1988 (3) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Income-tax Appellate Tribunal was right in setting aside the order of the Commissioner of Income-tax u/s 263 of the Income-tax Act, 1961.
2. Whether the Tribunal was correct in holding that the provisions of section 11 were not violated as the funds were applied to charitable purposes.
3. Whether the Tribunal was right in holding that section 13(2)(h) did not apply in this case.
4. Whether the Tribunal erred in not considering the Revenue's contention that the trust's income was used for the benefit of prohibited categories u/s 13(2)(h) read with section 13(3).

Summary:
Issue 1: Setting Aside the Order u/s 263
The Tribunal set aside the Commissioner's order under section 263, which claimed that the assessee trust's income was used for the benefit of prohibited persons as per section 13(2)(h) read with section 13(3). The Tribunal found that the assessee's donations to other charitable trusts were in line with the Board Circular F. No. 176/89/77-II(AT), which states that such donations are considered utilization by the donor trust.

Issue 2: Application of Section 11
The Tribunal held that the assessee trust's donations to other charitable trusts, even if the donations were to be part of the corpus, amounted to application of income for charitable purposes as per section 11. The Tribunal relied on the Board Circular, which clarifies that donations to another charitable trust do not negate the exemption under section 11, even if the donee trust does not spend the amount in the year of receipt.

Issue 3: Applicability of Section 13(2)(h)
The Tribunal concluded that section 13(2)(h) did not apply as the transactions in question were loans, not investments. The Tribunal noted that section 13(2)(h) applies to investments in concerns where prohibited persons have a substantial interest, but the transactions here did not involve such investments.

Issue 4: Non-consideration of Revenue's Contention
The Tribunal did not find merit in the Revenue's contention that the trust's income was used for the benefit of prohibited categories u/s 13(2)(h) read with section 13(3). The Tribunal emphasized that the Commissioner's order was based solely on section 13(2)(h) and not on any other provision.

Conclusion:
The High Court affirmed the Tribunal's decision, answering all four questions in favor of the assessee and against the Revenue. The Court held that the assessee trust's actions were in compliance with sections 11 and 13 of the Income-tax Act, 1961, and the Board Circulars provided clear guidance supporting the Tribunal's conclusions.