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Issues Involved: Applicability of section 21A of the Wealth-tax Act, 1957, to the assessee-trust for assessment years 1973-74 and 1974-75.
Issue 1: Applicability of Section 21A of the Wealth-tax Act, 1957 The Tribunal referred the question of whether the assessee-trust was liable to pay wealth-tax under section 21A of the Wealth-tax Act, 1957, for the assessment years 1973-74 and 1974-75. The Wealth-tax Officer denied the exemption under section 5(1)(i) of the Wealth-tax Act, citing prohibited investments in shares of concerns that made substantial contributions to the trust, invoking clause (e) read with clause (b) of sub-section (3) of section 13 of the Income-tax Act, 1961. The investments exceeded five percent of the capital of such companies, partially violating section 13(2)(h) of the Income-tax Act, 1961, and unsecured loan investments with substantial donors infringed section 13(2)(a). Consequently, the Wealth-tax Officer applied section 21A and charged the entire wealth to tax. Issue 2: Appeal for Assessment Year 1973-74 The Commissioner of Wealth-tax (Appeals) opined that the Wealth-tax Officer was incorrect in applying section 21A. The assessee-trust's statement showed investments in concerns where persons referred to in section 13(3) had substantial interest, with a total market value of Rs. 42,57,265. The Commissioner excluded the market value of shares received by donation while computing the wealth-tax liability, directing the Wealth-tax Officer to assess the market value of the shares purchased by the trust, amounting to Rs. 9,28,227, and to allow a deduction of Rs. 1,50,000 under section 5(1A). Issue 3: Appeal for Assessment Year 1974-75 The Commissioner of Wealth-tax (Appeals) upheld the Wealth-tax Officer's decision that section 21A was applicable, making the assessee's entire wealth liable to tax. The appeal against this order was dismissed. Issue 4: Tribunal's Consolidated Order The Tribunal, in a consolidated order, held that the deposits made by the assessee in concerns were loans, attracting clause (a) of section 13(2). The Tribunal also noted that if funds of the trust were acquired by donation or accretion, they wouldn't fall under clause (h) of section 13(2). Previous decisions, including the assessee's own case for 1972-73, supported this view. The Tribunal found that J. K. Steel and Industries Ltd.'s donation of Rs. 25,000, constituting 0.68 percent of the trust's corpus, was not substantial under section 13(3)(b), thus not disqualifying the trust from exemption. Issue 5: Revenue's Argument and Tribunal's Findings The Revenue argued that the concerns were substantial contributors, invoking sub-section (3) of section 13, and that loans and shareholdings attracted clauses (a) and (h) of sub-section (2) of section 13. The Tribunal found this premise incorrect, noting that the definition of "substantial contributor" was only introduced in 1975, effective from 1977. The Tribunal held that shares received by donation or accretion should be excluded when computing the five percent ceiling under sub-section (4) of section 13. Consequently, the Department's case for 1973-74 lacked foundation, and for 1974-75, the trust was entitled to exemption as the investments were by way of donation or accretion. Issue 6: Judicial Precedents The Tribunal's conclusion was supported by the decision in CIT v. Birla Charity Trust [1988] 170 ITR 150, which held that receiving shares by donation does not constitute an investment under section 13(2)(h). The Gujarat High Court in CIT v. Insaniyat Trust [1988] 173 ITR 248 also supported this view. Conclusion The Tribunal's findings were based on facts and reasonable inferences, affirming that the assessee-trust was not liable to pay wealth-tax under section 21A of the Wealth-tax Act, 1957, for the assessment years 1973-74 and 1974-75. The question was answered in the affirmative and against the Revenue, with no order as to costs.
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