2009 (6) TMI 610 - AT - Income Tax

Exemption u/s 11 - shares and bonds - possession on account of death of the inmates - Held that - assessee received certain shares and bonds of small values, which statedly came into its possession on account of death of the inmates. Since there was no manifest transfer of the shares and bonds to the assessee, the same were not taken into account in the books of account. The shares were of small value and some were in odd lots which could not be disposed of immediately and, therefore, they continued to remain in possession of the assessee. Some of the securities were got transferred in the name of the assessee. That, however, does not mean that the assessee manifestly became owner of the shares. The shares and bonds belonged to the deceased intimates which normally would have gone to their legal heirs who were not traceable. This was the reason for non-entering the shares etc. in the books. The bonds and shares were also not saleable immediately. In these circumstances, the assessee could not be taken to be the de jure owner of the shares. Although, the word used is held , we are of the view that these words implies ownership of the assessee to the exclusion of all others, which is not the case here. In these circumstances, we are of the view that total denial of exemption u/s 11(1)(a) on the ground that the shares were held by the assessee will be against even the language of the provision. - Benefit of exemption allowed to assessee.

Summary

Issues:
1. Interpretation of provisions under section 13(1)(d)(iii) for exemption under sections 11 and 12.
2. Disallowance of grant utilization for acquiring capital asset.

Analysis:
1. The appeal before the Appellate Tribunal ITAT, Delhi pertained to the interpretation of provisions under section 13(1)(d)(iii) for exemption under sections 11 and 12. The revenue challenged the order of the CIT(A) which allowed exemption to the assessee. The Assessing Officer contended that the assessee violated the provisions of section 13(1)(d)(iii) by holding shares and bonds not in conformity with section 11(5). The CIT(A) noted that the assessee did not intend to invest in these securities, which were received as small donations and were not tradable. The Tribunal agreed with the CIT(A) that the infringement, if any, was technical and should be ignored by applying a rule of purposive construction. The Tribunal held that total denial of exemption under section 11(1)(a) based on the ownership of shares by the assessee would go against the language of the provision, and income derived from the shares could be taxed, but complete denial of exemption was not justified. Thus, grounds 1 and 2 were dismissed.

2. The second issue involved the disallowance of Rs. 27,58,384 made by the Assessing Officer for the utilization of the grant to acquire a capital asset. The Tribunal noted that this issue was consequential, as once exemption was allowed under section 11(1)(a), the amount utilized for acquiring a capital asset had to be excluded from the total income of the assessee. Therefore, the appeal was dismissed in its entirety.

In conclusion, the Tribunal upheld the CIT(A)'s decision to allow exemption under sections 11 and 12 by interpreting the provisions under section 13(1)(d)(iii) in a manner that considered the unique circumstances of the case. The Tribunal also addressed the consequential issue of grant utilization for acquiring a capital asset, ruling in favor of the assessee.