2003 (1) TMI 72 - HC - Wealth-tax

Whether the Tribunal was right in holding that the assessee s case was clearly covered by the second proviso to section 21A of the Act as its shareholding in the two companies did not exceed 5 per cent. of the capital of each of the companies? - we feel that apart from the question of valuation of shares the only other issue which was raised and considered by the Tribunal was whether the investment of the assessee-trust in the aforenoted two companies exceeded 5 per cent. of the respective share capital of the two companies or not. In the light of the averments on this aspect the Tribunal recorded the finding that the investment by the trust in each of the concerns did not exceed 5 per cent. of their respective capitals and therefore the second proviso to section 21A of the Act was clearly attracted in the case of the assessee-trust. Obviously this is a pure finding of fact.

Issues:
1. Interpretation of the second proviso to section 21A of the Wealth-tax Act, 1957.
2. Treatment of shares held by a charitable trust in excluded companies under section 13(2) of the Income-tax Act.

Issue 1: Interpretation of the second proviso to section 21A of the Wealth-tax Act, 1957:
The case involved a charitable trust holding shares in two companies, with the Revenue seeking a direction to the Tribunal to refer questions on the interpretation of the second proviso to section 21A. The trust's investment in the companies was initially over 5%, but reduced to exactly 5% later. The Assessing Officer included the shares' value in the net wealth of the trust. The Appellate Assistant Commissioner and the Tribunal held that the shares forming part of the trust's corpus could not be treated as investments attracting section 21A provisions. The Tribunal found that the trust's shareholding did not exceed 5% of the companies' capital, invoking the second proviso to section 21A. The Court agreed that the language of the proviso was clear, requiring the trust's investment to be considered in each concern separately. The Court also referred to a previous case where donated shares held by the trust were not considered investments under section 21A. The Tribunal's decision not to refer the questions was upheld, dismissing the application.

Issue 2: Treatment of shares held by a charitable trust in excluded companies under section 13(2) of the Income-tax Act:
The trust, a charitable entity, held shares in two companies where the trustees were substantially interested as per section 13 of the Income-tax Act. The Revenue contended that the shares' value should be included in the trust's net wealth under section 21A. However, the Appellate Assistant Commissioner and the Tribunal ruled in favor of the trust, stating that the shares forming part of the trust's corpus could not be considered investments under section 21A. The Tribunal found that the trust's shareholding did not exceed 5% of the companies' capital, thus not attracting section 21A provisions. The Court upheld the Tribunal's decision, emphasizing that the donated shares held by the trust could not be treated as investments under section 21A, as per a previous ruling. The application was dismissed, with no costs awarded.

This judgment clarifies the interpretation of the second proviso to section 21A of the Wealth-tax Act, 1957, in the context of a charitable trust's investments in companies and the treatment of shares held by the trust in excluded companies under section 13(2) of the Income-tax Act. The Court's detailed analysis reaffirmed the trust's position, emphasizing the distinction between shares forming part of the trust's corpus and investments subject to section 21A provisions. The decision provides clarity on the application of relevant provisions and previous rulings in determining the tax implications for charitable trusts holding shares in excluded companies.

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