TMI Blog2007 (10) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... are more or less similar. Relevant to the assessment year 1976-77, the following questions of law have been referred for our opinion in ITA No. 2601/Del/1979 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that 5,06,076 shares being bonus shares of M/s. Mohan Meakin Breweries Ltd. ('MMBL') received by the assessee did not represent funds of the trust invested in the said concern for purposes of section 13(4) of the Act ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the prohibited category of persons mentioned in section 13(3) did not have substantial interest in MMBL in which the funds of the assessee were invested and, therefore, the provisions of section 13(2)(h) were not applicable ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the trust was entitled to exemption as stipulated under sections 11 and 12 of the Act ?" 2. Relevant to the assessment year 1977-78, the following questions of law have been referred for our opinion in ITA No. 2305/Del/1982 : "1. Whether, on the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Sampuran Singh (b) Balbir Singh (c) Ranbir Singh (d) Kulbir Singh 1,53,530 5. The Revenue contended that if the above shares were added to the shares held in MMBL by the assessee-trust then the holding of the "prohibited" category of persons in terms of section 13(2)(h) read with section 13(3) would exceed 20 per cent. of the total paid up shareholding of MMBL. This would make the income ineligible for exemption in terms of sections 11 and 12 of the Act. This view was accepted by the Assessing Officer. 6. The appeal filed by the assessee-trust was allowed by the Commissioner of Income-tax (Appeals) ("he CIT(A)"). It was held by the Commissioner of Income-tax (Appeals) that the bonus shares and shares received by way of donation had to be excluded for computing the percentage of share-holding of the assessee-trust in MMBL. Consequently, the Commissioner of Income-tax (Appeals) held that the assessee-trust was entitled to the benefit of section 13(4) of the Act. As regards the shares held by the "prohibited category" of persons and close relatives, the Commissioner of Income-tax (Appeals) accepted the contention of the assessee-trust that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld stand attracted. The relevant provisions of the Act read as under : "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 per-son in receipt thereof-. . . (c) in the case of a trust for charitable or religious purposes or a 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 income enures, or . . . directly or indirectly for the benefit of any person referred to in sub-section (3) : . . . (2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),-. . . (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1 st day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s than twenty per cent. of the profits of such concern." 10. The scheme of the above provisions of the Act relevant for the present purposes is that the income of a trust is generally exempt from taxation when such trust is for charitable or religious purposes. Section 12 specifies the types of income that would be deemed to be the income derived from the property held by the trust wholly for charitable and religious purposes. Section 13 sets out the conditions under which income earned by the trust would not qualify for exemption under section 11 or 12. If the income of the trust during the previous year is applied directly or indirectly for the benefit of a person referred to in sub-section (3) then the income would not be so exempt. For this purpose, section 13(2) sets out the kinds of income which would be deemed to have been used or applied for the benefit of a person referred to in sub-section (3). Under section 13(2)(h), one such deemed income would be an investment by the trust in any concern in which the person referred to in sub-section (3) has a substantial interest. Explanation 3 is a deeming provision as regards substantial interest. Explanation 3(ii) states that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself is one of the prohibited categories can-not be accepted. Taxation statutes admit of a strict interpretation. It is not possible to write into the categories mentioned in section 13(3) a category that is not mentioned there. For this reason, we are not inclined to interfere with the conclusion reached by the Tribunal that the shares of the HUF cannot be considered for the purposes of determining whether the persons mentioned in section 13(3) have a substantial interest in MMBL. 13. The next lot of shares which require to be considered is 3 lakhs shares held by the various trusts. Ms. Prem Lata Bansal places reliance upon the judgment of this court in CIT v. Brig. Kapil Mohan [2001] 252 ITR 830 to contend that even if the beneficiaries of the trusts which hold shares in MMBL were unknown, it cannot be said that the trusts did not hold the shares beneficially for any person. On the other hand, Mr. Monga, learned counsel for the assessee submits that the categories mentioned under section 13(3) does not include a trust in itself and, therefore, it would be stretching the language of the section impermissibly to bring the share-holding of the trust within the mischief of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first son of Shri Rakesh Mohan . . . A transfer cannot be made directly to an unborn person, for the definition of transfer in section 5 is limited to living persons. Such transfer can only be made by the machinery of trusts. Possibly, to express this distinction, the expression ' for the benefit of' has been used, since the trustees, being the transferees, hold the property for the benefit of the unborn person. In the case at hand the entire interest in the property goes to the benefit of the child to be born to Shri Rakesh Mohan. As the facts go to show, in fact a child was born in August, 1977. What would have happened if Rakesh Mohan did not get a male child is also spelt out in the trust deed." 16. In the light of the above observation, it is clear that even if the property of the trust was being held for the benefit of yet to be born persons it cannot be said that the requirement of section 13(2)(h) read with section 13(3) is not met. It cannot, therefore, be said that the shares held by the trustees were not for the benefit of anyone. It is clear from the trust deeds themselves that the beneficiary could be an unborn child but that does not by itself take it outsid ..... 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