TMI Blog2004 (10) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, to the trust - - - - - Dated:- 29-10-2004 - Judge(s) : R. K. AGRAWAL., PRAKASH KRISHNA. JUDGMENT The judgment of the court was delivered by R.K. AGRAWAL J.- In the Income-tax Reference No. 7 of 1987 which arises under the Income-tax Act, 1961, hereinafter referred to as "the Income-tax Act", the Income-tax Appellate Tribunal, Allahabad, has referred the following three questions of law under section 256(1) of the Income-tax Act, for opinion to this court: "1. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal, Allahabad, was justified in holding that an investment of the value thereof received by a trust by way of donation cannot be treated as an investment within the meaning of section 13 of the Income-tax Act, 1961? 2. Whether, in the law and on the facts of the case, the Tribunal was justified in holding that the Income-tax Officer was wrong in invoking the provisions of section 13(1)(certiorari quashing the order dated) and section 13(2)(h) of the Income-tax Act, 1961, in this case? 3. Whether, in law and on the facts of the case, the Tribunal was justified in allowing exemption under section 11 of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act because the trust fund remained invested in concerns in which the trustees were substantially interested. The respondent preferred separate appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner had held that investment of the value thereof received by the trust by way of donation could not be treated as investment within the meaning of section 13(2)(h) of the Income-tax Act and, therefore, the trust was eligible for exemption under section 11 of the Income-tax Act. The Revenue's appeals before the Tribunal have failed. Briefly stated the facts giving rise to the wealth-tax reference are as follows: The respondent-assessee, which is a trust created with the object of maintaining Sri Radha Krishna Temple, took the factory premises of M/s. J.K. Ginning Factory on lease and let the same out on rent to various tenants. It also constructed certain shops and flats of its own and let the same out on rent. The rental income during the assessment year amounted to Rs. 1,11,472. The leasehold right was not settled on the trust by its founders. The activity of the trust of taking premises on lease on normal charges and letting the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohibition contained under section 13(3)(b) of the Income-tax Act in the present case and, therefore, the trust was eligible for exemption under section 11 of the Act. In support of the aforesaid submission, he relied upon the following decisions: (1) CIT v. J.K. Charitable Trust [1992] 196 ITR 31 (All); (2) CIT v. Lalbhai Dalpatbhai Charity Trust [1994] 209 ITR 865 (Guj); and (3) CIT v. Sir Shri Ram Foundation [2001] 250 ITR 55 (Delhi). Having heard learned counsel for the parties, we find that the entire shareholding/investment in J.K. Synthetics Ltd. was received by the trust by way of donation and the question of exemption under section 11 of the Act has proceeded on that basis. Sri Shambhoo Chopra, learned counsel for the Revenue, however, disputed this position but as there is no specific question referred to us on this finding, we are proceeding on the basis that the shares of J.K. Synthetics Ltd. have been received by the trust by way of donation and the trust had not made any investment in the said company. Sections 13(1)(c) and 13(2)(h) of the Income-tax Act are reproduced below: "13. Section 11 not to apply in certain cases.-(1) Nothing contained in section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen that the provisions under section 11 or 12 of the Income-tax Act shall not apply where the income of the trust for charitable or religious purpose is used or applied directly or indirectly for the benefit of any person referred to in sub-section (3) and/or if any funds of the trust or institution are invested for any period during the previous year and/or continue to remain, invested for any period during the previous year in any concern in which any person referred to in sub-section (3) has a substantial interest. In the case of Jamnalal Bajaj Sewa Trust [1988] 171 ITR 568 the Bombay High Court was considering the question where a public charitable trust was holding shares in Bajaj Auto Ltd. It had sold some of the shares in December, 1970, and realized capital gains but in its return for the relevant assessment year, the trust did not include the said capital gains. The Income-tax Officer held that the capital gains were taxable. However, the Tribunal accepted that the capital gains could not be considered as income within the meaning of section 13(4) of the Income-tax Act and deleted the addition. The Bombay High Court has held that the capital gain had to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountancy. The expression used is "funds" and not "fund". "Funds" means money in hand or cash according to some dictionaries. This would be the proper meaning to be attributed to the expression "funds" as appearing in the provision. The fundamental requirement of section 13(2)(h) is that there must be investment of funds of a trust. If any expanded meaning is given to include assets other than money in hand or cash or credit balance in a bank account, it is evident that they are not capable of being invested as such. Other assets of the trust apart from money in hand or cash or balance in bank will have to be converted into money or cash before the same can be invested. The expression "invest" connotes a positive act on the part of the trust whereby the funds of the trust are laid out or committed in any particular property or business or transaction with the object of earning a profit or financial advantage or return. What is contemplated is the trust having assets in the form of money or cash or balance in a bank or any other form capable of being invested or by a positive act which pursuant to a decision of the trust, is laid out or committed in a concern of a nature specified ..... X X X X Extracts X X X X X X X X Extracts X X X X
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