2010 (8) TMI 435 - HC - Income Tax

Exemption u/s 11 - Investment in debenture - in the absence of any definition of debenture in the Income-tax Act, reliance could be placed upon the definition given in section 2(12) of the Companies Act and also the common parlance in which this term is understood - it cannot be held that the assessee contravened the provision of section 13(1)(d) of the Act - Decided in the favour of the assessee

Summary

Issues:
Interpretation of the term "debentures" under the Income-tax Act for a charitable trust's tax exemption under section 11.

Analysis:

1. Interpretation of "debentures" and Section 13(1)(d) Compliance:
The case revolved around whether the respondent-assessee, a charitable trust, was entitled to tax exemption under section 11 of the Income-tax Act despite making investments in bonds. The Income-tax Officer had denied the exemption citing a violation of section 13(1)(d) due to investments in various bonds. However, the appellate authority and the Tribunal held that the term "debentures" encompassed bonds as well, thereby allowing the trust to claim the exemption for income from both debentures and bonds.

2. Reference to Companies Act Definition:
The term "debentures" is not explicitly defined in the Income-tax Act. The court referred to the definition provided in section 2(12) of the Indian Companies Act, which includes bonds under the expression "debenture." Relying on precedents from the Kerala and Madras High Courts, the Delhi High Court determined that the definition of "debenture" in the Companies Act could be utilized for interpreting the term under the Income-tax Act. This approach supported the assessee's position regarding tax exemption.

3. Interpretation of "Debentures" for Tax Exemption:
The Department contended that the term "debentures" should exclude bonds for the purpose of tax exemption under section 11(5) of the Act. However, the court rejected this argument, emphasizing that in the absence of a specific definition in the statute, the common parlance understanding of the term should prevail. Referring to a Supreme Court ruling, the court highlighted that the term "debenture" commonly includes bonds of companies or corporations, supporting the assessee's eligibility for tax exemption.

4. Concurrence with Tribunal's Decision:
Ultimately, the Delhi High Court concurred with the Tribunal's decision, affirming the assessee's entitlement to tax exemption under section 11 of the Income-tax Act for income derived from both debentures and bonds. By aligning with the common understanding of the term "debenture" to include bonds, the court ruled in favor of the charitable trust, rejecting the Revenue's contentions and upholding the Tribunal's judgment.