2001 (2) TMI 78 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of section 13(2)(h) of the Income-tax Act, 1961.
2. Exemption from tax u/s 11 of the Income-tax Act for income arising from shares and property donated.

Summary:

Issue 1: Applicability of section 13(2)(h) of the Income-tax Act, 1961

The primary question was whether the provisions of section 13(2)(h) of the Income-tax Act were applicable to the assessee, Sir Sobha Singh Public Charitable Trust, thereby affecting its tax exemption status u/s 11. The Income-tax Officer (ITO) argued that the trust was not eligible for exemption due to the provisions of sections 13(2)(b) and 13(2)(h), which deal with the occupation of trust property without adequate rent and investment of trust funds in concerns where a person referred to in section 13(3) has a substantial interest. The Tribunal, however, found that the rent paid by Sir Sobha Singh for the properties was adequate and that the shares held by the trust were donations, not investments made by the trust. Therefore, section 13(2)(h) was deemed inapplicable.

Issue 2: Exemption from tax u/s 11 of the Income-tax Act for income arising from shares and property donated

The Tribunal held that the shares received by the trust from Sir Sobha Singh were donations and not investments made by the trust. The Tribunal emphasized that the term "funds" in section 13(2)(h) refers to money or cash capable of being invested, and since the shares were donations, they did not qualify as an investment by the trust. Consequently, the trust was exempt from tax u/s 11. The High Court upheld this view, noting that the interpretation suggested by the Revenue would do violence to the plain language of the statute. The court referred to various High Court judgments and dictionary definitions to conclude that the term "funds" means money in hand or cash, and the term "invest" implies a positive act of laying out money for profit.

Conclusion:

The High Court affirmed the Tribunal's decision, stating that the Tribunal was justified in its view. The questions were answered in the affirmative, in favor of the assessee and against the Revenue.