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of <h1>Court rules voluntary share contributions not taxable income under Income-tax Act; interest income not taxable.</h1> The court held that voluntary contributions in the form of shares, given with specific conditions to form part of the corpus, are not taxable income. The ... Charitable Trust Or Institution Issues Involved:1. Taxability of voluntary contributions in the form of shares received by charitable trusts.2. Applicability of Section 13(2)(h) of the Income-tax Act to interest income.Detailed Analysis:Issue 1: Taxability of Voluntary Contributions in the Form of SharesFacts:- The assessees, all charitable institutions, received voluntary contributions in the form of shares from another charitable trust, M/s. Daulat Ram Public Trust.- The contributions were subject to conditions: they were to form part of the corpus, could not be utilized for the trust's objects, and could not be sold without prior permission from the donor trust.Legal Provisions:- Section 11 of the Income-tax Act exempts income derived from property held for charitable purposes if applied wholly to such purposes.- Section 12(1) exempts income derived from voluntary contributions applicable solely to charitable purposes.- Section 12(2) deems contributions from one charitable trust to another as income derived from property for the purposes of Section 11.Tribunal's Findings:- The Tribunal held that the shares received as corpus with restrictions did not constitute taxable income.- The shares were not to be utilized for the trust's objects, and only the dividend income from these shares could be used.- The Tribunal deleted the additions made by the Income Tax Officer (ITO) and Assistant Appellate Commissioner (AAC).Court's Analysis:- The court noted that voluntary contributions with specific conditions to form part of the corpus do not constitute income under Section 12(1) and are outside the ambit of Section 12(2).- The court referred to the amended Section 12, which clarifies that voluntary contributions with a specific direction to form part of the corpus are not taxable.- The court also referred to Section 2(24) of the Act, which, after amendment, distinguishes between voluntary contributions per se and those with a specific direction to form part of the corpus.Conclusion:- The voluntary contributions in the form of shares, given with specific conditions to form part of the corpus, are not taxable income.- The court answered the question in the affirmative and in favor of the assessees.Issue 2: Applicability of Section 13(2)(h) to Interest IncomeFacts:- The ITO included the interest income in the total income of the assessees, citing substantial interest in the donor companies by the trust's founding members and their relatives.- The AAC excluded the interest income, stating that the funds were not lent without adequate security or interest.Legal Provisions:- Section 13(1)(c)(ii) denies exemption if income or property of the trust is used for the benefit of certain persons.- Section 13(2)(h) deems income or property used for the benefit of specified persons if funds are invested in a concern in which such persons have a substantial interest.- Section 13(4) provides a saving clause if the interest does not exceed five percent of the capital of the concern.Court's Analysis:- The court distinguished between loans and other investments, noting that Section 13(2)(a) deals with loans, while Section 13(2)(h) deals with investments in equity capital.- The court held that if funds are invested in debentures or loans, Section 13(2)(a) applies, whereas for equity capital, Section 13(2)(h) applies.- Since the revenue did not argue that funds were lent without adequate security or interest, the deeming provisions of Section 13(2) were not attracted.Conclusion:- The interest income is not taxable under Section 13(2)(h) as it does not fall under the purview of investments in equity capital.- The court answered the question in the affirmative and in favor of the assessees.Final Judgment:- All questions were answered in favor of the assessees.- The assessees are entitled to costs from the revenue, with counsel's fee set at Rs. 500.
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