TaxTMI 
TaxTMI 
1987 (8) TMI 60
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....e said amount of Rs. 1,44,735 was not exigible to income-tax under the provisions of section 13(1)(c)(ii) of the Income-tax Act, 1961 ("the Act"), read with the second proviso to the said section. The Income-tax Officer rejected the contentions of the assessee and held that the funds of the assessee remained invested in a concern in which the persons referred to in subsection (3) of section 13 of the Act, viz., the settlor of the trust, the persons who had made a substantial contribution to the trust and/or their relatives had substantial interest in the company and, therefore, the income of the assessee by way of dividends from the said shares was not entitled to exemption under section 11 of the Act. 3. Being aggrieved, the assessee preferred an appeal from the assessment to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the contentions of the assessee and held that the investment in the instant case had been made by the donors and the donations were received by the assessee by 1963. It was held that as no funds of the assessee had been invested in the said shares and that as the Assessee had received the shares themselves by way of donatio....
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....n investment. An investment implied and necessarily meant a conscious and positive act on the part of the assessee which was not present in the instant case. On the facts, the assessee was entitled to claim exemption from income-tax under section 11 in respect of the dividend received from the said shares. 7. It was submitted further that the provisions of the second proviso to section 13(1)(c) were prospective and not retrospective and would entitle an assessee to claim full exemption. Section 13(2)(h), it was submitted, would become operative only in cases where the funds of the assessee were invested by it in any concern in which the persons referred to in section 13(3) had a substantial interest and the investment was continued beyond June 1, 1970. 8. The Tribunal accepted the contentions of the assessee and held that, under the provisions of the second proviso to section 13(1)(c), the assessee was entitled to claim exemption in respect of the dividend received from the said shares in the assessment year involved. The Tribunal held further that in view of the meaning of the expressions "fund" and "invest" as found in the dictionaries, it was necessary for the Revenue to e....
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....nstitution, any income thereof-... (ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in subsection (3) : ...... Provided further that in the case of ...... or a trust for charitable purposes or a charitable institution created or established before the commencement 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) in so far as such use or application relates to any period before the 1st day of June, 1970; (d) subject to the provisions of clause (bb), in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof assessable for any assessment year commencing on or after the 1st day of April, 1979, if any funds of the trust or institution are invested or deposited or continue to remain invested or deposited for any period du....
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....d proviso to section 13(1)(c). 9. In support of his contentions, the learned advocate for the Revenue relied on and cited the following: (a) Black's Law Dictionary, 5th edition: "Fund"........ An asset or group of assets set aside for a specific purpose ...... A generic term and all-embracing as compared with term "money", etc., which is specific. A sum of money or other liquid assets set apart for a specific purpose or available for the payment of debts or claims. In the plural, this word has a variety of slightly different meanings, as follows: "moneys and much more, such as notes, bills, cheques, drafts, stocks and bonds, and in broader meaning may include property of every kind ... Money in hand, assets, cash, money available for the payment of debt, legacy, etc. Corporate stocks or government securities ; in this sense usually spoken of as the 'funds'. Assets, securities, bonds or revenue of a State or Government appropriated for the discharge of its debts. Generally, working capital ; sometimes used to refer to cash or to cash and marketable securities." (p. 606) (b) Dictionary for Accountants, 4th edn., by Eric L. Kohler: ....
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....poses of the account in which the fund finds a place, the payment is debited to that fund, an operation which, of course, has no relation to the actual method of payment or the particular cash resources out of which the payment is made..." 12. A fund in the second sense is merely an accountancy category; it has a real existence in that sense, but not in the sense that a real payment can be made out of it, as distinct from being debited to it. 13. The learned advocate for the Revenue also cited Sharda Trust v. CIT [1981] 127 ITR 236 (P & H). In this case, four partners of a firm donated to the assessee, a trust Rs. 10,000 cash by debiting their respective accounts with the firm and crediting the same in the account of the assessee by the end of March, 1971. The amounts so donated were handed over to the trust in two equal instalments on April 10, 1971 /April 15, 1971. In the assessment year involved, the accounting year ending on March 31, 1971, the question arose whether the assessee was entitled to exemption from income-tax in respect of the said amounts donated under section 13(2)(h). The claim of the assessee for exemption was rejected by the Income-tax Officer but was all....
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....te Dictionary vb. vt. 1 : to commit (money) in order to earn a financial return; 2. to make use of for future benefits or advantages--vt. to make an investment." 20. It was submitted that the assessee having received the said shares by way of donation, the same could not be deemed to be funds in his hands nor could it be held that the assessee had invested its funds in the said shares within the meaning of the said section 13(2)(h). No fund, property or income belonging to the assessee and in its possession had been utilised to obtain or invest in the said shares. The said shares had been received by the assessee as a gift or bounty and the same could not be held to be an investment which could only be made by a positive and conscious act of the assessee. 21. The learned advocate for the assessee contended further that, in any event, the said shares had been received by the assessee by way of donations prior to June 1, 1970, and, therefore, the assessee was entitled to the benefit conferred by the second proviso to section 13(1)(c)(ii) as the user or application of the property of the trust related to a period prior to June 1, 1970. 22. In support of his contentions, the l....
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....e assessment year involved, the assessee claimed exemption under section 11 which was rejected by the Income-tax Officer. The decision of the Income-tax Officer was set aside by the Appellate Assistant Commissioner and the Tribunal affirmed the order of the Appellate Assistant Commissioner. 23. On a reference before the Madras High Court, the question mooted was whether the amounts due from the said partnership firms to the assessee could be said to have been lent or invested within the meaning of section 13(2)(a). The High Court construed section 13(2)(h) and considered the interpretation of the expression "investment" in English and Indian decisions. It was held that in order to constitute an investment, money must be laid out in such a manner as to acquire some species of property which would bring an income to the investor. On the facts, it was held that there was no investment of any moneys by the assessee with the firms which were bound to return the moneys due and owing to the assessee as and when demanded. It was held that there had been no investment by the assessee as understood in business parlance. 24. The learned advocate for the assessee also contended that mere....
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....d section, this is the meaning which should be attributed to the expression "funds" in construing the said section. The section contemplates that there will be investment of funds of a trust. If any other meaning is given to the expression "funds", the same will not be available for investment or capable of being invested. If the funds of the trust are construed to include assets other than money in hand or cash or a credit balance in bank account, the same are not capable of being invested as such. Other assets of the trust apart from money in hand or cash will have to be converted into money or cash before the same can be invested. 27. The expression "invest" in section 13(2)(h), in our view, connote's positive act on the part of the trust whereby the funds of the trust are laid out or committed in any particular property or business or transaction with the object of earning profit or financial advantage or return. 28. It has to be established that a trust having assets in the form of money or cash or a credit balance in a bank account or in any other form capable of being invested was by a positive act and pursuant to decision of the trust laid out or committed in a co....