. 941 of 2018, in Civil Appeal no. 5171 of 2016, in order dated 16" April. 2018, observing as under: "In this application filed by Income Tax Department it is stated that Civil Appeal no.5171 of 2016 arises out of Special Leave Petition (C) ... CC no.8982/2016 was tagged with other appeals and batch matters were decided by this Court on 13.12.2017. However, following question was also raised in this instant appeal which was not subject matter of these appeals. "('a) whether any excess expenditure incurred by trust / charitable institution in earlier assessment year could be allowed to be set off against income of subsequent years by invoking section Ii of Income-tax Act, 1961." To this extent, Mr. K. Radhakrishnan, learned senior counsel appearing on behalf of applicant/appellant is correct. Therefore, we have heard him on aforesaid question of law as well but did not find any merit therein. miscellaneous application is dismissed. 26. In view of above position, we allow carry forward of deficit and dismiss this issue of revenue s appeal. 36 ITA No. 3082 & 3154/Mum/2018 27. In result, appeal of Revenue is dismissed and that of assessee is allowed. Order pronounced in open court on 13-09-2019. Sd/- (MAHAVIR SINGH) (JUDICIAL MEMBER), Mumbai, Dated: 13.09.2019, Sudip Sarkar, Sr.PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. / BY ORDER, True Copy (Asstt. Registrar), ITAT, Mumbai J.R.D Tata Trust v. Income-tax Officer, 2(4), [Now assessed by Deputy Commissioner of Income-tax (Exemptions)- 2(1), Mumbai