Whether provisions of section 13(2)(h), providing for forfeiture of exemption, apply with reference to shares in company initially settled on trust or donated to it subsequently

Trusts Risk Losing Tax Exemption u/s 13(2)(h) for Holding Over 5% Shares in Certain Companies.

The circular addresses the applicability of section 13(2)(h) concerning the forfeiture of tax exemption for trusts holding shares in companies where the trust's author or related persons have substantial interest. It clarifies that 'funds of the trust' include all property types, such as shares and securities. Trusts will lose tax exemption if, after December 31, 1970, they hold investments in such companies exceeding 5% of the company's capital. If the investment is 5% or less, only the income from that investment loses exemption. The rule applies to both original and subsequently acquired trust assets.