TMI Blog1990 (6) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the income other than dividend income. It may be mentioned that during the relevant previous years the assessee was holding 12,000 preference shares of National Rayon Corporation Ltd. Apart from income by way of bank interest, donations, the assessee had also earned dividend income on the said Preference Shares. By virtue of the provisions of section 11(5) of the Act, which came into effect from assessment year 1984-85, the assessee lost exemption under section 11 of the Act in respect of dividend income. However, relying on the provisions of section 164(2) of the Act, the assessee contended before the ITO that only the dividend income was liable to tax, while the other income would still be exempt under section 11 of the Act. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 164(2). It is brought to the notice of the assessee that these provisions, only to tax the relevant income have come into effect from the Asst. year 1985-86 by way of insertion of a proviso to the section 164(2). From the above observations, it is clear that the assessee having continued to hold the investments in concerns which are not included in section 11(5), they lose exemption u/s. 11. " 4. Similarly, for the assessment year 1985-86, the ITO did not accept the assessee's claim for exemption in respect of the entire income as under : " For the same reasons as mentioned by me in assessment order for the A.Y. 1984-85, the assessee is losing exemption u/s. 11 of the IT Act, 1961 as the assessee holds investments contrave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. Sub-section (2) of section 164 concerns the relevant income which is derived from property held under trust fully for charitable or religious purposes for and from asst. year 1973-74, also the income of the trust from certain voluntary contributions referred to in section 2(24); and for and from the asst. year 1984-85 also the income of the trust from business referred to in section 11(4)(a). If such income consists of several portion, exempt as well as taxable, the portion which is exempt is to be left out and the portion which is not exempt falls in the net of tax as if it were the income of the Association of Persons. Similar distinction between exempt and non-exempt income as provided in section 164(2) is not available w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state that the assessee would lose exemption u/s. 11 of the Act in respect of the dividend income received on the said shares and not in respect of other income earned by it. In other words, the learned counsel for the assessee wanted to impress upon us that just cause the assessee was not in a position to dispose of the shares of National Rayon Corporation Ltd., it should not lose exemption contemplated u/s 11 of the Act in respect of other income earned by it. In this connection, he also invited our attention to Circular No. 387 containing explanatory notes on the Finance Act, 1984, more particularly paragraph 28.6 which reads as under :--- " 28.6 It may be noted that new sub-section (1A) inserted in section 161 of the Income-tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appeal. In this connection, he also filed before us copies of the assessment orders for the assessment years 1981-82 to 1983-84, wherein before the insertion of sub-section (5) of Sec. 11 of the Act (by the Finance Act, 1983 with effect from 1-4-1983), the ITO himself had granted exemption to the assessee u/s.11 of the Act in respect of the income earned by the assessee including the income earned by way of dividend on the aforesaid shares. He, therefore, urged that the ITO should be directed to grant exemption to the assessee in respect of income other than dividend income earned by the assessee and modify the assessment accordingly. The learned representative for the department, on the other hand, strongly relied on the orders of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act introduced sub-section (5) which prescribes the forms and modes of investing and depositing moneys accumulated by the trust which are referred to in clause (b) of sub-section (2). Now, the requirement of investment of accumulated funds in specified securities, which has been introduced in the form of sub-section (5), is likely to create difficulties for old trusts which have been granted exemption under Sec. 11 [as it stood before the introduction of sub-section (5)], but which are not in a position to invest in specified securities, its accumulated funds for some reason or the other. In the instant case it is a known fact that during the relevant previous year it was not possible to dispose of the shares in question, as there was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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