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..... accepted by the ITO. The ITO held that the funds invested by the trust in Mohan Meakin Breweries Ltd. exceeded 5 per cent of the capital of the company and, therefore, the benefit of section 13(4) will not be available to the trust. 5. Against the loss of Rs. 1,21,152 shown in the return of income the total income from dividends (Rs. 6,75,001) and voluntary contributions (Rs. 5,704) was determined at Rs. 6,80,705. 6. Aggrieved by the order of the ITO, the assessee filed an appeal to the Commissioner (Appeals). It was first argued that 10,17,337 shares (5,11,261 shares received as donations and 5,06,076 received by way of bonus shares should be excluded from the holding of 11,25,418 shares and thereafter the investment in balance 1,08,081 shares will be less than 5 per cent of the total number of shares issued by Mohan Meakin Breweries Ltd. It was submitted that receipt of shares by way of donations or as bonus on such shares did not involve any investment on the part of the trust and, therefore, for working out the ratio of funds invested by the assessee-trust, such shares should be excluded. In support of this argument reliance was placed on the following orders of the Tribunal: .....

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..... re separate entities and shares held by the HUFs could not be considered the shares held by their individual members. It was explained that during the existence of a HUF it cannot be predicated as to what is the individual share of a member in the assets of the HUF. The Commissioner (Appeals) accepted this argument and held that 7,30,849 shares should not be taken into account for purposes of section 13(2)(h). 9. It was next argued that 3,00,000 shares held by trusts for unborn children and future spouses of the members should not also be taken into account for purposes of section 13(2)(h). The reason advanced was that the trusts were separate assessees, the authors of the trusts could not revoke the trusts, and a trust could not be equated with either its founder or its trustees. The beneficiaries of the trusts were unknown and, therefore, it could not be said that the shares held by the trusts were held beneficially for any person mentioned under section 13(3). The Commissioner (Appeals) observed that the trusts as such whether public or private did not find a place in section 13(3). He accepted the assessee's contention and held that 3,00,000 shares held by trusts for unborn ch .....

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..... p; 29,215 Bakshi Sampuran Singh is the husband of the sister of Smt. Ram Rakhi Mohan, widow of late N.N. Mohan, who died in 1969. The other three persons are sons of Bakshi Sampuran Singh. For the inclusion of these shares for purposes of section 13(2)(h) the ITO had relied on sub-clauses (vi) and (vii) of Explanation 1 to section 13. It was argued that after the death of late N.N. Mohan, Smt. Ram Rakhi Mohan did not remain a spouse and, therefore, the shareholding of the aforesaid persons was not covered by sub-clauses (vi) and (vii) of Explanation 1 to section 13. It was submitted that the term "relative" was used in Explanation1 ina very wide and extended term and there appeared to be very little scope for giving the term "spouse" also used in Explanation1 afurther extended meaning. For the argument that the term "spouse" should be given a strict construction reliance was placed on the judgments in CIT v. Mani Lal Dhanji [1962] 44 ITR 876 (SC) and CIT v. Keshav Lal Lallub .....

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..... (Appeals) held that 11,85,079 shares (7,30,849+3,00,000+1,54,230) were not to be considered for purposes of section 13(2)(h). The balance shares held by prohibited category of persons were 15,79,777 (27,64,856--11,85,079) and as this holding was less than 20 per cent of the total number of shares, viz., 85,08,479, issued by Mohan Meakin Breweries Ltd., the trust could not be denied exemption under section 11 or 12 of the Act. In this view of the matter the other contentions raised by the assessee were not dealt with by the Commissioner (Appeals). 13. Aggrieved by this order of the Commissioner (Appeals), the revenue has filed this appeal and the following grounds have been raised : "1. On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals)-IX was not justified in holding, that the shares held by HUFs (7,30,849), shares held by trustees (3,00,000) and shares held by relatives (1,54,230) were liable to be excluded from the list of shares held by prohibited persons as envisaged under section 13(3) of the Income-tax Act, 1961. 2. On the facts and in the circumstances of the case, Commissioner of Income-tax (Appeals)-IX was not justified in holdin .....

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..... also and those shares were also not considered as investment of the trust in any concern. Respectfully following the aforesaid orders, we hold that 10,17,337 shares do not represent investment of the trust funds in Mohan Meakin Breweries Ltd. Thus, only 1,08,081 shares of Mohan Meakin Breweries Ltd. are held to be out of the investment of the trust funds. The investment is less than 5 per cent of the total shares and, therefore, the benefit of section 13(4) will be available to the assessee. 16. We may now take up the holding of 7,30,849 shares by six HUFs to determine whether these shares are covered by section 13(2)(h). The names of the members of different HUFs, as furnished to us during the hearing, are as under : (A) N. N. Mohan & Sons (HUF) : 2,62,413 shares - Shri Rakesh Mohan on behalf of legal heirs of late Col. V.R. Mohan - Shri Sukh Dev Mohan (Karta) - Smt. Ram Rakhi Mohan. (B) V.R. Mohan & Sons (HUF): 78,313 shares - Smt. Comilla Mohan - Shri Rakesh Mohan (Karta) - Shri Pankaj Mohan - Miss Neelma Mohan (C) Major Kapil Mohan (HUF) : 1,00,000 shares - Major Kapil Mohan (Karta) - Smt. Pushpa Mohan - Miss Seema Mohan (D) Sukhdev Mohan & Sons (HUF) 1,15,659 sh .....

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..... also referred to Explanation 2(i) to section 64(1) to show that only beneficial ownership should be considered. He also referred to Commentary by Kanga & Palkhivala (7th edn.), page 69. 17. During the course of the hearing we required the learned counsel for the assessee to ascertain from Mohan Meakin Breweries Ltd. the persons in whose names the shares in question stood registered. A certificate dated8-6-1981has been filed which reads as under: "TO WHOMSOEVER IF MAY CONCERN 8th June, 1981 This is to certify that as on31-3-1976the following were registered as shareholders in our register of members in respect of shares noted against their names: 1. N.N. Mohan & Sons, Karta Shri S.D. Mohan 2,62,413 2. Col. Kapil Mohan (HUF) &nbs .....

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..... ownership of the shares in law. It is not denied that the HUF's funds of the respective families have been invested in these shares. It, therefore, follows that these shares can belong only to the HUFs and not to the individual kartas as contended by the revenue. The decision of the Supreme Court in Kalu Babu Lal Chand far from supporting the case of the revenue supports the case of the assessee as could be seen from the following passage appearing at page 130 of the said Report : "... The joint family assets were used for acquiring the concern and for financing it and in lieu of all that detriment to the joint family properties the joint family got not only the shares, standing in the names of two members of the family but also, as part and parcel of the same scheme, the managing directorship of the company when incorporated...." The judgment in CIT v. London Machinery Co. deals with section 40(b) and has no relevance to the point at issue. The judgment in CIT v. Rameshwarlal Sanwarmal shows that shares held by the karta of a HUF could be considered to be shares held by the HUF and consequently the loans made to the said family could be treated as dividend under section 2(6A)(e) .....

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..... e trustees did not hold the shares beneficially for any known persons. He referred to page 69 of the Commentary by Kanga & Palkhivala wherein it has been observed as under : "... Beneficial ownership, and not legal ownership, of shares is the criterion. Thus, the registered holder of even the majority of equity shares would not fall within this definition if he has no beneficial interest in the shares ; and conversely, a person who is beneficially entitled to twenty per cent or more of the equity capital would be covered by this definition even if he is not the registered holder of any shares." This commentary is under section 2(32) of the Act wherein the words used are "person who has a substantial interest in the company" and these words are similar to the words used in Explanation 1 to section 13. He submitted that Explanation 2 to section 64(1) of the Act was analogous to Explanation 3 to section 13 and the words used therein also were "owned beneficially by such person....". He further submitted that there was no nexus between section 153 of the Companies Act and section 13 of the Income-tax Act. He submitted that a trust could have no relative and, therefore, the shares hel .....

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..... 0 shares held by five trusts from consideration under section 13(2)(h). 20. We now take for consideration 1,53,530 shares (wrongly mentioned as 1,54,230 shares) (out of 2,19,555 shares) held by Bakshi Sampuran Singh and his three sons. The learned departmental representative submitted that the entire language of section 13(3) had to be considered with reference to the author of the trust, namely, late N.N. Mohan. According to him, relationship was not to be considered only during the previous year relevant to this assessment. He submitted that it would be ridiculous if the view of the Commissioner (Appeals) in this respect was upheld. The learned counsel for the assessee supports the order of the Commissioner (Appeals). In our opinion, the view of the Commissioner (Appeals) in respect of 1,53,530 shares is required to be upheld. We cannot accept the contention of the learned departmental representative that relationship to the founder of the trust is not limited to the previous year relevant to this assessment. Section 13(2)(h) uses the words "if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year... and Explanation 3 .....

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