2013 (12) TMI 1157 - HC - Income Tax

Whether benefit of exemption for investment in shares is violation of section 13(1)(d) - Held that - It is well settled that the depiction in books of accounts is not a determinative test but the factual nature of the transaction which has to be considered for the purpose of taxation - The investment in shares of cooperative banks was a precondition for raising of loans and it was therefore not an investment as normally understood - The shares were subscribed to only for purposes of obtaining the loan and the amounts so obtained were used for furtherance of the objects of the trust - There is no reason to deny the benefit of exemption under Section 11 of the Act for Assessment Year 2008-09 - Decided against Revenue.

Summary

Issues:
1. Interpretation of provisions of Section 11(5) and Section 13(1)(d) of the Income Tax Act, 1961 regarding investment in shares of a cooperative bank.
2. Whether the investment in shares of a cooperative bank by the assessee qualifies for exemption under Section 11/12 of the Act.
3. Consideration of the Tribunal's decision in allowing the appeal of the respondent- assessee regarding the investment in shares of cooperative banks.

Analysis:
1. The revenue challenged the Tribunal's order regarding the investment made by the assessee in shares of a cooperative bank, contending that it violated Section 11(5) and Section 13(1)(d) of the Act. The revenue argued that the shares' purchase was not in compliance with the specified modes of investment under Section 11(5), thus breaching the conditions for exemption under Section 13(1)(d).
2. The Assessing Officer initially denied the assessee's claim for exemption under Section 11 of the Act due to the investment in shares of cooperative banks. The CIT (Appeals) upheld this decision. However, the Tribunal overturned these decisions, stating that the shares were acquired as a prerequisite for obtaining loans from the banks, which were used for charitable purposes. The Tribunal found that the shares were not acquired for investment purposes but to fulfill loan conditions, and the subscription amount was minimal compared to the loans obtained.
3. The Tribunal's decision was based on the factual nature of the transaction, considering the shares as a precondition for obtaining loans rather than a traditional investment. The Tribunal noted that the loans were utilized for charitable activities, and the revenue had previously granted exemptions for similar transactions in earlier assessment years. The Court upheld the Tribunal's decision, emphasizing that the revenue's basis for denying the exemption was unfounded, and there was no reason to disturb the Tribunal's finding of fact. As a result, the appeal was dismissed, and the benefit of exemption under Section 11 of the Act for the relevant assessment year was upheld.