1999 (7) TMI 50 - HC - Income Tax

Summary

Issues involved:
1. Interpretation of provisions of section 13(2)(h) and section 13(1)(c) of the Income-tax Act, 1961 regarding income from shares with substantial interest of donor.
2. Determination of depreciation claimed by a charitable trust under section 11(1) of the Income-tax Act, 1961.

Interpretation of provisions of section 13(2)(h) and section 13(1)(c):
The case involved a charitable trust receiving shares as a donation, leading to a dispute on whether the provisions of section 13(2)(h) and section 13(1)(c) are applicable. The Income-tax Officer initially taxed the dividend income derived from the donated shares due to substantial interest of the donors in the company. However, the Commissioner of Income-tax (Appeals) and subsequently the Tribunal held that the provisions were not attracted as the donation did not amount to an investment by the trust. The Tribunal rightly concluded that the income from shares was not subject to section 13(2)(h) read with section 13(1)(c) based on precedents like CIT v. Birla Charity Trust [1988] 170 ITR 150 and CWT v. Bharat Charity Trust [1993] 199 ITR 420.

Determination of depreciation claimed by a charitable trust:
Regarding the depreciation claimed by the trust under section 11(1) of the Income-tax Act, the Assessing Officer disallowed the claim as there was no business activity. However, the Tribunal allowed the claim, citing precedents like CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28, which emphasized computing income on a commercial basis for charitable trusts. The counsel for the assessee argued that income should be computed based on commercial principles as shown in the books of account, supported by various High Court decisions. Despite differing views on the interpretation of income for charitable trusts, the Court decided to leave the issue open for future consideration due to the assessment year being 1983-84 and the minimal tax effect.

Conclusion:
The High Court answered both questions in favor of the assessee and against the Revenue, affirming that the provisions of section 13(2)(h) and section 13(1)(c) were not applicable to tax the dividend income from donated shares. The Court also acknowledged the Tribunal's decision on allowing the depreciation claimed by the trust, leaving the issue open for future consideration given the minimal tax effect and the assessment year involved.