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Issues Involved:
1. Taxability of voluntary contributions in the form of shares received by charitable trusts. 2. Applicability of Section 13(2)(h) of the Income-tax Act to interest income. Detailed Analysis: Issue 1: Taxability of Voluntary Contributions in the Form of Shares Facts: - The assessees, all charitable institutions, received voluntary contributions in the form of shares from another charitable trust, M/s. Daulat Ram Public Trust. - The contributions were subject to conditions: they were to form part of the corpus, could not be utilized for the trust's objects, and could not be sold without prior permission from the donor trust. Legal Provisions: - Section 11 of the Income-tax Act exempts income derived from property held for charitable purposes if applied wholly to such purposes. - Section 12(1) exempts income derived from voluntary contributions applicable solely to charitable purposes. - Section 12(2) deems contributions from one charitable trust to another as income derived from property for the purposes of Section 11. Tribunal's Findings: - The Tribunal held that the shares received as corpus with restrictions did not constitute taxable income. - The shares were not to be utilized for the trust's objects, and only the dividend income from these shares could be used. - The Tribunal deleted the additions made by the Income Tax Officer (ITO) and Assistant Appellate Commissioner (AAC). Court's Analysis: - The court noted that voluntary contributions with specific conditions to form part of the corpus do not constitute income under Section 12(1) and are outside the ambit of Section 12(2). - The court referred to the amended Section 12, which clarifies that voluntary contributions with a specific direction to form part of the corpus are not taxable. - The court also referred to Section 2(24) of the Act, which, after amendment, distinguishes between voluntary contributions per se and those with a specific direction to form part of the corpus. Conclusion: - The voluntary contributions in the form of shares, given with specific conditions to form part of the corpus, are not taxable income. - The court answered the question in the affirmative and in favor of the assessees. Issue 2: Applicability of Section 13(2)(h) to Interest Income Facts: - The ITO included the interest income in the total income of the assessees, citing substantial interest in the donor companies by the trust's founding members and their relatives. - The AAC excluded the interest income, stating that the funds were not lent without adequate security or interest. Legal Provisions: - Section 13(1)(c)(ii) denies exemption if income or property of the trust is used for the benefit of certain persons. - Section 13(2)(h) deems income or property used for the benefit of specified persons if funds are invested in a concern in which such persons have a substantial interest. - Section 13(4) provides a saving clause if the interest does not exceed five percent of the capital of the concern. Court's Analysis: - The court distinguished between loans and other investments, noting that Section 13(2)(a) deals with loans, while Section 13(2)(h) deals with investments in equity capital. - The court held that if funds are invested in debentures or loans, Section 13(2)(a) applies, whereas for equity capital, Section 13(2)(h) applies. - Since the revenue did not argue that funds were lent without adequate security or interest, the deeming provisions of Section 13(2) were not attracted. Conclusion: - The interest income is not taxable under Section 13(2)(h) as it does not fall under the purview of investments in equity capital. - The court answered the question in the affirmative and in favor of the assessees. Final Judgment: - All questions were answered in favor of the assessees. - The assessees are entitled to costs from the revenue, with counsel's fee set at Rs. 500.
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