Denial of partial exemption

Similar ground was covered by the High Court of Karnataka in CIT v. Fr. Mullers Charitable Institutions. A charitable trust that managed several institutions was the assessee. Some important notes can be seen here at 80 g.

The assessee-trust contributed INR 80,00,000 to "J" Ltd, which operated a Kannada daily, for the purpose of ads, printing, etc., the Assessing Officer discovered during an investigation. The AO believed that advancing such a sizable sum violated Section 11. As a result, the assessee was not eligible for an exemption for the specified sum.

The Court noted that Section 13(1)(d) makes it clear that only the income from such investment or reserve made in violation of Section 11(5) was subject to taxation and that a violation of Section 13(1)(d) does not amount to the denial of the entire Section 11 exemption on the assessee trust's total income.

According to the Bombay High Court in CIT v. Audyogik Shikshan Mandal[6], which cited the Karnataka High Court's decision mentioned above, there was a violation of Section 13 when funds from the assessee-trust were used to buy a car in the name of the trustee. However, the denial of an exemption under Section 11 should only apply to the portion of the funds that were diverted in violation, not the entire exemption. 80g is beneficial for tax exemption.

In addition to the legal precedents mentioned above, Section 164 of the IT Act's text may be of importance to consider. The revenue of the trust is subject to the tax under Section 164 of the IT Act if the exemption under Section 11 is unavailable owing to the application of Section 13. When "the whole or any portion of the relevant income" is not excluded under Sections 11 or 12, according to Section 164, the tax must be paid at the highest marginal rate on such income.

The phrase "full or any part of the relevant income" used in Section 164 implies that Section 13 does not allow for the denial of the complete exemption.

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