2002 (4) TMI 32 - HC - Income Tax

Charitable Purpose, Charitable Trust, Wealth Tax, Exemption - This trust is registered under se ction 12A(a) of the Income-tax Act, 1961. Its objects are charitable in nature within the meaning of section 2(15) thereof. The donations accepted by it are also entitled to exemption from income-tax in terms of section 80G of the Income-tax Act. In its wealth-tax return, the petitioner claimed exemption under section 5(1)(i) of the Wealth-tax Act, 1957, for the year 1976-77. However, the said claim was not entertained. An appeal preferred thereagainst was dismissed. - there is no manner of doubt that the petitioner would be entitled to exemption as prayed for by him.

Issues Involved:
1. Eligibility of the petitioner trust for exemption under section 5(1)(i) of the Wealth-tax Act, 1957.
2. Applicability of sections 11 and 13 of the Income-tax Act, 1961, to the petitioner trust.
3. Interpretation of investment and funds in relation to section 13(2)(h) of the Income-tax Act, 1961.

Detailed Analysis:

1. Eligibility for Exemption under Section 5(1)(i) of the Wealth-tax Act, 1957:
The petitioner, a public charitable trust, claimed exemption under section 5(1)(i) of the Wealth-tax Act for the year 1976-77. This claim was initially dismissed by the Wealth-tax Officer and the Appellate Assistant Commissioner. However, the Full Bench of the Income-tax Appellate Tribunal, Bombay, granted the relief in a similar matter. Despite this, the Commissioner of Wealth-tax upheld the initial rejection, stating that the petitioner-trust is not eligible for exemption under section 11 of the Income-tax Act, 1961, and consequently not entitled to exemption under section 5(1)(i) of the Wealth-tax Act.

2. Applicability of Sections 11 and 13 of the Income-tax Act, 1961:
Section 11(1) of the Income-tax Act excludes specified income from the total income of the previous year. However, sections 13(1)(c) and (d), 13(2)(h), and 13(3) impose conditions where such exclusion does not apply. Specifically, section 13(2)(h) deems the income or property of the trust to be used for the benefit of certain persons if the funds are invested in concerns where such persons have a substantial interest. The court observed that the petitioner trust's funds were invested in shares before January 1, 1971, and continued to remain so. According to CIT v. Sir Shri Ram Foundation, such continued investment results in forfeiture of exemption if the funds remain invested after December 31, 1970.

3. Interpretation of Investment and Funds in Relation to Section 13(2)(h):
The court elaborated on the interpretation of "investment" and "funds" in the context of section 13(2)(h). It was emphasized that the term "investment" means laying out money in a manner that it generates income or profit. The court referred to previous judgments, including CIT v. Insaniyat Trust and IRC v. Desoutter Bros. Ltd., to clarify that investment implies a positive act of earning income or profit. The Kerala High Court in CIT v. Chandrika Educational Trust also supported this interpretation, rejecting the notion that merely holding shares without active investment qualifies as continued investment under section 13(2)(h).

Conclusion:
The court concluded that the petitioner trust is entitled to the exemption as claimed. The impugned order by the Commissioner of Wealth-tax was set aside, allowing the petitions without any orders as to costs. The judgment reinforced that exemptions granted under the Income-tax Act should similarly apply under the Wealth-tax Act, provided the statutory conditions are met.

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