J K TRUST Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) In this consolidated reference, the Tribunal has referred to us the following question under Section 27(1) of the Wealth-tax Act, 1957, for the assessment years 1973-74 and 1974-75 :

(2.) Shortly stated, the facts are that the assessee, a charitable trust, was denied the exemption under Section 5(1)(i) of the Wealth-tax Act by the Wealth-tax Officer who held that the assessee made prohibited investment in shares of different concerns which had made substantial contribution to the assessee-trust thereby attracting the provision of Clause (e) read with Clause (b) of Sub-section (3) of Section 13 of the Income-tax Act, 1961. The Wealth-tax Officer held that the prohibited investment 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.

(3.) 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 the previous year in the concerns in which the persons referred to in Section 13(3) had substantial interest. The total market value of these shares came to Rs. 42,57,265. But the value of the shares received by the trust by way of donations as well as accretions was also included therein. The Commissioner of Wealth-tax (Appeals) had already held in the appeal relating to the assessment year 1974-75 that the Wealth-tax Officer was not correct in applying the provisions of Section 13(2)(b) to the shares received by way of donations. Therefore, the market value of these shares was to be excluded while computing the wealth-tax liability of the assessee-trust. He, therefore, directed the Wealth-tax Officer to assess the market value of the shares purchased by the assessee-trust which, according to the statement filed by it, came to Rs. 9,28,227 and further to allow deduction of Rs. 1,50,000 under Section 5(1A) of the Wealth-tax Act.