Trust funds not actively invested in company shares by related persons not taxable under Income-tax Act.

The court held that section 13(2)(h) of the Income-tax Act, 1961 is not applicable if trust funds are not actively invested in shares of a company with substantial interest by related persons. Trusts receiving shares as donations without actively investing trust funds are not subject to taxation under section 13(2)(h). The judgment favored the assessee in all references, with no costs awarded.

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Issues involved:
Interpretation of section 13(2)(h) of the Income-tax Act, 1961 regarding taxation of trust income from shares in a company where the settlor has substantial interest.

Facts in Income-tax Reference No. 298 of 1978:
The assessee, a public charitable trust, received shares as donations from the settlor in a company where the settlor had substantial interest. The trust held these shares but did not actively invest trust funds in acquiring them.

Legal Provisions:
- Section 11: Exempts income from property held for charitable purposes.
- Section 12: Deems voluntary contributions as income for charitable trusts.
- Section 13: Specifies cases where sections 11 and 12 do not apply, including investments in companies with substantial interest by persons related to the trust.

Interpretation:
- The term "funds" refers to money invested for financial returns.
- Trust funds must be actively invested in shares to trigger section 13(2)(h).
- Previous court decisions support that mere receipt of shares as donations does not attract section 13(2)(h).

Court's Decision:
- Section 13(2)(h) is not applicable if trust funds are not actively invested in shares of a company with substantial interest by related persons.
- Trusts merely receiving shares as donations without actively investing trust funds are not subject to taxation under section 13(2)(h).
- Similar decisions apply to all references before the court.
- Judgment in favor of the assessee in all references, with no costs awarded.

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