(a) Wealth Tax----

--- Charitablepurposes---Charitabletrust---Exemption---Denial ofexemption--- Investment of funds of trust in concern in which author of trust or substantial contributor to it is interested---Meaning of investment---Receipt of shares by way of donation would not amount to investment---Indian Income Tax Act, 1961, S.13.

(b) Wealth Tax-

---- Exemption---Finding that charitable trust had not violated the provisions of S.21-A--Charitable trust entitled to exemption---Wealth Tax Act, 1957, Ss.5 & 21-A---Indian Income Tax Act, 1961, S.13.

Under the provisions of section 21-A of the Wealth Tax Act 1957, if any part of the property or any income of the trust or any part of the income of the trust ensures, directly or indirectly, for the benefit of any person referred to in subsection (3) of section 13 of the Income Tax Act, 1961, in that event only, wealth tax shall be leviable thereon. Where a charitable trust receives the shares of a company by way of donation, the trust does not deal with or commit or lay out any part of its existing assets to acquire the said shares. Apart from the acceptance by the assessee of the shares, there was no decision or action on the part of the trust. There is, therefore, no investment of funds within the meaning of section 13(2)(h) of the Indian Income Tax Act,1961.

Held, that, in this case, the Tribunal found that the assessee had not advanced any loans to the companies in which the donors were interested. In fact, the loan bonds were received by the trust as donations between 1963 and 1966. The provisions of section 21-A of the Wealth Tax Act were not attracted and, therefore, the net wealth of the assessee-trust was exempt under section 5(1)(i) of the Act.

CIT v. Birla Charity Trust (1988) 170 ITR 150 (Cal.) applied.

Sunil Mukherjee for the Commissioner.

J.P. Khaitan and Ajoy Dey for the Assessee.

JUDGMENT

AJIT K. SENGUPTA, J.--- In this reference under section 27(3) of the Wealth Tax Act, 1957, for the assessment year 1973-74, the following question of law has been referred to this Court:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the provision of section 21-A of the Wealth Tax Act, 1957, is not attracted in this case and, therefore, the net wealth of the assessee-trust is exempt under section 5(1)(i) of the Wealth Tax Act, 1957?"

Shortly stated, the facts are that the assessment year involved is 1973-74, the relevant valuation date being March 31, 1973. The assessee trust did not file any return of its net wealth under the Wealth Tax Act, 1957, for the aforesaid year. The Wealth Tax Officer issued notice under section 17 of the Wealth Tax Act on February 1, 1978. In response to the above notice, the assessee filed its return of wealth showing nil wealth claiming to be a charitable trust. The Wealth Tax Officer held that the provisions of section 21-A of the Wealth Tax Act were attracted in this case as the assessee's funds remained invested for the benefit of persons referred to in section 13(3) of the Income Tax Act, 1961. The Wealth Tax Officer referred to the 3 per cent. unsecured loan bonds (2,075 Nos.) of Rs.1,000 each in Ganesh Narayan Brijlal Ltd. which attracted the application of section 21-A. The above investment exceeded 5 per cent. of the capital of Ganesh Narayan Brijlal Ltd. He, accordingly, computed the net wealth of the assessee at Rs.20,16,400.

The assessee appealed to the Commissioner of Wealth Tax (Appeals) before whom it was submitted that the provisions of section 21-A are not attracted to the case of the assessee and that the Wealth Tax Officer was wrong in holding that the funds of the assessee-trust remained invested for the benefit of the person referred to in section 13(3) of the Indian Income Tax Act, 1961.

The Tribunal, after considering the rival submissions of the parties, held that section 21-A of the Wealth Tax Act, 1957, was not attracted in this case. The Tribunal further held that the net wealth of the assessee-trust was exempt under section 5(1)(i). For the above conclusion, the Tribunal relied upon the order dated April 9, 1979, passed by it in the assessee's own case for the assessment years 1972-73 and 1973-74 wherein it was held that the assessee did not advance any loan to the companies in which the donors were interested and the provisions of sections 13(2)(a) and 13(2)(h) of the Income Tax Act, 1961, were not applicable and the assessee was entitled to exemption under section 11 of the Income-tax Act. The Tribunal, in the said order for the assessment years 1972-73 and 1973-74, relied on the decision of the Tribunal in Birla Charity Trust.

Section 21-A of the Wealth Tax Act as it stood at the material time is extracted to the extent relevant for the issue:

"21-A. Assessment in cases of diversion of property or of income from property. held under trust for public charitable or religious purpose. ---- ---Notwithstanding anything contained in clause (i) of subsection (1) of section 5, where any property is held under trust for any public purpose of a charitable or., religious nature in India and---

(i) any part of such property or any income of such trust (whether derived from such property or from voluntary contributions referred to in sub clause (ii-a) of clause (24) of section 2 of the Income-tax Act) is used or applied, or

(ii) any part of the income of the trust (whether derived from such property or from voluntary contributions referred to in sub-clause (ii-a) of clause (24) of section 2 of the Income-tax Act), being a trust created on or after the 1st day of April, 1962, enures,

directly or indirectly, for the benefit of any person referred to in subsection (3) of section 13 of the Income-tax Act, wealth tax shall be leviable upon and recoverable from the trustee or manager (by whatever name called) in the like manner and to the same extent as if the property were held by an individual who is a citizen of India and resident in India for the purposes of this Act and---

(a)at the rates specified in Part I of the Schedule in the case of an individual; or

(b)at the rate of one and one-half per cent.; -

whichever course is more beneficial to the revenue;"

It appears, therefore, that, if any part of the property or any income of the trust or any part of the income of the trust enures, directly or indirectly, for the benefit of any person referred to in subsection (3) of section 13 of the Income-tax Act, in that event only, wealth tax shall be leviable.

This question came up for consideration under the Income-tax Act in the case of CIT v. Birla Charity Trust (1988) 170 ITR 150 (Cal.), where one of us was a party. In that case, it was held that the assessee received the shares of the company by way of donation. The assessee did not deal with or commit or lay out any part of its existing assets to acquire the said shares. Apart from the acceptance by the assessee of the said shares, there was no decision or action on the part of the assessee. There was, therefore, no investment of funds of the assessee within the meaning of section 13(2)(h). Moreover, the assessee received the said shares of the company prior to June 1, 1970. Therefore, the user or the application of any property of the assessee for the benefit of persons referred to in section 13(3), if any, occurred prior to June 1, 1970, and hence the proviso to section 13(1)(d)(iii) applied. The assessee was entitled to claim exemption in respect of dividends from the said shares.

In this case, the Tribunal found that the assessee did not advance any loans to the companies in which the donors were interested. In fact, the loan bonds were received by the trust as donations between 1963 to 1966. That being the position, the provisions of sections 13(2)(a) and 13(2)(b) are not applicable. In our view, the principles in Birla Charity Trust (1988) 170 ITR 150 (Cal.), will govern the case.

If the shares are exempt under the Income-tax Act, the assessee will be entitled to exemption in respect of its net wealth in terms of section 5(1)(i).

For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee.

There will be no order as to costs.

SHYAMAL KUMAR SEN, J.---I agree.

M.BA./2271/TQuestion answered.