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TMI Blog2004 (10) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 13(2)(h) of the Income-tax Act, 1961, in this case? 3. Whether, in law and on the facts of the case, the Tribunal was justified in allowing exemption under section 11 of the Income-tax Act, 1961, to the trust?" whereas in Wealth-tax Reference No. 11 of 1987, which arises under the Wealth-tax Act, 1957, hereinafter referred to as "the Wealth-tax Act", the Income-tax Appellate Tribunal, Allahabad, has referred the following three questions of law under section 27(1) of the Wealth-tax Act, for opinion to this court: "1. Whether, in law and in the circumstances of the case, the Income-tax Appellate Tribunal, Allahabad, was justified in holding that an investment of the value thereof received by the trust by way of donation cannot be treated as an investment within the meaning of section 13 of the Income-tax Act, 1961? 2. Whether, in law and on facts of the case, the Tribunal was justified in holding that the Income-tax Officer was wrong in invoking the provisions of section 13(1)(c) and 13(2)(h) of the Income-tax Act, 1961, in this case? 3. Whether, in law and on facts of the case, the Tribunal was justified in allowing exemption under section 11 of the Income-tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounted to Rs. 1,11,472. The leasehold right was not settled on the trust by its founders. The activity of the trust of taking premises on lease on normal charges and letting the same out to tenants on higher rent and construction of shops and flats, which were never the object of the trust, was treated to be indulging in an activity of profit by the Wealth-tax Officer. The funds of the trust continued to remain invested in M/s. J.K. Synthetics Ltd., a concern in which person enumerated in section 13(3) had substantial interest. The Wealth-tax Officer, therefore, held that the trust was hit by section 13(2)(h) of the Income-tax Act. Taking recourse to the provisions of section 21A of the Wealth-tax Act which provided that such property of the trust which had been used for the benefit of any person referred to in sub-section (3) of section 13 is liable to wealth-tax, the Wealth-tax Officer was of the opinion that provisions of section 13(1)(c) read with section 13(2)(h) of the Income-tax Act and section 21A of the Wealth-tax Act were applicable and accordingly refused to allow exemption under the Act. Feeling aggrieved, the respondent preferred appeal before the Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id company. Sections 13(1)(c) and 13(2)(h) of the Income-tax Act are reproduced below: "13. Section 11 not to apply in certain cases.-(1) Nothing contained in section 11 or section 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- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or institution is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome within the meaning of section 13(4) of the Income-tax Act and deleted the addition. The Bombay High Court has held that the capital gain had to be considered to be income within the meaning of section 13(4) of the Income-tax Act and the trust was not entitled to exemption under section 11 of the Income-tax Act. The aforesaid decision is of no help to the Revenue as in the said case, the Bombay High Court was considering a case as to whether the capital gain has to be treated as income under section 13(4) of the Income-tax Act or not whereas the controversy involved in the present case is entirely different. In the case of Bharat Diamond Bourse [2003] 259 ITR 280, the apex court has held that the expression "founder of the institution" in section 13(3)(a) of the Income-tax Act means that the person concerned should be the originator of the institution or at least one of the persons responsible for the coming into existence of the institution. Contribution of money is not an inexorable test of a person being a "founder", though it might happen often that the person who originates an institution may often also fund it. The aforesaid decision is also not applicable in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm capable of being invested or by a positive act which pursuant to a decision of the trust, is laid out or committed in a concern of a nature specified before it can be held that such an investment comes within the mischief of section 13(2)(h) of the Income-tax Act. We are in respectful agreement with the principles laid down by the Delhi High Court in the aforesaid case that the words "funds" and "investment" have different meaning and the investment ought to be made by the trust out of its funds as per requirement under section 13(2)(h) of the Act and not those investments which have already been made on the receipts by way of donation. We also find that the Calcutta High Court in the cases of CIT v. Birla Charity Trust [1988] 170 ITR 150; J.K. Trust v. CWT [1994] 205 ITR 524; CIT v. Bhoruka Public Welfare Trust [1999] 240 ITR 513, the Gujarat High Court in the cases of CIT v. Insaniyat Trust [1988] 173 ITR 248; CIT v. Sahitya Trust [1993] 203 ITR 349; CIT v. Lalbhai Dalpatbhai Charity Trust [1994] 209 ITR 865; Sarabhai Foundation v. CIT [1994] 209 ITR 390, the Bombay High Court in the cases of Trustees of Mangaldas N. Verma Charitable Trust v. CIT [1994] 207 ITR 332; CIT v. P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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