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TMI Blog1992 (7) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the shares of such concerns attracting section 13(3) did not, however, exceed five per cent. of the capital of such companies. Therefore, it was a partial violation of section 13(2)(h) of the Income-tax Act, 1961. The Wealth-tax Officer also noted that the assessee had an unsecured loan investment with several concerns which had given huge donations to the assessee in different years. Though described as deposits, such advances were nothing but loans as defined in section 58A of the Companies Act, 1956, and of the Reserve Bank of India Amendment Act. In these circumstances, the investment by the assessee as unsecured loans with the concerns which are substantial donors infringed the provisions of section 13(2)(a). The Wealth-tax Officer, therefore, invoked section 21A of the Wealth-tax Act and charged the entire wealth to tax. Qua the first year, i.e., 1973-74, the assessee went in appeal to the Commissioner of Wealth-tax (Appeals) who was of the opinion that the Wealth-tax Officer was not justified in applying the provisions of section 21A of the Wealth-tax Act. The assessee-trust had filed a statement along with the return of its wealth showing the investment held in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erality of the provisions of this clause. This would mean that whenever the case fell within sub-section (2), it automatically fell within the ambit of clause (c) of section 13(1) read with section 13(3) of the Income-tax Act, 1961. Therefore, it was straightaway attracted by the provisions of section 21A of the Wealth-tax Act. According to Mr. Bhattacharjee, this would imply a double deeming which could not be the intention of the framers of the Act, but we do not see any force in this argument. However, there is another aspect of the matter. So far as the applicability of the clause (h) of section 13(2) is concerned, it has been held in a number of cases that if the funds of the trust or the institution which remained invested in any concern to which the provisions of subsection (3) of section 13 are applicable but the funds have been acquired by the trust by way of donation or by way of accretion as bonus in respect of shares donated to the trust, the case would not come within the mischief of this clause. This has been so held even in the assessee's own case for the assessment year 1972-73 by the 'C' Bench of the Tribunal in I. T. A. Nos. 3541 and 4010/(Cal) of 1977-78, decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y relative of any such author, founder, person, member, trustee or manager as aforesaid ; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest." The contention of the Revenue is that the concerns whose shares the assessee holds are substantial contributors to the assessee-trust, and any person having made a substantial contribution to the trust or institution is brought within the mischief of sub-section (3) of section 13, vide clause (b). Thus, the first stage in the Revenue's case is that the concerns where the assessee made investments are substantial contributors attracting sub section (3) of section 13. Now the holding of shares of such concerns in turn attracts clause (h) of sub-section (2), while the loan investments with substantial contributors attracts clause (a) of sub-section (2) of section 13. Sub-section (2) illustrates how benefits could possibly be derived by the prohibited persons mentioned in sub-section (3). The provisions of sub section (2) are extracted below : " 13.(2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans attract clause (a) of sub-section (2) because the loans are advanced without security. Again, the holding of shares attracts clause (h) of the said sub-section because investment of funds of the assessee-trust with any person referred to in sub-section (3) attracts clause (h) of sub-section (2). In fine, sub-section (3) classifies the persons who are not to be benefited while sub-section (2) illustrates how the benefit could be derived by the prohibited persons. So, for attracting disqualification, the first requirement is that the person benefited must be a person mentioned in sub-section (3) and the benefit should also fall in illustrations of clauses (a) to (h) of sub-section (2), apart from the generality of the connotation of the words "deriving benefit directly or indirectly". The Wealth-tax Officer in this case has pinned down the assessee first to clauses (b) and (e) of sub-section (3) and then to clauses (a) and (h) of sub-section (2) of section 13. The Tribunal, however, found that the starting premises of the Revenue's case is wrong. The Tribunal found the assessee's case well founded on two scores. In the first instance, the contention is that the concern w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout any foundation. As for the case for the assessment year 1974-75, the assessee is entitled to the benefit to the extent to which the funds of the trust invested in the concerns referred to in sub-section (3) were by way of donation or accretion thereto as bonus shares arising from donated shares and, there fore, the assessee was not hit by section 13(1)(c) of the Income-tax Act, 1961, and consequently section 21A of the Wealth-tax Act, 1957. It appears to us that the ultimate conclusion which the Tribunal arrived at was purely on the basis of its finding of certain facts, namely, that J. K. Steel and Industries Ltd., could not be said to be a substantial contributor to fall under section (13)(b), since the contribution of Rs.25,000 accounting for only 0.68 per cent. of the corpus of the assessee-trust has very reasonably been considered by the Tribunal as not fit for treatment as a substantial contribution. This cuts across the very root of the Department's case. The Tribunal, in our view, was correct in coming to the inference which is the only reasonable inference that, for the purpose of computing the ceiling of five per cent. as mentioned in sub-section (4) of section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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