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Issues Involved:
1. Interpretation of Section 13(2)(h) of the Income-tax Act, 1961. 2. Whether the assessee's dividend income is exempt under Section 11 of the Income-tax Act. 3. Definition and scope of the term "funds" as used in Section 13(2)(h). Issue-wise Detailed Analysis: 1. Interpretation of Section 13(2)(h) of the Income-tax Act, 1961: The primary issue revolves around the interpretation of Section 13(2)(h) of the Income-tax Act, 1961. The Revenue argued that the provision should apply if the funds remained invested in a concern where specified persons have a substantial interest, irrespective of whether the initial investment was made by the assessee. The Tribunal, however, interpreted that the term "funds" must have been actively invested by the trust. The court emphasized that the term "invest" implies a positive act of laying out money with the intention of earning a return, and this interpretation aligns with the legislative intent to prevent misuse of trust funds. 2. Whether the assessee's dividend income is exempt under Section 11 of the Income-tax Act: The court examined whether the assessee, a public charitable trust, could claim exemption for its dividend income under Section 11. The Revenue contended that the exemption should not apply as the funds were invested in a concern where specified persons had substantial interest. However, the Tribunal found that the shares were received as donations and not actively invested by the trust. The court agreed with the Tribunal, stating that the exemption under Section 11 is valid as the funds were not invested by the trust in the manner described in Section 13(2)(h). 3. Definition and scope of the term "funds" as used in Section 13(2)(h): The court delved into the definition of "funds" and concluded that it refers to money in hand or cash, and not other assets unless they are converted into cash. The term "funds" implies a sum of money set aside for a specific purpose, and for Section 13(2)(h) to apply, the funds must be actively invested by the trust. The court cited various dictionaries and legal precedents to support this interpretation, emphasizing that the term should be understood in its proper context and not merely through a literal or technical lens. Conclusion: The court concluded that the Tribunal was correct in its interpretation and application of Section 13(2)(h). The assessee was entitled to claim exemption under Section 11 for its dividend income, as the funds were not actively invested by the trust in the specified concern. The court answered the referred question in the affirmative, in favor of the assessee and against the Revenue. The judgment aligns with similar decisions from various High Courts, reinforcing the interpretation that "funds" must be actively invested by the trust to attract the provisions of Section 13(2)(h).
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