TaxTMI 
TaxTMI 
TaxTMI 
1987 (1) TMI 175
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....d and the said companies were accordingly covered under section 13(2)(h) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). The Income-tax Officer stated that though investment were made by the assessee in the said two companies in contravention of section 13(2)(h) of the Act but these being less than 5 per cent of the capital only dividends received were taxable in terms of section 13(4) of the Act. 3. In the year before us the assessee-trust sold shares for Rs. 59,07,398 but claimed that since total sale consideration was utilised for acquiring another capital asset being units of Unit Trust of India, the capital gain totaling Rs. 46,57,599 was to be considered as application under section 11(1A) of the Act, The Income-tax Officer however, denied the claim. We considered it convenient and expendient to notice paras 4, 5 and portion of para 6 as also para 8 of the assessment order because it shall project picture of the basis of the assessment: "4. However, a perusal of the records shows that shares were sold up to31-3-81but the units were not purchased up to31-3-81. The assessment proceedings for each assessment year are independent and since there is no provis....
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....bsp; 3,62,098 Less dividend from Sharpedge Ltd. & Goetze Ltd. 35,462 3,26,636 -------- -------- Dispensary receipt 1,31,436 Misc. receipt &nbs....
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.... Sharpedge Ltd. and on proportionate basis the long-term capital gain on sale of 1,542 shares would be Rs. 1,60,815. Similarly the capital gain on sale of 10,625 shares of Goetze (India) Ltd. is Rs. 77,380 and on proportionate basis the long-term capital gain on sale of 540 shares would be Rs. 3,980. Thus out of total capital gain of Rs. 3,46,598 long-term capital gain is Rs. 1,64,795. The deduction under section 80T on this long-term capital gain works out to Rs. 68,918. Therefore, the long-term capital gain assessable to tax would be Rs. 95,877 and short-term capital gain on these shares would be Rs. 1,81,803. Similarly the dividend received from these two companies has not been considered under section 11(1)(a). Therefore, benefit under section 80L would be available. The deduction allowable under section 80L in this year was Rs. 3,000 at the maximum and, therefore, the dividend income from these two companies includible in the assessable income would be Rs. 32,462 only." 4. Before the Commissioner of Income-tax (Appeals) the first contention raised was that limited companies cannot be treated as authors of trust, in view of the provision of section 13, relevant portions of whi....
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.... institution from such investment, by reason only that the funds of the trust or the institution have been invested in a concern in which such person has a substantial interest." The argument was that the use of the words "relative of any such another, founder or person" in clause (d) of section 13(3) automatically limits the author to an individual, i.e., a living being and as a limited company cannot be considered as such, the terminology used in clause (a) rules out a limited company from the purview of section 1393). The Commissioner of Income-tax (Appeals) rejected such contention as without having any force and we are in complete agreement with such approach. The reason being that clauses of sub-section (3) of section 13 have to be read independently. Merely because clause (d) refers to any relative of any such author, etc., does not mean that the same restricts the meaning of the term "the author of the trust" or "the founder of the institution" used in clause (a), clause (d) on the contrary brings within its ambit the relatives of any such author only where such an author is a human being or a living being. As in the case of clause (D) the use of the words "Hindu undivided....
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.... only a fixed interest return; whereas in the latter there is a participation in profits and the value of the investment fluctuates." 6. The Income-tax Officer in terms recorded that like the two companies Escorts Limited also came within the prohibitory category under section 13(2) (h) and under section 13(4) of the Act and there has been no denial in that regard. 7. The assessing officer denied claimed exemption in relation to the entire capital gains of Rs. 46,67,599, though on the preliminary ground that since the gains were not utilized in the acquisition of new capital asset within the accounting year the deeming fiction of "application of income" was not available. 8. The Income-tax Officer without prejudice to his above action held that in any case capital gains to the extent of Rs. 89,292 and Rs. 2,57,306 in relation to the sales of shares of the two companies were taxable in view of the provisions of section 13(4) as the words used in the said sub-section was "any income" and not income from dividends only. 9. However from perusal of the details of sales of shares filed before us, which were before the Income-tax Officer and the Commissioner (Appeals), we noticed that....
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....wholly for charitable or religious purpose is transferred and if the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held other than the capital gain arising from the transfer is deemed to have been applied for charitable or religious purposes. The IAC, however, rejected the contention of the appellant on the ground that though the sales of the shares was effected by 31st March, 1981 but the investment in the new asset was made beyond the close of the accounting period, i.e., beyond 31st March, 1981. The investment in the purchase of new capital asset namely units, was made sometime in April 1981, i.e., in the following accounting period. The IAC accordingly held that since the investment in the new capital asset was not made within the accounting period in which the old capital asset was transferred and net consideration received the appellant did not fulfill the condition laid down in the relevant sub-section and as such the net receipts on sale of capital asset cannot be deemed to have been applied for religious or charitable purposes. During the assessment proceedings the appellant further contended that as per Explanation 2 t....
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....es not mean that the Explanation is not to be extended in the case where the Legislature allows the concession regarding the net sale consideration of transfer of capital asset to be deemed as applied for charitable religious purposes, in case the net consideration is invested in the purchase of another capital asset. It was also stated that the deemed provision as laid down in sub-section 1(A) should be extended to its logical extent. Where the law deems the net consideration to be applied for charitable purpose on the ground that the net consideration was invested in the purchase of alternative assets the same should also be extended to the option which the Explanation allows to an assessee in certain circumstances for application of the shortfall in income of the trust beyond the statutory limit. As per section 11(1) where a trust for any reason is not able to apply 75% of the income during the relevant accounting period the trust is entitled to exercise of option to apply the shortfall in the following accounting period after exercising the option. The option can be exercised: (i) before the time for filing of return under section 139(2) expires, (ii) there should be a reason f....
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....st category itself or even in the second category, i.e., for any other reason the reason being similar to the species of reason mentioned in category one. It was also contended that the IAC was not justified in arriving at the conclusion that the Explanation 2 to section 11(1) is not applicable to section 11(1A). It was contended that the IAC has arrived at the said conclusion merely on the ground that sub-section (1A) follows Explanation 2 to section 11(1). It was pointed out that the IAC has not appreciated the language used in section 11(1A). It was stated that from the perusal of the opening words of sub-section (1A) it will be seen that it states "For the purposes of sub-section (1)". It was, therefore, contended that automatically the entire provision in sub-section (1) has to be read with the provision contained in sub-section (1A). As such Explanation 2 which covers the main sub-clauses of sub-section (1) is equally applicable to sub-section (1A). Even otherwise it was stated that the deeming provision as per sub-section (1A) has to be taken to its logical extent and that the law provides that it is deemed to be applied if it is invested in purchase of alternative capital a....