The trust held an investment that breaches s.11(5) read with s.13(1)(d). Does that cost us exemption on everything, or only on the income from that investment?
Only on the income from that investment. The Telangana High Court read ss.11 and 13 together and held that the legislature did not intend the denial of s.11 to extend to the entire income; only the income from the investment made in violation of s.13(1)(d) is liable to tax. It agreed with the Bombay, Delhi and Karnataka High Courts, which had all taken that view.
Decided by the High Court (Alok Aradhe, Chief Justice and J. Sreenivas Rao J) on 2024-11-28, reported as I.T.T.A. Nos. 325, 326, 327 and 328 of 2007 and Nos. 79, 80, 81, 82 and 83 of 2008 (High Court for the State of Telangana). It bears on section 13, section 11, section 12A of the Income Tax Act 1961, in Charitable Trusts & Exemption matters.
This is the question that decides the size of the demand. Assessing Officers routinely treat a single non-conforming investment as forfeiting exemption on the whole of the year's income, which can turn a small breach into a very large assessment. Four High Courts now say the forfeiture is confined to the offending income.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The appellant, a charitable institution, had in 1982-83 invested funds as a promoter in the shares of four joint venture companies — Sudha Modern Dhall Mill Limited, Delta Oils and Fats Limited, Sri Guruvaurappan Swamy Oil Foods and Fats Limited, and Godavari Edible Bran Oil Limited. None of these was a Government company or a corporation established under a Central or Provincial Act. The shares continued to be held beyond the cut-off date of 30 November 1983, and the funds invested came from the profits of the previous year relevant to assessment year 1984-85. The Revenue denied exemption under s.11 altogether and taxed the whole of the appellant's income for assessment years 1994-95 to 2001-02. The Tribunal upheld that approach. The substantial question of law framed was whether the equity participation in the joint venture companies could be treated as an investment in violation of s.11(5) read with s.13(1)(d) leading to denial of exemption under s.11 and taxing the entire income.
The appeals were partly allowed. The investment was an investment in violation of s.11(5) read with s.13(1)(d) and the appellant was not entitled to the benefit of exemption under s.11 in respect of it (paras 14 and 16). But on a reading of ss.11 and 13 the legislature did not contemplate denial of s.11 to the entire income, and only the income from the investment made in violation of s.13(1)(d) is liable to tax (paras 15 and 16). The Tribunal's orders were modified to that extent (para 17).
The Court first established the breach: the shares were not in Government companies or statutory corporations, the investment was as a promoter, the essential nature of it was an investment in shares, and the holding continued beyond the cut-off date, so s.13(1)(d) was violated and exemption under s.11 was not available (paras 13 and 14). It then turned to the extent of the consequence, reading ss.11 and 13 together and finding no legislative intention to deny exemption on the entire income. It recorded that the same view had been taken by the Bombay High Court in DIT (Exemption) v. Sheth Mafatlal Gagalbahai Foundation Trust [2001] 249 ITR 533 and by the Delhi High Court in Agrim Charan Foundation [2002] 253 ITR 593, and that both had been relied on by a Division Bench of the Karnataka High Court in CIT v. Fr. Mullers Charitable Institutions [2014] 363 ITR 230, and expressed its respectful agreement with all three (para 15). It noted that the Revenue's special leave petition against the Karnataka decision had been dismissed by the Supreme Court (para 15; the citation the judgment gives for that dismissal does not hold — see the editor note). It answered the question accordingly and modified the Tribunal's orders (paras 16 and 17).
From perusal of Sections 11 and 13 of the Act, it is evident that the Legislature did not contemplate the benefit of denial of Section 11 of the Act, to the entire income and only the income from an investment made in violation of Section 13 (1) (d) of the Act is liable to tax.
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Handle my notice → Ask a CA on WhatsAppOnly on the income from that investment. The Telangana High Court read ss.11 and 13 together and held that the legislature did not intend the denial of s.11 to extend to the entire income; only the income from the investment made in violation of s.13(1)(d) is liable to tax. It agreed with the Bombay, Delhi and Karnataka High Courts, which had all taken that view. This was decided by the High Court (Alok Aradhe, Chief Justice and J. Sreenivas Rao J) and bears on section 13, section 11, section 12A of the Income Tax Act 1961. It is reported as I.T.T.A. Nos. 325, 326, 327 and 328 of 2007 and Nos. 79, 80, 81, 82 and 83 of 2008 (High Court for the State of Telangana). This is the question that decides the size of the demand. Assessing Officers routinely treat a single non-conforming investment as forfeiting exemption on the whole of the year's income, which can turn a small breach into a very large assessment. Four High Courts now say the forfeiture is confined to the offending income. If it applies to you, the first step is this: Identify precisely which asset breaches s.11(5) read with s.13(1)(d) and compute the income arising from that asset alone.
The appellant, a charitable institution, had in 1982-83 invested funds as a promoter in the shares of four joint venture companies — Sudha Modern Dhall Mill Limited, Delta Oils and Fats Limited, Sri Guruvaurappan Swamy Oil Foods and Fats Limited, and Godavari Edible Bran Oil Limited. None of these was a Government company or a corporation established under a Central or Provincial Act. The shares continued to be held beyond the cut-off date of 30 November 1983, and the funds invested came from the profits of the previous year relevant to assessment year 1984-85. The Revenue denied exemption under s.11 altogether and taxed the whole of the appellant's income for assessment years 1994-95 to 2001-02. The Tribunal upheld that approach. The substantial question of law framed was whether the equity participation in the joint venture companies could be treated as an investment in violation of s.11(5) read with s.13(1)(d) leading to denial of exemption under s.11 and taxing the entire income. The matter was decided on 2024-11-28 by the High Court (Alok Aradhe, Chief Justice and J. Sreenivas Rao J). On those facts the High Court held as follows. The appeals were partly allowed. The investment was an investment in violation of s.11(5) read with s.13(1)(d) and the appellant was not entitled to the benefit of exemption under s.11 in respect of it (paras 14 and 16). But on a reading of ss.11 and 13 the legislature did not contemplate denial of s.11 to the entire income, and only the income from the investment made in violation of s.13(1)(d) is liable to tax (paras 15 and 16). The Tribunal's orders were modified to that extent (para 17).
The Court first established the breach: the shares were not in Government companies or statutory corporations, the investment was as a promoter, the essential nature of it was an investment in shares, and the holding continued beyond the cut-off date, so s.13(1)(d) was violated and exemption under s.11 was not available (paras 13 and 14). It then turned to the extent of the consequence, reading ss.11 and 13 together and finding no legislative intention to deny exemption on the entire income. It recorded that the same view had been taken by the Bombay High Court in DIT (Exemption) v. Sheth Mafatlal Gagalbahai Foundation Trust [2001] 249 ITR 533 and by the Delhi High Court in Agrim Charan Foundation [2002] 253 ITR 593, and that both had been relied on by a Division Bench of the Karnataka High Court in CIT v. Fr. Mullers Charitable Institutions [2014] 363 ITR 230, and expressed its respectful agreement with all three (para 15). It noted that the Revenue's special leave petition against the Karnataka decision had been dismissed by the Supreme Court (para 15; the citation the judgment gives for that dismissal does not hold — see the editor note). It answered the question accordingly and modified the Tribunal's orders (paras 16 and 17). In the words reproduced by the source cited on this page: "From perusal of Sections 11 and 13 of the Act, it is evident that the Legislature did not contemplate the benefit of denial of Section 11 of the Act, to the entire income and only the income from an investment made in violation of Section 13 (1) (d) of the Act is liable to tax." The decision followed or applied DIT (Exemption) v. Sheth Mafatlal Gagalbahai Foundation Trust [2001] 114 Taxman 19 / 249 ITR 533 (Bom.) — agreed with; IT (Exemption) v. Agrim Charan Foundation [2002] 253 ITR 593 (Del.) — agreed with; CIT v. Fr. Mullers Charitable Institutions [2014] 363 ITR 230 (Kar.) — agreed with.
It was decided by the High Court on 2024-11-28 and is reported as I.T.T.A. Nos. 325, 326, 327 and 328 of 2007 and Nos. 79, 80, 81, 82 and 83 of 2008 (High Court for the State of Telangana). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 13, section 11, section 12A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were partly allowed. The investment was an investment in violation of s.11(5) read with s.13(1)(d) and the appellant was not entitled to the benefit of exemption under s.11 in respect of it (paras 14 and 16). But on a reading of ss.11 and 13 the legislature did not contemplate denial of s.11 to the entire income, and only the income from the investment made in violation of s.13(1)(d) is liable to tax (paras 15 and 16). The Tribunal's orders were modified to that extent (para 17). It arises in Charitable Trusts & Exemption matters, on section 13, section 11, section 12A of the Income Tax Act 1961, and was decided by Alok Aradhe, Chief Justice and J. Sreenivas Rao J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Concede the breach if it exists — the Court here held the corporation was not entitled to exemption in respect of the offending investment — and fight only over the extent of the denial. Cite the line of authority the Court agreed with: Sheth Mafatlal Gagalbhai Foundation Trust (Bombay), Agrim Charan Foundation (Delhi) and Fr. Mullers Charitable Institutions (Karnataka), the last of which is already in this library. Do not put Fr. Mullers higher than it goes: the Revenue's special leave petition against it, SLP(C) No. 15907/2014, was dismissed, but with the question of law expressly kept open, so the dismissal is not a decision of the Supreme Court on the merits. Check which assessment year you are in. From assessment year 2023-24 income that is not exempt by reason of s.13(1)(d) is 'specified income' within clause (c) of the Explanation to s.115BBI, inserted by the Finance Act 2022 with effect from 1 April 2023, and is charged at 30 per cent with no deduction, allowance or set-off, the balance of the total income being computed and taxed in the ordinary way; work the charge from that section rather than assuming this case supplies the arithmetic. Sub-sections (10) and (11) of s.13, inserted by the same Finance Act from the same date, are not in point for a s.13(1)(d) breach: s.13(10) reaches the cases in s.13(8) and violations of the conditions in clause (b) or clause (ba) of s.12A(1). Where the investment predates the cut-off dates in s.13(1)(d), check the provisos before conceding anything; the breach here arose because shares acquired in 1982-83 were held beyond 30 November 1983.
Still good law. No later treatment was located, and the decision is in line with the Bombay, Delhi and Karnataka High Courts. It concerns assessment years 1994-95 to 2001-02. For assessment years from 2023-24 the charge is governed by s.115BBI, inserted by the Finance Act 2022 with effect from 1 April 2023: clause (c) of the Explanation to that section makes income not exempt by reason of s.13(1)(d) 'specified income', taxed at 30 per cent with no deduction, allowance or set-off, while the balance of the total income is computed and taxed normally. That design confines the charge to the offending income and so supports the principle this judgment lays down rather than displacing it, though a current year's computation should be worked from the section itself. Sub-sections (10) and (11) of s.13, inserted by the same Finance Act with effect from the same date, do not govern a s.13(1)(d) breach: s.13(10) applies where s.13(8) is attracted or where the conditions in clause (b) or clause (ba) of s.12A(1) are violated, and s.13(11) only bars deductions and set-off in that computation. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Three things in the judgment need care. Paragraph 15 records that the Supreme Court dismissed the Revenue's special leave petition against Fr. Mullers Charitable Institutions, but the decision it names as the vehicle of that dismissal — a differently titled Chennai matter carrying a 2014 report citation — could not be traced to any Supreme Court decision, and the name it gives belongs to an order of the Chennai Bench of the Tribunal decided on 9 October 2024, itself on the same partial-forfeiture point; the citation is therefore not reproduced here and should not be relied on. The dismissal itself is real — the Revenue's petition was SLP(C) No. 15907/2014 and it was dismissed — but the Supreme Court kept the question of law open, so the dismissal is not approval of the Karnataka reasoning on the merits. Paragraph 17 modifies a Tribunal order for assessment year 2002-03 although the appeals are listed for assessment years 1994-95 to 2001-02, and the nine orders listed in paragraph 17 cover only assessment years 1996-97 to 2002-03: no order is listed for assessment year 1994-95 or 1995-96, though paragraph 2 puts both in issue. A LiveLaw report gives the date of judgment as 3 December 2024; the judgment itself is dated 28 November 2024, which is the date used here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were partly allowed. The investment was an investment in violation of s.11(5) read with s.13(1)(d) and the appellant was not entitled to the benefit of exemption under s.11 in respect of it (paras 14 and 16). But on a reading of ss.11 and 13 the legislature did not contemplate denial of s.11 to the entire income, and only the income from the investment made in violation of s.13(1)(d) is liable to tax (paras 15 and 16). The Tribunal's orders were modified to that extent (para 17).
TaxSphere, “Andhra Pradesh State Civil Supplies Corporation Ltd v ITO”, https://taxnotice.vittsphere.com/caselaw/case/ap-state-civil-supplies-13-only-offending-income-taxed/ (validity last checked 2026-09-07)
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After a search the PCIT (Central) has cancelled my society's registration under s.12AB(4) for a 'specified violation', relying on loose sheets and statements. Does he have to prove one of the listed violations, or is a general finding of misuse enough?
