TMI Blog1988 (4) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... uestions which arose for consideration before the Income-tax Officer in the course of the assessment are not relevant for the purpose of the present reference. The Income-tax Officer took the view to the effect that the provisions of section 13(2)(h) read with section 13(2)(c) of the Act were attracted.. He, therefore, held that the assessee-trust's right to exemption under section 11 was forfeited to the extent of the dividend income of Rs. 3,636. In other words, the Income-tax Officer held that the assessee-trust was not entitled to claim exemption in respect of the said dividend income under section 11 of the Act. The Appellate Assistant Commissioner upheld the view taken by the Income-tax Officer in appeal preferred by the assessee-trust against the assessment order made by the Income-tax Officer. The assessee carried the matter in further appeal before the Income-tax Appellate Tribunal (" the Tribunal " for short). The Tribunal, relying on a decision of the Full Bench of the Tribunal, held to the effect that the condition precedent under section 13(2)(h) requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property ; ... 12. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly. 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-... (c) in the case of a trust for charitable or religious purposes or charitable or religious institution. any income thereof (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o diverted does not exceed one thousand rupees; (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being period before the 1st day of January, 1971) in any concern in which any person referred to in sub-section (3) has a substantial interest. (3) The persons referred to in clause (c) of sub-section (1) and subsection (2) are the following, namely: (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds five thousand rupees ; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a) (b), (c), (cc) and (d) has a substantial interest. " The assessee-trust is a charitable trust eligible to claim exemption in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee-trust had been utilised to purchase the said shares or to make investment in the said shares. The shares were gifted to the assessee-trust and, therefore, the assessee could not be said to have made investment out of its own funds. It is not investment made by the assessee-trust from its own funds which has been continued in the previous year as urged on behalf of the Revenue. It was submitted that there is distinction between investment of funds of the assessee-trust and holding of shares of the aforesaid concerns by the assessee-trust. Both learned counsel referred to the following different meanings of the expressions " fund " or " funds " and " invest " given in the standard dictionaries which have been reproduced in the judgment of the Calcutta High Court in CIT v. Birla Charity Trust [1988] 170 ITR 150, 156, 158 : " Black's Law Dictionary, 5th edition: `Fund' .....An asset or group of assets set aside for a specific purpose ...... A generic term and all-embracing as compared with term 'money', etc., which is specific. A sum of money or other liquid assets set apart for a specific purpose or available for the payment of debts Or claims. In the plural, this word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebster's Seventh New Collegiate Dictionary `vb. vt. 1 : to commit (money) in order to earn a financial return 2. to make use of for future benefits or advantage,-vt. to make an investment. We may also refer to the meanings of the expressions " fund " or "funds" given in Corpus Juris Secundum, Volume XXXVII, which are as follows: " In General.-The word has a variety of meanings, but the sense in which it is employed must be gathered from the context. It is not a legal term with a settled meaning, but it is a term in common use, suggesting money, in common speech, although technically it may be employed to cover other articles of value, for the term 'fund' or 'funds' is generic and all embracing as compared with the term 'money', etc., which is specific..." In the plural. " Capital : cash, money or moneys; money and negotiable paper immediately or readily convertible into cash, available pecuniary resources; money in hand or available for the payment of a debt, legacy, etc. ; specie, or a stock of convertible wealth ; and 'funds' may mean or include not only money, as the term is generally understood, but other circulating medium or instrument or tokens in general use in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that clause (h) of sub-section (2) of section 13 covers investment of the trust funds in any concern in which any of the persons specified in sub-section (3) have substantial interest (" specified persons " in short) and if such investment of the trust funds is made after December 31, 1970, it would result in forfeiture of exemption from tax. However, if the trust funds have already been invested in any concern as aforesaid, before January 1, 1971, exemption would be forfeited if the funds continued to remain so invested even after December 31, 1970. The object of the above provision is to discourage investment of trust funds in the concerns in which specified persons have substantial interest and if an investment is already made in such concerns, to discourage continuance thereof after December 31, 1970. In order to attract the provisions of section 13(2)(h), what is essential is that the funds of the trust are invested in a concern covered by section 13(2)(c) and if such investment is made prior to January 1, 1971, funds are continued to be not invested after December 31, 1970. It is only if the funds of the trust itself are invested that it would result in forfeiture of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (2) of section 13 sets forth certain categories of transactions which would be considered as tantamount to use or application of the trust income or property for the benefit of the specified persons. Those transactions mentioned in clauses (a) to (h) of sub-section (2) are as follows : (a) lending of the income or property of the trust or institution to any of the specified persons without either adequate security or adequate interest or both ; (b) making available land, building or other property of the trust or institution for the use of any of the specified persons without charging adequate rent or other compensation ; (c) payment of excessive remuneration to any of the specified persons for services rendered by them to the trust or institution ; (d) making services of the trust or institution available to any of the specified persons without adequate remuneration or other compensation ; (e) purchase of shares, securities or other properties for the trust or institution from any of the specified persons for more than adequate consideration; (f) sale of shares, securities, or other property of the trust or institution to any of the specified persons for less than a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money in cash, money in bank. No other meaning of the expression " funds " is relevant for construing that expression employed in section 13(2)(h). What clause (h) contemplates is funds of the trust which are capable of investment. If the funds of the trust are not capable of being invested in any concern in which any of the specified persons has a substantial interest, such funds would not come within the purview of clause (h) of sub-section (2) of section 13. " Funds ", as observed above, means actual or available money or cash resources of the trust and if such funds are invested in any concern in which any of the specified persons has a substantial interest or if investment out of such funds is continued in the relevant previous year, section 13(2)(h) would be attracted. However, if there is no such investment of funds of the trust, this provision would not be attracted. In the instant case, admittedly, the assessee-trust did not invest its funds in purchasing the shares in question. It was the donor who had purchased the shares. The shares, after they were purchased by the donor, were donated to the assessee-trust. The assessee-trust, no doubt, continued to hold these share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which the Legislature had in view, the shares held by the trust, though they may be of the concerns in which any of the specified persons has a substantial interest, would not be hit by that clause. The assessee-trust has not invested its own funds in purchasing the shares and, therefore, even if it continued to hold those shares in the previous year, those shares or the investment represented by those shares would not come within the mischief of the said clause (h). Mr. Soparkar, learned counsel for the Revenue, however, placed strong reliance on the decision of the Punjab and Haryana High Court in Sharda Trust v. CIT [1981] 127 ITR 236 in support of his contention that the expression " funds " employed in clause (h) of sub-section (2) of section 13 would include property or asset like shares. That was a case in which an amount of Rs. 10,000 was donated by each of the four partners of a firm to the assessee-trust in March, 1971. The donations were made by debiting the accounts of each of the partners and crediting the account of the trust. In the balance-sheet of the trust relating to the accounting period ending on March 31, 1971, the aforesaid amount of Rs. 40,000 was added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther appeal, the Tribunal confirmed the view taken by the Income-tax Officer. It was urged on behalf of the assessee before the Andhra Pradesh High Court that the Legislature has intended to apply the word " fund" in restricted sense only to the accumulated income but not to the corpus and, therefore, the taxing authorities and the Tribunal were not right in including the aforesaid income in the assessee's total income. The Andhra Pradesh High Court negatived the above contention of the assessee and held that riot only the corpus but also the income derived therefrom could not be excluded from the computation of the total income of the author for the purpose of income-tax of the previous year. The decision of the Tribunal to compute the interest in the chargeable total income of the assessee was, therefore, upheld. The same question which has arisen for our consideration in this reference did not arise before the Andhra Pradesh High Court. The question which arose for its consideration was entirely different from the one which has arisen for our consideration in this reference. In our opinion, therefore, this decision of the Andhra Pradesh High Court is of no avail to the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pression in the said section is 'funds' and not 'fund'. One of the meanings of the said expression 'funds' in the dictionaries is money in hand or cash. In our view, in the context of the said section, this is the meaning which should be attributed to the expression 'funds' in construing the said section. The section contemplates that there will be investment of funds of a trust. If any other meaning is given to the expression 'funds', the same will not be available for investment or capable of being invested. If the funds of the trust are construed to include assets other than money in hand or cash or a credit balance in bank account, the same are not capable of being invested as such. Other assets of the trust apart from money in hand or bank will have to be converted into money or cash before the same can be invested. The expression `invest' in section 13(2)(h), in our view, connotes 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 a with the object of earning profit or financial advantage or return. It has to be established that a trust having assets in the form of money or c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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