2001 (3) TMI 47 - HC - Income Tax

Summary

Issues:
1. Whether dividend income from bonus shares was exempted under section 11 for the assessment years 1972-73 and 1973-74?
2. Whether the subscribers to the memorandum of association could be regarded as 'founders' of the society for the purposes of section 13(3)(a) of the Income-tax Act, 1961?
3. Whether the various contributors to the society could be regarded as persons who had made 'substantial contributions' to the society within the meaning of section 13(3)(b) of the Income-tax Act, 1961?
4. Whether only contributions received during the previous years relevant to the assessment years 1972-73 and 1973-74 could be taken into account in determining substantial contributions to the society?

Analysis:

1. Dividend Income Exemption:
The court addressed whether dividend income from bonus shares held by the assessee was exempt under section 11 for the relevant assessment years. The Tribunal found that the dividend income was exempt under section 11, and this decision was upheld in line with a previous court ruling. Therefore, the answer was in favor of the assessee against the Revenue.

2. Founders of the Society:
The court analyzed whether the subscribers to the memorandum of association could be considered 'founders' of the society under section 13(3)(a). The court referred to legal definitions of 'institution' and 'founder' to determine that the subscribers were indeed founders of the society. Consequently, the answer was in favor of the Revenue against the assessee.

3. Substantial Contributions:
Regarding substantial contributions made to the society, the court examined the total investment by eleven donors and the concept of 'substantial contribution.' The court emphasized that the term should be understood in its ordinary sense, without differentiation based on financial capacity. As the founders and certain relatives held a significant number of shares, the court concluded that substantial interest existed. Hence, the answer was in favor of the Revenue against the assessee.

4. Timing of Contributions:
The court considered whether contributions had to be made during a specific previous year to qualify as substantial contributions. It was clarified that the provision did not specify any such timing requirement. Therefore, the Tribunal's decision was deemed justified, leading to the answer being in favor of the Revenue against the assessee.

In conclusion, all four reference applications were disposed of based on the detailed analysis of the issues surrounding the assessment years 1972-73 and 1973-74 under the Income-tax Act, 1961.