Court ruling: Delayed profit withdrawal not a violation. Capital contribution exceeding 5% forfeits exemption.

The court ruled in favor of the assessee for the year 1975-76, holding that delayed withdrawal of profits did not violate the exemption provisions. However, for the year 1976-77, the court sided with the Revenue, determining that the capital contribution to a firm constituted an investment exceeding five percent of the concern's capital, thus forfeiting the exemption. The court disposed of the references accordingly, with costs not awarded.

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Issues Involved:
1. Entitlement to exemption u/s 11 in light of section 13(1)(c)(ii).
2. Consideration of issues u/s 13(1)(c)(ii) by the Tribunal.
3. Forfeiture of exemption on contravention of section 13(1)(c)(ii) and section 13(2)(h).
4. Investment exceeding five percent of the capital of the concern.

Summary:

Issue 1: Entitlement to Exemption u/s 11 in Light of Section 13(1)(c)(ii)
The court examined whether the assessee was entitled to exemption u/s 11 despite the property of the charitable trust being used for the benefit of persons referred to in section 13(3). The Tribunal held that delayed withdrawal of profits did not amount to investment, thus not violating section 13(1)(c)(ii). The court agreed, stating that non-withdrawal of profits beyond the previous year does not attract the exclusionary provision of section 13(2)(h).

Issue 2: Consideration of Issues u/s 13(1)(c)(ii) by the Tribunal
The Tribunal was right in not considering the issue u/s 13(1)(c)(ii) for the year 1975-76, as the Commissioner had set aside the order solely on the ground of delayed withdrawal of profits. The Tribunal cannot uphold the Commissioner's order on grounds other than those taken by the Commissioner himself.

Issue 3: Forfeiture of Exemption on Contravention of Section 13(1)(c)(ii) and Section 13(2)(h)
For the year 1976-77, the Tribunal upheld that the contribution of capital by the trust in Beena Enterprises was an investment in a concern where persons referred to in section 13(3) had substantial interest, precluding exemption u/s 11. The court agreed, stating that the contribution of capital to a firm by a trust is an investment, and section 13(2)(h) applies even if the trust is a partner in the firm.

Issue 4: Investment Exceeding Five Percent of the Capital of the Concern
The court rejected the contention that the capital contribution of Rs. 5,000 was less than five percent of the capital of Beena Enterprises. The capital of Beena Enterprises was Rs. 30,000, and the contribution of Rs. 5,000 exceeded five percent, thus not covered by section 13(4).

Conclusion:
The court disposed of the references, answering the questions for the year 1975-76 in favor of the assessees and against the Revenue, and for the year 1976-77 against the assessee and in favor of the Revenue. There was no order as to costs.

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