Capital gain from share sale by charitable trust pre-1971 taxable, court rejects exemption claim.

The High Court held that the capital gain arising from the sale of shares before January 1, 1971, was taxable, rejecting the claim of exemption under section 11 for a public charitable trust. The court emphasized that capital gains are included in income as per relevant sections, disagreeing with the Tribunal's interpretation. The issue of exemption for dividend income was not addressed as the Tribunal could not refer it due to the assessee not seeking reference. Ultimately, the court ruled against the assessee, stressing the need to adhere strictly to the questions raised in a reference application, with no costs awarded.

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Issues involved:
The judgment involves the following two Issues:
1. Whether the capital gain arising from the sale of shares before January 1, 1971, is exempt from tax for the assessment year 1971-72.
2. Whether the income from dividends on shares before January 1, 1971, was exempt from tax for the assessment year 1971-72.

Issue 1: Capital Gain Exemption
The assessee, a public charitable trust, sold shares of Bajaj Auto Ltd. before January 1, 1971, resulting in a capital gain. The Income-tax Officer included this gain in the total income. The Appellate Assistant Commissioner rejected the claim of exemption under section 11. The Tribunal held that capital gains are outside the purview of income and cannot be considered income arising from investment. However, the High Court disagreed, stating that capital gains are included in income as per section 2(24) and section 45. The Tribunal's interpretation of section 13(4) was deemed incorrect, and the capital gain was held taxable.

Issue 2: Dividend Income Exemption
The Tribunal did not address the second question regarding the exemption of dividend income based on a Supreme Court decision. The High Court concurred, stating that the Tribunal could not refer the second question as the assessee did not seek reference. The High Court emphasized that in a reference application, the court must limit itself to the questions posed. Therefore, the second question remained unanswered.

In conclusion, the High Court ruled against the assessee, denying the exemption for the capital gain from the sale of shares. The court highlighted the importance of adhering to the questions raised in a reference application. No costs were awarded in this matter.

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