Irrevocable assignment to an educational trust does not constitute diversion of funds, and business income alone does not defeat exemption.

An educational trust's irrevocable assignment of partners' share income to the trust was treated as trust income and not as diversion of trust funds for the benefit of persons covered by section 13(3); absent material showing use of trust assets for such persons, no infringement of section 13(2)(h) read with section 13(4) arose. The trust's receipt of business income alone was not sufficient to deny exemption from wealth-tax for the relevant assessment years. On the stated facts, the trust retained entitlement to the statutory exemption, and the reference was answered in favour of the assessee.

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Issues: (i) Whether there was diversion of trust funds by the trustees for the benefit of persons covered by section 13(3) and infringement of section 13(2)(h) read with section 13(4) of the Income-tax Act, 1961. (ii) Whether the assessee-educational trust was entitled to exemption from wealth-tax for the assessment years 1973-74 to 1981-82.

Issue (i): Whether there was diversion of trust funds by the trustees for the benefit of persons covered by section 13(3) and infringement of section 13(2)(h) read with section 13(4) of the Income-tax Act, 1961.

Analysis: The trust was an educational trust. The trustees' status as partners in firms and the irrevocable assignment of their share income to the trust did not amount to diversion of the trust's funds to the trustees. The income, once assigned, became the trust's income, and there was no material showing use of trust funds for the benefit of persons specified in section 13(3). The amounts involved were also small.

Conclusion: There was no diversion of trust funds and no infringement of section 13(2)(h) read with section 13(4); the finding was in favour of the assessee.

Issue (ii): Whether the assessee-educational trust was entitled to exemption from wealth-tax for the assessment years 1973-74 to 1981-82.

Analysis: The trust's receipt of income from business, by itself, was not a ground to deny the statutory exemption claimed. In the absence of any disqualifying diversion of funds or other adverse material, the trust remained entitled to the benefit claimed.

Conclusion: The assessee was entitled to exemption from wealth-tax for the relevant assessment years; the finding was in favour of the assessee.

Final Conclusion: The references were answered against the Revenue and in favour of the assessee, with both issues decided for the trust.

Ratio Decidendi: Irrevocable assignment of income to an educational trust does not constitute diversion of trust funds to trustees or specified persons, and receipt of business income alone does not defeat the trust's statutory exemption absent a specific disqualifying use of funds.

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