2000 (9) TMI 45 - HC - Income Tax

Exemption, Charitable Purpose, Charitable Trust, Law Applicable, Assessment, Special Deduction

Summary

Issues Involved:
1. Whether the assessee-trust was assessable as an individual and consequently entitled to deduction u/s 80L of the Income-tax Act, 1961.
2. Whether the assessee-trust violated section 13(1)(d) of the Act in the assessment year 1993-94 by not disinvesting the shares of non-Government companies by March 31, 1993.

Summary:

Issue 1: Assessability of the Assessee-Trust as an Individual
Facts:
The assessee-trust, a public charitable trust that came into existence after June 1, 1973, filed its return of income as an association of persons under protest. The Assessing Officer assessed it as an association of persons and not as an individual, thereby rejecting the assessee's claim for deduction u/s 80L.

Arguments:
- Department: Argued that the trust should be assessed as an association of persons and not as an individual, relying on section 2(31) of the Income-tax Act, which defines a person to include various entities but not a trust as an individual.
- Assessee: Contended that trustees of a public charitable trust should be assessed as individuals. They argued that an association of persons implies individuals coming together for a common purpose of earning income, which was not the case here.

Findings:
The court referred to various judgments, including CIT v. Marsons Beneficiary Trust and CIT v. Venu Suresh Sanjay Trust, which held that trustees should be assessed as individuals. The court concluded that the assessee-trust should be assessed in the status of an individual and thereby entitled to deduction u/s 80L.

Conclusion:
Question No. 1 is answered in the affirmative, in favor of the assessees and against the Department.

Issue 2: Violation of Section 13(1)(d)
Facts:
The assessee-trust held equity shares of Mafatlal Industries up to March 31, 1993, and did not disinvest them by that date. The Department argued that this failure resulted in the forfeiture of the trust's tax exemption for the assessment year 1993-94.

Arguments:
- Department: Claimed that the exemption provided to a charitable trust would stand forfeited if the trust did not dispose of impermissible investments by the cut-off date, March 31, 1993.
- Assessee: Argued that the trust was entitled to hold the shares up to March 31, 1993, and was required to disinvest only after that date.

Findings:
The court examined section 13(1)(d) and its proviso (iia), concluding that the provision is negatively worded, indicating that the trust had to dispose of impermissible investments by the cut-off date. The assessee-trust failed to disinvest by March 31, 1993, thus violating section 13(1)(d), resulting in the forfeiture of the tax exemption.

Conclusion:
Question No. 2 is answered in the affirmative, in favor of the Department and against the assessees.

Final Disposition:
The appeals are disposed of with no order as to costs. C.C. expedited.