TMI Blog1987 (8) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer rejected the contentions of the assessee and held that the funds of the assessee remained invested in a concern in which the persons referred to in subsection (3) of section 13 of the Act, viz., the settlor of the trust, the persons who had made a substantial contribution to the trust and/or their relatives had substantial interest in the company and, therefore, the income of the assessee by way of dividends from the said shares was not entitled to exemption under section 11 of the Act. Being aggrieved, the assessee preferred an appeal from the assessment to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the contentions of the assessee and held that the investment in the instant case had been made by the donors and the donations were received by the assessee by 1963. It was held that as no funds of the assessee had been invested in the said shares and that as the Assessee had received the shares themselves by way of donation, the provisions of section 13(2)(h) read with section 13(1)(c) had no application and that the dividend received by the assessee from the said shares was exempt from income-tax. Being aggrieved, the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom income-tax under section 11 in respect of the dividend received from the said shares. It was submitted further that the provisions of the second proviso to section 13(1)(c) were prospective and not retrospective and would entitle an assessee to claim full exemption. Section 13(2)(h), it was submitted, would become operative only in cases where the funds of the assessee were invested by it in any concern in which the persons referred to in section 13(3) had a substantial interest and the investment was continued beyond June 1, 1970. The Tribunal accepted the contentions of the assessee and held that, under the provisions of the second proviso to section 13(1)(c), the assessee was entitled to claim exemption in respect of the dividend received from the said shares in the assessment year involved. The Tribunal held further that in view of the meaning of the expressions " fund "and " invest " as found in the dictionaries, it was necessary for the Revenue to establish that the investment had been made by the assessee out of its funds in concern in which the persons referred to in section 13(3) had a substantial interest and that such investments continued beyond June 1, 1970. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to in subsection (3) : ...... Provided further that in the case of ...... or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; (d) subject to the provisions of clause (bb), in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof assessable for any assessment year commencing on or after the 1st day of April, 1979, if any funds of the trust or institution are invested or deposited or continue to remain invested or deposited for any period during any previous year commencing on or after the 1st day of April, 1978, otherwise than in any of the forms or modes specified in sub-section (5); ...... (2) Without prejudice to the generality of the provisions of clause (c) of sub-section (1), the income or the property o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has a variety of slightly different meanings, as follows: " moneys and much more, such as notes, bills, cheques, drafts, stocks and bonds, and in broader meaning may include property of every kind ... Money in hand, assets, cash, money available for the payment of debt, legacy, etc. Corporate stocks or government securities ; in this sense usually spoken of as the 'funds'. Assets, securities, bonds or revenue of a State or Government appropriated for the discharge of its debts. Generally, working capital ; sometimes used to refer to cash or to cash and marketable securities." (p. 606) (b) Dictionary for Accountants, 4th edn., by Eric L. Kohler: "1. An asset or group of assets within any organization, separated physically or in the accounts or both from other assets and limited to specific uses. Examples: a petty cash or working fund; a replacement and renewal fund ; an accident fund ; a contingent fund ; a pension fund. 2. Cash, securities, or other assets placed in the hands of a trustee, principal or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned advocate for the Revenue also cited Sharda Trust v. CIT [1981] 127 ITR 236 (P H). In this case, four partners of a firm donated to the assessee, a trust, Rs. 10,000 cash by debiting their respective accounts with the firm and crediting the same in the account of the assessee by the end of March, 1971. The amounts so donated were handed over to the trust in two equal instalments on April 10, 1971 /April 15, 1971. In the assessment year involved, the accounting year ending on March 31, 1971, the question arose whether the assessee was entitled to exemption from income-tax in respect of the said amounts donated under section 13(2)(h). The claim of the assessee for exemption was rejected by the Income-tax Officer but was allowed by the Appellate Assistant Commissioner. On further appeal, the Tribunal set aside the decision of the Appellate Assistant Commissioner and upheld the decision of the Incometax Officer. On a further reference before the Punjab and Haryana High Court, it was held that as soon as credit entries were made in favour of the assessee, the latter would be deemed to have been put in possession of the said amounts. The firm would thereafter be holding the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid shares. The said shares had been received by the assessee as a gift or bounty and the same could not be held to be an investment which could only be made by a positive and conscious act of the assessee. The learned advocate for the assessee contended further that, in any event, the said shares had been received by the assessee by way of donations prior to June 1, 1970, and, therefore, the assessee was entitled to the benefit conferred by the second proviso to section 13(1)(c)(ii) as the user or application of the property of the trust related to a period prior to June 1, 1970. In support of his contentions, the learned advocate for the assessee cited the following decisions : (a) Duncan Bros. Co. Ltd. v. CIT [1978] 111 ITR 885 (Cal). In this case, a Division Bench of this court considered and construed the meaning of the expression " fund " as appearing in rule 1 of the Second Schedule to the Super Profits Tax Act, 1963, and rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. In the judgment to which I was a party, the observations of Lord Greene M.R. in his judgment in Allchin's case [1942] 25 TC 445 (HL) were quoted. (b) Duncan Bros. Co. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the expression " investment " in English and Indian decisions. It was held that in order to constitute an investment, money must be laid out in such a manner as to acquire some species of property which would bring an income to the investor. On the facts, it was held that there was no investment of any moneys by the assessee with the firms which were bound to return the moneys due and owing to the assessee as and when demanded. It was held that there had been no investment by the assessee as understood in business parlance. The learned advocate for the assessee also contended that mere holding of the shares donated to the assessee could not be deemed to be an investment of the funds of the assessee. In this connection, he drew our attention to section 13, as amended by the Finance Act, 1983, with effect from April 1, 1983. The said amended section reads as follows: "13. (i) 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 . ...... (d) in the case of a trust for charitable or religious purposes or charitable or religious institution, any income thereof, if for any perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvested. The expression " invest " in section 13(2)(h), in our view, connote's 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 profit or financial advantage or return. It has to be established that a trust having assets in the form of money or cash or a credit balance in a bank account or in any other form capable of being invested was by a positive act and pursuant to decision of the trust laid out or committed in a concern of a nature specified, before it can be held that such an investment comes within the mischief of section 13(2)(h). It appears from the facts as found that the assessee in the instant case received the shares of the company by way, of donation. The assessee did not deal with or commit or lay out any part of its existing assets to acquire the said shares. Apart from the acceptance by the assessee of the said shares, there was no decision or action on the part of the assessee. All that the assessee has done is to hold on to the shares which it received by way of gifts. Some light is thrown on the point by the amendment incorp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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