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TMI Blog1981 (6) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... nd he refused exemption for the assessment year 1975-76 and following the same be refused exemptions similarly for the subsequent assessment years 1976-77 and 1977-78. On appeal, the AAC observed that his predecessor had negatived the claim of the assessee on the ground that the funds were invested in a firm in which the assessee's wife was a partner and as such the benefit indirectly accrued to the assessee. He further observed that this view was subsequently upheld by the Appellate Tribunal. This order was passed by the Appellate Tribunal, Hyderabad Bench "B", comprising Shri P.V.B. Rao and Shri N. Krishnan for the assessment years 1972-73 to 1974-75 in IT Appeal Nos. 1997 to 1999 (Hyd.) of 1976-77 (order dated 6-3-1978). The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity and for adequate interest and that the provisions of section 13(2)(h) would apply only in the case of investment of the trust funds in the capital of a firm and not to a case where it is given as a loan. Shri Anjaneyulu also raised an alternative ground to the effect that section 13(2)(h) would apply only to funds invested by the trustees as such and would not apply to the cases where the settlor had invested funds and made them over to the trust. In support of this submission, he relied upon the order of the Special Bench of the Appellate Tribunal, Bombay Bench "B", comprising Shri T.D. Sugla, Vice President as he then was, and Shri R.L. Saigal and Shri M.P. Argikar, in WT Appeal Nos. 841 to 845 of 1974-75, in the case of Trustees of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),--- (h) if any funds of the trust or institution are, continue to remain, invested for any period during the previous year (not being a period before the first day of January 1971) in any concern in which any person referred to in sub-section (3) has a substantial interest." Circular No. 45 dated 2-9-1970 was issued by the CBDT with reference to the Finance Act, 1970. This circular is found at page 33 of Statutes' part of 79 ITR. At page 43, para 21, it is stated that section 13, which specified the circumstance in which a trust shall forfeit the exemption from tax under section 11, was substituted by a new secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation will not be a harmonious interpretation of provisions in clause (a) and clause (h), and cannot, therefore, be sustained." From the circular it is very clear that section 13(2)(h) would only relate to the investment of the trust funds in any concern in which any of the specified persons had a substantial interest and that further a trust would be deemed to have used or applied its income or property for the benefit of the specified persons only with reference to investments in the capital of the concern as distinct from investments by way of loans, etc. In other words, if moneys were lent without adequate security or adequate interest or both, that would not fall under clause (h) but only under clause (a). Clause (a) of section 13( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rection for such verification. We are inclined to accede to this request. As seen from the above clause 6 of the trust deed, it is clear that the sum of Rs. 20,000 was only lent for interest to Jaya Textiles. It is, therefore, not possible to held that such lending would fall under section 13(2)(h). Section 13(2)(h) would apply only to investment of the trust funds in the capital of any concern and would not cover loans as clarified by the circular of the CBDT referred to above. 5. We also find force in the alternative submission made by the learned counsel for the assessee that section 13(2)(h) would apply only to funds invested by the trustees as such and would not apply to funds invested by the settlor and made over to the trust. When ..... X X X X Extracts X X X X X X X X Extracts X X X X
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