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TMI Blog1989 (6) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantial interest in Sundaram Fasteners, and hence the assessee-trust was not entitled to exemption as it contravened the provisions of s. 13(2)(h) r/w s. 13(3) of the IT Act, 1961. The Revenue had relied upon s. 13(1)(c)(ii), s. 132(h), s. 13(3)(e), Expln. 3 to s. 13 of the IT Act, 1961, s. 21A(i) and Second proviso under s. 21A of the WT Act, 1957 which read as under: "13.(1) Nothing contained in s. 11 (or s. 12) shall operate so as to exclude from the total income of the previous year of the person in receipt thereof (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof (ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-s. (3). (2) Without prejudice to the generality of the provisions of cl. (c) (and cl. (d) of sub-s. (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty other than such investment, by reason only that the funds of the trust have been invested in a concern in which any person referred to in the aforesaid sub-s. (3) has such substantial interest." The Revenue further relied upon the order of this Tribunal dt. 31st July, 1984 passed in ITA Nos. 2017 to 2019/Mad/1983 for the asst. yrs. 1976-77 to 1978-79 and WTA Nos. 1050 to 1053 and 1109/Mad/1983 for the asst. yrs. 1975-76 to 1979-80 which represented the income-tax and wealth-tax appeals, respectively, filed by this very assessee trust. Particularly, the Revenue relied upon a portion of the order of this Tribunal which reads as follows: "On consideration of these submissions, we find it difficult to accept the appeals of the assessee. Under s. 13(1)(h) the exemption under s. 11 would be forfeited if the funds of the trust remained invested in a concern in which any person referred to in sub-s. (3) has a substantial interest. Since one of the persons referred to in sub-s. (3) is a concern in which the other persons referred to in that sub-section has a substantial interest we may have to read cl. (h) as follows: "If any funds, of the trust remained invested in any concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st which in its turn might have got substantial interest in the first mentioned concern. He contended that if only the author or his relatives have substantial interest in Sundaram Fasteners then only the exemption can be rightly denied to the assessee trust. However, that was not the case of the Revenue even. No doubt, the author or his relatives were having substantial interest in Sundaram Roadways which in its turn had substantial interest in Sundaram Fasteners Ltd. However, the exemption cannot be denied on that ground. The word "concern" used in s. 13 of the IT Act means only the concern in which the trust made the investment and it did not relate to any other concern. Shri Swaminathan, the learned counsel for the assessee has relied upon the orders of this Tribunal, B-Bench dt. 31st Aug., 1988 passed in WTA. Nos. 49 and 50/Mad/1985 which are the appeals filed by this very assessee trust relating to the asst. yrs. 1973-74 and 1974-75. He filed a copy of the orders before us. In those orders dealing with the second proviso to s. 21A of the WT Act it was held as follows: "Moreover, the proviso to s. 21-A states that in a case where the aggregate of the funds of a trust investe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub-s. (2) of s. 13 was given in sub-s. (3) of s. 13 of the IT Act. It also includes any concern in which any of the persons referred in cls. (a), (b), (c), (cc) and (d) has a substantial interest. If we judge the facts in the light of the definition given in s. 13(2)(e) Sundaram Roadways is admittedly a concern in which the author or his relatives have substantial interest. Sundaram Roadways admittedly held 3,40,000 shares out of total holdings of 7,00,000 shares of Sundaram Fasteners Ltd.. The assessee-trust invested its funds and on the valuation date it had got 4200 shares in Sundaram Fasteners Ltd.. Therefore it is easy to find that the investment of the funds of the assessee-trust in Sundaram Fasteners Ltd. should be considered to be an investment in a concern in which the person referred to in sub-s. (3) of s. 13 has substantial interest and therefore we fully agree and hold that the withdrawal of exemption ordered by the Tribunal for the immediately proceeding assessment years, namely 1975-76 to 1979-80, is quite correct and we respectfully follow the said order. We also hold that the order of the Tribunal dt. 31st Aug., 1988 in WTA Nos. 49 and 50/Mad/1985 for the asst. y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Finance Act, 1972 w.e.f. 1st April, 1973 and it corresponds to s. 13 of the IT Act, 1961. In the memorandum explaining the objects of the provisions of the above section when it was in a Bill stage the following explanation is offered "where the trust funds are invested in any concern in which any of the specified person has a substantial interest, the quantum of investment does not exceed 5 per cent of the capital of the concern, the trust or institution forfeits exemption from income-tax only in respect of income arising from such investment and not its entire income. Similarly, exemption from wealth-tax, in such case, will be denied only in relation to such investment and other assts will continue to qualify for exemption." It is very clear from the memorandum explaining s. 21A that what was intended to be exempt was only the other assets, other than the investment of the trust funds in the concern. The investment of the trust funds or the share holding held by the trust in the concern is always eixigble to the wealth-tax and not exempt, though the other assets of the trust, other than the share holding, was so exempt. At page 847 of Sampath Iyengar. Three New Taxes (Sixth Ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners Ltd. should be treated as part of the net wealth of the assessee trust, then also he has got a strong point to make about the value of each equity share. He complained that the valuation put by the WTO at Rs. 20,78 per share in incorrect; that valuation was arrived at by adopting the break-up value method without excluding the provision for gratuity. According to the learned counsel if the provision for gratuity is excluded and the net value of the assets held by Sundaram Fasteners Ltd. was to be arrived at on the basis of which the value of each share was to be determined, the value of each share of that concern would work out to Rs. 10,08 as per the calculation furnished at Annexure-A filed before us. 85 per cent of the share value only should be taken for wealth-tax purposes as the value of the each equity share as per yield method. If so the value of each equity share for the wealth-tax purposes worked out only to Rs. 8,56. He further argued that the provisions of gratuity is an unquestionable liability on the basis of the decision of the Madras High Court reported in CWT vs. S. Ram Ors. (1983) 37 CTR (Mad) 158 : (1984) 147 ITR 278 (Mad). Shri Swaminathan, the learned Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is finding on grounds 10 to 13 raised before him according to law. 11. The learned Departmental Representative seriously contested this request of the assessee s counsel. He submitted that this is an appeal filed by the Department. On such an appeal the assessee should not be allowed to have any new relief not granted by the AAC in his impugned orders. 12. From the arguments advanced on either side, the question which emerges for consideration is whether the question of valuation of equity shares is liable to be remanded to the Dy. CWT or not. 13. Admittedly grounds of sufficient number were raised questioning the valuation of each equity share at Rs. 20.78 per share. It is also specifically averred that the provision of gratuity is liable to be deducted from the total value of the assets of the company for the purpose of determining the value of each equity share by adopting break up value method. However, the AAC did not either take up this matter for consideration or gave any finding about the tenability or otherwise of such contention in his impugned orders. We are of the view that unless the value of the each equity share is determined the total net wealth of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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