1993 (2) TMI 18 - HC - Income Tax

Summary

Issues involved:
Interpretation of section 13(2)(h) of the Income-tax Act, 1961 regarding taxation of trust income from shares in a company where the settlor has substantial interest.

Facts in Income-tax Reference No. 298 of 1978:
The assessee, a public charitable trust, received shares as donations from the settlor in a company where the settlor had substantial interest. The trust held these shares but did not actively invest trust funds in acquiring them.

Legal Provisions:
- Section 11: Exempts income from property held for charitable purposes.
- Section 12: Deems voluntary contributions as income for charitable trusts.
- Section 13: Specifies cases where sections 11 and 12 do not apply, including investments in companies with substantial interest by persons related to the trust.

Interpretation:
- The term "funds" refers to money invested for financial returns.
- Trust funds must be actively invested in shares to trigger section 13(2)(h).
- Previous court decisions support that mere receipt of shares as donations does not attract section 13(2)(h).

Court's Decision:
- Section 13(2)(h) is not applicable if trust funds are not actively invested in shares of a company with substantial interest by related persons.
- Trusts merely receiving shares as donations without actively investing trust funds are not subject to taxation under section 13(2)(h).
- Similar decisions apply to all references before the court.
- Judgment in favor of the assessee in all references, with no costs awarded.