Monday, March 20, 2017

Reshuffling of specified investment by a trust doesn't lead to denial of sec. 11 exemption


a) The assessee-trust was running an educational institution, registered under section 12AA. It was collecting moderate fees from the students and expenses of the Institution were always more than educational receipts, which were met out of dividend/interest income of its investment made as per section 11(5).

b) In the course of assessment, the Assessing Officer opined that assessee was carrying on its activities on commercial lines and there was sale of mutual funds in violation of provisions of section 11(5). He, thus, rejected assessee's claim for exemption of income under section 11.

c) The Commissioner (Appeals) allowed the assessee's claim by holding that there was no violation of the provision of section 11(5) for making investment and, moreover, profits derived from sale of mutual fund and dividend income were again re-invested into the specified mode of investment, i.e., mutual funds as per section 11(5).

d) The aggrieved-revenue filed the instant appeal.

The ITAT held in favour of assessee as under:

1) Under the provisions of section 11, there is no lock-in period nor there is any stipulation that investments so made cannot be reshuffled during the outer limit of five years' period. In this context, the Assessing Officer's observation that one set of mutual funds were divested of within the period of sixty days would be untenable.

2) During the year, the assessee-trust had reshuffled one set of investments only with the purpose of safeguarding interest of the trust and in the view of the apprehension that value of said mutual fund was fast declining. By doing so, the trustees of the trust had acted, in the best and paramount interests of the trust and not for the purpose of any benefit or a pecuniary gain to any person specified under sub-section (3) of section 11.

3) Again by doing so, the trust had not violated any stipulation or conditions, as a matter of fact there was no stipulation under section 11(5) placing restriction on the reshuffle of specified investment. Thus, assessee-trust was entitled to exemption under Section 11. – [2017] 79 97 (Mumbai - Trib.)

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