These are the four appeals filed by the A.P. State Civil
different assessment years in respect of the same assessee.
2. The details of the four appeals, the assessment years, names
3. These appeals were filed primarily raising the following
4. In addition, in ITTA.No.427 of 2011, there are two more
3. Whether on facts and circumstances of the case, the
non-consideration of the claim of deduction of Rural
Development cess which was allowed in subsequent
years appeals following the decision of jurisdictional
High Court's, the Tribunal is correct."
5. So far as the substantial question No.1, which is common in
all the four appeals, is concerned, the learned counsel for the
appellant as also the learned Standing Counsel for Income Tax
Department have stated that the issue is no longer res integra as
the batch of connected appeals in respect of the same assessee for
the earlier period of assessment i.e., for the assessment years
1994-95 to 2001-02, came up for consideration before the Division
Bench of High Court in ITTA.No.325/2007 & batch, and stood
decided by order dt.28.11.2024, and the said judgment is also
reported in (2024) 169 taxmann.com 726 (Telangana).
6. Learned counsel appearing on either side submit that so far
as substantial question No.1 is concerned, the judgment rendered
in the above referred batch of cases would govern the field and
therefore, we find it trite at this juncture to reproduce the relevant
portion of the said judgment, as under:
"12. We have considered the rival submissions and have
perused the record. Section 11 (1) of the Act mandates that
any income derived from the property held under the trust
wholly for charitable purpose or religious purpose is
exempted from the total income to the extent to which such
income is applied to charitable or religious purpose in India.
However, Section 11 is subject to provisions of Section 13 of
the Act. Section 13 (1) (d) and Section 13 (1) (d) (iii) provides
that if any funds of the trust or charitable institution is
invested or deposited before first of March, 1983, otherwise
than in any one or more of the forms or modes specified in
Section 11 (5), continue to remain so invested or deposited
after 30.11.1983, the assessee shall not be entitled to the
benefit of exemption.
13. In the instant case, the assessee is a charitable
institution and invested the funds in the shares of the joint
venture companies, namely, (1) Sudha Modern Dhall Mill
Limited (2) Delta Oils & Fats Limited (3) Sri Guruvaurappan
Swamy Oil Foods & Fats Limited, and (4) Godavari Edible
Bran Oil Limited, in the year 1982-83. The said joint venture
companies are neither the Government Companies nor the
Corporations established under Central or Provincial Acts.
The investment was made by the assessee as a promoter in
the joint venture companies. The essential nature of the
investment made by the assessee was an investment in the
shares of the joint venture companies.
14. The assessee continues to hold share even beyond the
cut-off date i.e., 30.11.1983. The funds invested from the
assessee corporation was from the profit of previous year
relevant to the assessment year 1984-85. Therefore, the
assessee had violated the provisions of Section 13 (1) (d) of
the Act. The assessee is, therefore, not entitled for exemption
under Section 11 of the Act.
15. Now, we may examine whether the entire income from
such an investment made in violation of Section 13 (1) (d) of
the Act, which has accrued to the assessee has to be taxed.
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 aforesaid view has been
taken in DIT (Exemption) v. Sheth Mafatlal Gagalbahai
Foundation Trust [2001] 114 Taxman 19/249 ITR 533
(Bom.) and in IT (Exemption) v. Agrim Charan
Foundation [2002] 253 ITR 593 by Bombay and Delhi High
Courts respectively. It is pertinent to mention that the
aforesaid decisions were relied on by a Division Bench of
Karnataka High Court in Commissioner of Income-Tax
and Another v. FR. Mullers Charitable Institutions
[2014] 363 ITR 230 (Kar). We are in respectful agreement
with the view expressed by Division Benches of Bombay,
Delhi and Karnataka High Courts. It is also pertinent to note
that the Special Leave Petition preferred by the Revenue
against the decision of Karnataka High Court in FR. Mullers
Charitable Institutions (supra) has been dismissed by the
Supreme Court in the decision in M/s. J. Sikile
Foundation, Chennai v. DCIT, Exemption-Iii, Chennai
[2014] 51 Taxmann.com 378 (SC).
16. For the aforementioned reasons, the substantial question
of law framed in these Appeals is answered by stating that
the investment made by the assessee in its joint venture
companies is an investment made in violation of Section 11
(5) read with Section 13 (1)(d) of the Act and, therefore, the
assessee is not entitled to claim the benefit of exemption
under Section 11 of the Act. However, only the income from
such an investment made in violation of Section 13 (1) (d) of
the Act is liable to tax."
7. It has been further informed that neither of the parties have
taken the said judgment to the Hon'ble Supreme Court and hence
the said judgment has attained finality. Therefore, we are of the
considered view that the substantial question No.1 in this batch of
four appeals needs to be answered, accordingly.
8. In view of the same, the substantial question No.1 stands
answered holding that the investment made by the assessee in its
joint venture company is an investment made in violation of
Section 11(5) read with Section 13(1)(d) of the Income Tax Act,
1961 and therefore, the assessee would not be entitled to claim
the benefit of total exemption under Section 11 of the Income Tax
Act, 1961. At the same time, it is also held that the income from
such an investment under Section 11(5) made in violation of
Section 13(1)(d) of the Income Tax Act, 1961 shall only be liable to
tax.
9. As regards the other two substantial questions of law that
are raised in ITTA.No.427 of 2011 are concerned, we hold that the
answer to that would be the consequential proceedings that would
be passed by the Department in terms of the disposal of these four
appeals.
10. Accordingly, the Appeals are partly allowed. No costs.
As a sequel thereto, miscellaneous petitions pending if any,
shall stand closed.
________________________________
P.SAM KOSHY, J
________________________________
SUDDALA CHALAPATHI RAO, J
Dt.18.11.2025
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THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE SUDDALA CHALAPATHI RAO
ITTA Nos.427, 428, 429 and 435 of 2011
Dt. 18.11.2025
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