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TMI Blog1993 (3) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... n holding that the assessee is entitled to succeed on the ground that in respect of these shares, section 13(1)(c)(ii) would have no application so far as the use or application of the income of the trust related to the period before the first day of June, 1970, in view of the second proviso to section 13(1)(c) of the Income-tax Act, 1961 ? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that whatever shares were donated to the corpus and whatever bonus shares were received thereon could not be said to be funds of the trust invested ? (4) Whether the Appellate Tribunal was right in law on the facts and in the circumstances of the case in holding that the Income-tax Officer was not right in disallowing the deduction of Rs. 1,175 spent for the objects of the trust ?" The assessee is a trust. It was created on February 9, 1982 (sic) before the commencement of the Act. It had received 1,000 shares of T. Maneklal Mfg. Co. Ltd. as donation to the corpus. As against its holding of 1,000 shares, the assessee received 350 shares by way of bonus. It purchased 360 shares before May 31, 1970, and received 150 more bonus s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was confirmed by the Tribunal. But with respect to the claim for deduction, the Tribunal held that as the assessee had claimed deduction of Rs. 1,175 only, the assessee was entitled to deduction of Rs. 1,175 only, The Appellate Assistant Commissioner was not justified in granting deduction of the larger amount. It, therefore, held that the assessee was entitled to deduction of Rs. 1,175 only. As the Revenue was not satisfied with the decision of the Tribunal, it moved the Tribunal for referring six questions to this court and the Revenue is satisfied with the same. What is contended by learned counsel for the Revenue is that as some shares were purchased by the trust before May 31, 1970, it can be said that the trust had used or applied its income or property for the benefit of persons specified in sub-section (3) of section 13. The said shares should have been reinvested by the assessee, but as they continued to remain invested in the concerns in which the persons referred to in section 13(3), as it stood at the relevant time, had substantial interest, the fiction created by sub-section (2) applied and section 13(1)(c) was again attracted. Therefore, all the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the case of a trust for charitable or religious purposes, or a charitable or religious institution, the income derived by it from the property held for charitable or religious purposes is exempt from taxation under the Act. But that exemption or benefit of exclusion available for such income would get forfeited if such trust or institution has been created or established after the commencement of the Act and, under the terms of the trust or the rules governing the institution, any part of such income enures, directly or indirectly or if any part of such income or any property of the trust or the institution is, during the previous year, used or applied, directly or indirectly, for the benefit of the specified persons. Prohibited application or investment of trust funds would thus deprive a trust or the institution of the benefit of exemption. But even while providing for forfeiture of such exemption, the Legislature has provided certain exceptions, and one such exception is in respect of a trust created or established before the commencement of the Act, if the use or application of income or property of such trust relates to any period before June 1, 1970. So far as sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust are invested", it means that the trust lays out money for investment. If the trust on its own volition, invests its funds or money as envisaged in clause (h), then only the transaction would come within the mischief of clause (h) and not otherwise." It was in this context that this court observed as under (at page 258) "On a plain reading of that provision, it is clear that clause (h) of sub-section (2) of section 13 covers investment of the trust funds in any concern in which any of the persons specified in sub-section (3) have substantial interest ('specified persons', in short) and if such investment of the trust funds is made after December 31, 1970, it would result in forfeiture of exemption from tax. However, if the trust funds have already been invested in any concern as aforesaid, before January 1, 1971, exemption would be forfeited if the funds continued to remain so invested even after December 31, 1970. The object of the above provision is to discourage investment of trust funds in the concerns in which specified persons have substantial interest and if an investment is already made in such concerns, to discourage continuance thereof after December 31, 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s view by the decision of the Bombay High Court in CIT v. Trustees of Mrs. Kasturbai Walchand [1990] 181 ITR 47. Even after holding that the case of the assessee could fall under section 13(2)(h), the Bombay High Court examined the impact of section 13(1)(c) and observed as under (at page 50): "Section 13(2) along with its clauses including clause (h) is a non obstante proviso to section 13(1)(c), and thus broadens the net spread by section 13(1)(c) for the purpose of forfeiting the exemption. The pertinent question would still remain when one of the two provisos to clause (c) of sub-section (1) of section 13 (in this case, the second proviso) is admittedly applicable, the effect of which is that the exemption cannot be forfeited, could one accept the Department's case that the date mentioned in proviso (ii) has lost relevance so much so that the proviso has become otiose. We will certainly avoid such a construction unless compelled by the plain language of the provisions. Under the circumstances, having regard to the undisputed finding of the Tribunal that the case falls within proviso (ii) to clause (c) to sub-section (1) of section 13, it will, in our view, have to be held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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