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Benefit of S. 11 would not be denied on the Entire Income of Trust on Ground of Investments in Mutual Funds: ITAT Pune [Read Order]

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In a recent ruling, the Pune bench of the ITAT held that the benefit of section 11 of the Income Tax Act would not be denied on the entire income of a Trust merely on ground of investments in Mutual funds.

The assessee, a charitable Trust, invested in Mutual Funds and claimed deduction in respect of income received from it. While completing assessment, the assessing officer denied exemption to the said income stating that the said was commercial in nature. While doing so, the Officer felt that since the assessee has made investment in the funds in violation of the provisions of section 11(5) of the Income Tax Act, therefore, in terms of section 13(1)(d) of the Income Tax Act, the assessee shall not be eligible to claim the benefit of sections 11 and 12 in the assessment year under appeal.

The first appellate authority relied on the decision in Commissioner of Income Tax Vs. FR. Mullers Charitable Institutions, and allowed the appeal of the assessee. Aggrieved by the decision, the Revenue approached the ITAT for relief.

Dismissing the appeal, the bench said, “it is an undisputed fact the assessee has made investment to the tune of `9,00,000/- in mutual funds i.e. JP Morgan India Equity Fund `5,00,000/- and Reliance Vision Fund `4,00,000/- in violation of the provisions of section 11(5) of the Act. The Assessing Officer has denied the benefit of exemption u/s. 11 and 12 of the Act on the entre surplus generated by the assessee merely for the reason that the assessee has made investment in funds not approved u/s. 10(23D) of the Act. It is no more res integra that where the investments or deposits are made by charitable trust are in violation of section 11(5) of the Act, the benefit of exemption u/s. 11 of the Act would not be denied on the entire income of the assessee. It is only the investments or deposits made in violation of provisions of section 11(5) of the Act that would attract maximum marginal rate of tax as per the provisions of law.”

Read the full text of the order below.

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