1987 (8) TMI 60 - HC - Income Tax

Summary

Issues Involved:
1. Whether the dividend income received by the assessee from shares donated to it is exempt from income tax u/s 11 of the Income-tax Act, 1961.
2. Interpretation of the terms "fund" and "invest" in the context of section 13(2)(h) of the Income-tax Act, 1961.
3. Applicability of the second proviso to section 13(1)(c) concerning the period before June 1, 1970.

Summary:

Issue 1: Exemption of Dividend Income u/s 11
The assessee, a charitable trust, received dividends amounting to Rs. 1,44,735 from shares donated to it. The Income-tax Officer denied exemption u/s 11, citing section 13(2)(h), as the shares were held in a company where persons referred to in section 13(3) had a substantial interest. The Appellate Assistant Commissioner and the Tribunal, however, held that since the shares were received as donations and not purchased or invested by the assessee, section 13(2)(h) did not apply, and the income was exempt u/s 11.

Issue 2: Interpretation of "Fund" and "Invest"
The Revenue contended that the term "fund" should include shares and that holding these shares constituted an investment. The Tribunal and the High Court disagreed, stating that "funds" should be interpreted as money or cash capable of being invested. The term "invest" implies a positive act of laying out funds to acquire property or shares, which was not the case here as the shares were received as donations.

Issue 3: Applicability of Second Proviso to Section 13(1)(c)
The High Court noted that the assessee received the shares before June 1, 1970, and thus the second proviso to section 13(1)(c) applied, allowing the assessee to claim exemption for the dividend income. The Tribunal found that the shares had not changed character since their receipt, reinforcing the assessee's entitlement to exemption.

Conclusion:
The High Court upheld the Tribunal's decision, affirming that the assessee was entitled to claim exemption u/s 11 for the dividend income received from the donated shares. The interpretation of "fund" and "invest" supported the assessee's position, and the second proviso to section 13(1)(c) further validated the exemption claim. The question referred was answered in the affirmative and in favor of the assessee.