1981 (8) TMI 97 - AT - Income Tax

Charitable trust denied exemption under section 11 for 1973-74, granted for 1974-75.

Patel Bhogilal Hargovindas Charitable Trust. Versus Third Income-Tax Officer.

The assessee, a charitable trust, was denied exemption under section 11 for the assessment year 1973-74 due to investments violating section 13(2)(a). The ... Charitable Or Religious Trust Issues:1. Whether the assessee, a charitable trust, was correctly denied exemption under section 11 and subjected to tax for the assessment years 1973-74 and 1974-75.2. Whether the investments made by the assessee in a firm and a company violated the provisions of section 13(2)(a) and section 13(2)(h) of the Income-tax Act, 1961.Analysis:For the assessment year 1973-74, the Income Tax Officer (ITO) found that the assessee had invested in a firm without any security and in shares of a company exceeding 5% of the capital, leading to the denial of exemption under section 11. The Appellate Assistant Commissioner (AAC) upheld the decision of the ITO, prompting the assessee to appeal. The representative for the assessee argued that personal security should be considered adequate and that the company's shares did not fall under section 13(2)(h) due to insufficient substantial interest. However, the department's representative supported the lower authorities' decision. The tribunal upheld the denial of exemption for the assessment year 1973-74 under section 13(2)(a) due to lack of security in the firm investment, rendering further analysis unnecessary.In contrast, for the assessment year 1974-75, where no loan was given to the firm, the tribunal analyzed the application of section 13(2)(h) concerning the company shares. It was determined that the substantial interest threshold was not met, thus section 13(2)(h) did not apply. The department's argument to include the assessee's holdings in the substantial interest calculation was rejected, leading to a reversal of the lower authorities' decision. Consequently, the exemption under section 11 was granted for the assessment year 1974-75, and the appeal was allowed.In conclusion, the tribunal dismissed the appeal for the assessment year 1973-74 due to the application of section 13(2)(a) but allowed the appeal for the assessment year 1974-75 as section 13(2)(h) was found inapplicable.