TaxTMI 
TaxTMI 
1997 (7) TMI 11
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....ble mandate, as contemplated by the first proviso to sub-section (1) of section 13 of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the interest income of the assessee-trust is exempt from tax under section 11 read with first proviso to sub-section (1) of section 13 of the Income-tax Act, 1961 ? " The question on which reference was sought under the Wealth-tax Act is as under : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee-trust is exempt from wealth-tax under section 21A of the Wealth-tax Act, 1957 ? " As to how these questions arose we may refer, in brief, to the facts of the case. The assessee is a trust and was created by a deed of trust dated March 28, 1942. Clause 41 of the trust deed provided for amendment to the provisions of the trust deed with regard to the conduct and management of the trust. It is as under : " 41. Except as to the names and aims and objects of the trust the trustees shall have the power by the majority of 75 per cent. of their total number to change, modify or amend any of the ....
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.... rate. Against the order of the Income-tax Officer the assessee filed an appeal before the Appellate Assistant Commissioner of Income-tax who agreed with the Income-tax Officer and dismissed the appeal. The matter was taken by the assessee to the Income-tax Appellate Tribunal, who, however, held that the amendment made to clause 39 of the trust deed was valid and that as this clause mandated that funds of the trust which were not required for immediate needs of the trust shall be kept with Gokal Chand Rattan Chand Woollen Mills Private Ltd., there was no violation of the provisions of section 13 of the Income-tax Act. The Tribunal, therefore, allowed the appeal of the assessee. On references both under the I.T. Act and the W.T. Act, the High Court affirmed the view taken by the Appellate Tribunal and decided the questions in favour of the assessee and against the Revenue. This is how the matter has come before this court on appeal by the Revenue. We may refer to the relevant provisions of the I.T. Act and the W.T. Act. Section 13 provides for exigencies when the provisions of section 11 would not be applicable. Section 13 was amended by the Finance Act, 1970, with effect from Apr....
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....ommencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or mandatory rule governing the institution . . . (2) Without prejudice to the generality of the provisions of clause (c) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),-- (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3), for any period during the previous year without either adequate security or adequate interest or both ; . . . (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any perso....
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....ion (3) of section 13 of the Income-tax Act, if such use or application is by way of compliance with a mandatory term of the trust." The answer to the questions referred to the High Court would depend on the interpretation of the first proviso to section 13(1)(c)(ii) of the I.T. Act and of the first proviso to section 21A of the W.T. Act, both of which have been quoted above. It is to be seen if the provisions of the trust deed, particularly clause 39 as amended fall within the ambit of the proviso. The trust was created before, the commencement of the I.T. Act, 1961, which came into force on April 1, 1962, and clause 39 of the trust deed as it stood at that time did not make mandatory provision regarding the investments of the funds of the trust in a concern in which the trustees had an interest. What this clause 39 as it originally stood required was that all monies shall be invested in such banks or securities in such manner as may be approved by the trustees. The trustees were also authorised to purchase even property from the surplus funds in their hands. By virtue of the power conferred on the trustees by clause 41 of the trust deed, this clause 39 was amended by resolution....