COMMISSIONER OF INCOME TAX Vs. INSANIYAT TRUST

JUDGEMENT

(1.) THE assessee is a public charitable trust. The assessment year under consideration is 1973 74, the corresponding previous year being the financial year 1972 73 which ended on 31st March, 1973. Miss Mrudula Sarabhai donated 89 ordinary shares of M/s Karamchand Premchand Pvt. Ltd. and 15 ordinary shares of Ahmedabad Manufacturing & Calico Printing Co. Ltd. of the value of Rs. 2,06,592 to the assessee trust in March, 1972. The assessee trust received Rs. 3,636 by way of dividend in respect of the said shares in the previous year. One of the questions which arose before the ITO in the course of the assessment for the asst. year 1973 74 was whether this dividend income of Rs. 3,636 was exempt from payment of income tax under S. 11 of the IT Act, 1961 ("the Act" for short). The other questions which arose for consideration before the ITO in the course of the assessment are not relevant for the purpose of the present reference. The ITO took the view to the effect that the provisions of S. 13(2)(h) r/w S. 13(2)(c) of the Act were attracted. He, therefore, held that the assessee trust's right to exemption under S. 11 was forfeited to the extent of the dividend income of Rs. 3,636. In other words, the ITO held that the assessee trust was not entitled to claim exemption in respect of the said dividend income under S. 11 of the Act.

(2.) THE AAC upheld the view taken by the ITO in appeal preferred by the assessee trust against the assessment order made by the ITO. The assessee carried the matter in further appeal before the Tribunal. The Tribunal, relying on a decision of the Full Bench of the Tribunal, held to the effect that the condition precedent under S. 13(2)(h) requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the persons referred to in S. 13(3) have substantial interest. Therefore, held the Tribunal, assuming that the persons referred to in S. 13(3) have substantial interest in the companies whose shares were donated to the assessee trust, the condition precedent in S. 13(2)(h) was not fulfilled in the instant case. The view which the

(3.) IN order to appreciate the controversy involved in this reference, it is necessary to read the relevant provisions of ss. 11, 12 and 13 of the Act which are as under :