Court rules promissory notes not "funds" under tax law, directs renewal of exemption certificate.

The court held that promissory notes received by a society as donations did not constitute "funds" under the Income-tax Act. The court determined that the society's actions did not amount to an investment or deposit of funds in violation of the Act. Additionally, the court found that the refusal to renew the exemption under section 80G of the Act was unjustified due to an incorrect interpretation of the relevant provisions. As a result, the court allowed the writ petition, quashed the initial order, and directed the renewal of the certificate under section 80G without costs.

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Issues Involved:
1. Whether the promissory notes received by the society as donations constitute "funds" under section 13(1)(d) of the Income-tax Act.
2. Whether the society's actions amounted to an investment or deposit of funds in violation of section 13(1)(d) of the Income-tax Act.
3. Whether the refusal to renew the exemption under section 80G of the Income-tax Act was justified.

Summary of Judgment:

Issue 1: Promissory Notes as "Funds"
The court examined whether the promissory notes received by the society as donations could be considered "funds" under section 13(1)(d) of the Income-tax Act. The court noted that a promissory note is an instrument in writing containing an unconditional undertaking to pay a certain sum of money, and it cannot be equated to funds. The court stated, "The expression 'funds' normally and ordinarily means cash on hand or in the bank capable of being drawn upon and dealt with in a manner as desired by the person entitled or authorised to do so." Therefore, the promissory notes received by the society were not considered "funds."

Issue 2: Investment or Deposit of Funds
The court analyzed whether the society's actions amounted to an investment or deposit of funds in violation of section 13(1)(d) of the Income-tax Act. The court found that the society merely received the promissory notes by way of donation and did not engage in any positive act of investing or depositing its funds. The court stated, "The society did not, by any act on its part, bring about the relationship of creditor and debtor between itself and the promisors." The promissory notes were retained in specie and later invested in approved securities as and when funds were realized. Thus, there was no violation of section 13(1)(d) of the Act.

Issue 3: Refusal to Renew Exemption
The court addressed the refusal to renew the exemption under section 80G of the Income-tax Act. The court held that the refusal was based on an incorrect interpretation of the terms "funds" and "invested or deposited" under section 13(1)(d)(i) of the Act. The court concluded, "We, therefore, hold that the order of the first respondent declining to grant renewal of exemption under section 80G of the Act to the petitioner cannot be sustained." Consequently, the court quashed the order dated November 27, 1987, and directed the first respondent to renew the certificate under section 80G of the Act granted to the petitioner by the communication dated December 30, 1985.

Conclusion:
The writ petition was allowed, and the rule nisi was made absolute. The order of the first respondent dated November 27, 1987, was quashed, and the first respondent was directed to renew the certificate under section 80G of the Act. There was no order as to costs.

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