1988 (4) TMI 28 - HC - Income Tax

Summary

Issues Involved:
1. Whether the condition precedent in section 13(2)(h) of the Income-tax Act is fulfilled.
2. Whether the burden lay on the Revenue to show that the provisions of section 13(1)(c) of the Income-tax Act applied to the case of the assessee.
3. Whether the assessee-trust's case was hit by the provisions of section 13(2)(h) of the Income-tax Act.

Summary:

Issue 1: Condition Precedent in Section 13(2)(h)
The Tribunal held that the condition precedent under section 13(2)(h) requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the persons referred to in section 13(3) have substantial interest. Since the shares were donated to the assessee-trust and not purchased by it, the Tribunal found that the condition precedent in section 13(2)(h) was not fulfilled. The High Court agreed, stating that the term "funds" in section 13(2)(h) refers to actual or available money or cash resources capable of investment by the trust itself. The shares received as a donation did not constitute such an investment by the trust.

Issue 2: Burden of Proof on Revenue
The High Court did not address this issue directly as it became irrelevant due to the resolution of the first and third issues. Therefore, the second question did not survive and was not answered.

Issue 3: Applicability of Section 13(2)(h)
The High Court upheld the Tribunal's decision that section 13(2)(h) did not apply. The Court clarified that the term "funds" means actual or available money or cash resources of the trust itself. Since the assessee-trust did not invest its funds in purchasing the shares, but rather received them as a donation, the provisions of section 13(2)(h) were not attracted. The Court emphasized that the legislative intent behind section 13(2)(h) was to discourage investment of trust funds in concerns where specified persons have substantial interest, which was not the case here.

Conclusion:
The High Court answered the first and third questions in the affirmative, ruling in favor of the assessee-trust and against the Revenue. The second question was deemed unnecessary to answer. The reference was answered accordingly with no order as to costs.