JUDGMENT
J.M. Panchal, J.
1. At the instance of the Commissioner of Income-tax Gujarat-I, Ahmedabad, the Income-tax Appellate Tribunal, Ahmedabad, Bench ‘A’ (the “Tribunal” for short), has made the present reference to this court under section 256(1) of the Income-tax Act, 1961 (“the Act” for short), as the Tribunal was satisfied that a question of law arises out of the order dated May 25, 1980, passed by it in Income-tax Appeal No. 51/Ahd. of 1979.
2. The reference has been made in the background of the following facts :
3. The assessee, Lalbhai Dalpatbhai Charity Trust, Ahmedabad, is a trust admittedly recognised by the income-tax authority as a charitable trust exempt under section 11 of the Act. The assessee submitted a return of income for the assessment year 1974-75. Some of the shares held by the assessee-trust belonged to the companies in which persons referred to in section 13(2) of the Act had substantial interests. The net dividend referable to such shares was worked out at Rs. 57,007. The Income-tax Officer, while computing the gross income, took into consideration the dividend income of Rs. 57,007 as well as Rs. 17,028, which was tax deducted at source by the companies, and assessed the assessee accordingly.
4. The assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax, Ahmedabad, Range-7, Ahmedabad, who took the view that an amount of Rs. 57,007 was assessable in the hands of the assessee and not in amount of Rs. 17,028 which was the amount of tax deducted at source by the companies who had paid the dividend.
5. The Tribunal, in the Revenue’s appeal, found that the sum of Rs. 57,007 also could not have been brought to tax in the present case, as the provisions of section 13(2)(h) of the Act were not applicable to the facts of the present case. The Tribunal took the view that the claim of the revenue to tax the extra amount of Rs. 17,028 was without any substance and, therefore, dismissed the appeal.
6. The Commissioner of Income-tax, therefore, submitted an application under section 256(1) of the Act requiring the Tribunal to draw up a statement of case and refer the question of law for the opinion of the High Court. The Tribunal was satisfied that a question of law arose out of the order passed by it in A. T. A. No. 51/Ahd. of 1979 and, therefore, the Tribunal drew up the statement of case and has made reference of the following question of law for the opinion of the High court :
“Whether, on the facts, and in the circumstances of the case, the provisions of section 13(2) were applicable so as to bring to tax the net dividend of Rs. 57,007 and tax deducted at source of Rs. 17,028?”
7. Reasons :
(1) The Tribunal has recorded a finding a fact that the dividends on shares in the present case constituted the initial corpus of the trust. This is a finding of fact which is not challenged in the present reference. As the amount of dividends was received on the shares which initially constituted the corpus of the trust, it cannot be said that the income was derived by way of investment of funds of the trust. The question whether the dividend received on the shares is entitled to exemption when the trust continues to hold the shares in the relevant previous year has been considered by this court in the case of CIT v. Insaniyat Trust [1988] 173 ITR 248. In the facts of that case, it was found that the assessee, which was a public charitable trust, received as donation certain shares and the question was whether the assessee-trust had invested its funds purchasing the shares in question or not. The assessee-trust in the said case has received Rs. 36,036 by way of dividends in respect of said shares in the previous year and the claim for exemption was rejected by the Income-tax Officer by holding that the right of the assessee-trust to exemption under section 11 of the Act was forfeited. The said order was confirmed by the Appellate Assistant Commissioner. However, the Tribunal reversed the said order. On a reference, the High Court has held that, admittedly, the assessee-trust did not invest its funds in purchasing the shares in question and it was the donor who had purchased the shares. It is further held that the shares, after they were purchased by the donor, were donated to the assessee-trust and the assessee-trust continued to held those shares in the previous year, but for that reason, it could not be said that it was an investment made out of its own funds that was continued. Ultimately, it has been held that section 13(2)(h) was not applicable and the dividends received on the shares by the assessee were entitled to exemption.
(2) On a plain reading of clause (h) of sub-section (2) of section 13 of the Act, it is clear that it covers investment of trust funds in any concern in which any of the persons specified in sub-section (3) has substantial interest. In the fact of the case, the dividend was received on the shares which constituted the initial corpus of the trust and, therefore, could not have been brought under the provisions of section 13 of the Act. The Tribunal was right in holding that the provisions of section 13(2)(h) of the Act were not applicable to the facts of the present case in view of the holding of the assessee-company. In our view, therefore, on the facts and in the circumstances of the case, the provisions of section 13(2) of the Act were not applicable so as to bring to tax the net dividend of Rs. 57,007 and the tax deducted at source of Rs. 17,028.
(3) The question referred to us is answered in the negative, i.e., in favour of the assessee and against the Revenue.
8. The reference stands accordingly disposed of with no order as to costs.