Calcutta H.C : The material facts on record and the proceedings leading up to this reference are, inter alia, that Birla Charity Trust, the assessee, is a trust founded in 1920.

Counsel Appeared

A.C. Moitra & Sunil K. Mukherjee, for the Revenue : R.N. Bagaria, S.K. Bagaria & A.K. Dey, for the Assessee

DIPAK KUMAR SEN, J.:

The material facts on record and the proceedings leading up to this reference are, inter alia, that Birla Charity Trust, the assessee, is a trust founded in 1920. It is not in dispute that the income of the assessee is spent for charitable purposes. Between 1956 and 1963, the assessee received from time to time ordinary shares of Jiyajee Rao Cotton Mills Ltd. (“the company”) from various parties aggregating 96,490 shares.

2. In the asst. yr. 1971-72, the relevant accounting year ending on 31st March, 1971, the assessee received dividends on the said shares amounting to Rs. 1,44,735. In its return of income as well as in its assessment, the assessee claimed that the said amount of Rs. 1,44,735 was not exigible to income-tax under the provisions of s. 13(1)(c)(ii) of the IT Act, 1961 (“the Act”), read with the second proviso to the said section. The ITO 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 sub-s. (3) of s. 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 s. 11 of the Act.

Being aggrieved, the assessee preferred an appeal from the assessment to the AAC. The AAC 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 donation, the provisions of s. 13(2)(h) r/w s. 13(1)(c) had no application and that the dividend received by the assessee from the said shares was exempt from income-tax.

Being aggrieved, the Revenue preferred an appeal to the Tribunal against the order of the AAC. It was contended on behalf of the Revenue before the Tribunal that as the assessee continued to hold the said shares even after 1st April, 1971, the assessee ceased to be entitled to claim exemption from income-tax in respect of the dividends received from the said shares under s. 11 by reason of the provisions of s. 13(2)(h). It was submitted that the expression “fund” referred to in s. 13(2)(h) would cover the said shares held by the assessee and, therefore, the ITO was justified in holding that the said dividend was not exempt from income-tax under s. 11. At best, the assessee would be entitled to claim a benefit of exemption under s. 11 in respect of such dividend from the said shares received during the period prior to 1st June, 1970, and not thereafter. It was submitted further that the assessee ought to have reinvested the amount represented by the said shares in some other concern to which the provisions of s. 13(3) were not applicable.

It was contended on behalf of the assessee before the Tribunal that the expressions “fund” and “invest” which were not defined in the IT Act had to be construed with reference to their dictionary meaning. The meaning of the said words as given in the Chambers Twentieth Century Dictionary, 1972 edition, the Concise Oxford Dictionary, 5th edn. and the Webster’s New Collegiate Dictionary, 7th edition, were referred to and relied on.

It was contended on behalf of the assessee that the assessee had received the said shares qua shares by way of donation. The shares were neither funds nor did they continue to remain invested in the company within the meaning of s. 13(2)(h). It was submitted that no fund, property or income of the assessee had been utilised to purchase or for making any investment in the said shares. It was contended that only where there was a positive action by an assessee to make an investment out of funds already in its possession, the provision of s. 13(2)(a) would be attracted. The receipt of bounty could not be held to be an 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 s. 11 in respect of the dividend received from the said shares.

It was submitted further that the provisions of the second proviso to s. 13(1)(c) were prospective and not retrospective and would entitle an assessee to claim full exemption. Sec. 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 s. 13(3) had a substantial interest and the investment was continued beyond 1st June, 1970.

The Tribunal accepted the contentions of the assessee and held that under the provisions of the second proviso to s. 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 establish that the investment had been made by the assessee out of its funds in a concern in which the persons referred to in s. 13(3) had a substantial interest and that such investments continued beyond 1st June, 1970. The Tribunal found that it was admitted that the shares involved in the instant case had been received by the assessee by way of donation and had not changed their character since the receipt thereof by the assessee. The Tribunal held that, on the facts, the provisions of s. 13(2)(h) had no application and the assessee was entitled to claim exemption from income-tax in respect of the dividend received from the said shares. The Tribunal affirmed the order of the AAC and dismissed the appeal of the Revenue.

9. On an application of the Revenue under s. 256(1), the Tribunal has referred the following question as a question of law arising out of its order for the opinion of this Court : “Whether, on the facts and in the circumstances of the case and on a proper interpretation of ss. 11 and 13 of the IT Act, 1961, the Tribunal was justified in holding that the assessee would be entitled to claim exemption in respect of dividend income of Rs. 1,44,735 received in the accounting year relevant to the assessment year under reference ?”

10. It is convenient to refer to the relevant provisions at this stage : “Sec. 11. Income from property held for charitable or religious purposes.—(1) Subject to the provisions of ss. 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income— (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property.” “Sec. 13. Sec. 11 not to apply in certain cases.—(1) Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof—…. (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, 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 referrence to in sub-s. (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-cl. (ii) shall not apply to any use of 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-s. (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 cl. (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 during any previous year commencing on or after the 1st day of April, 1978, otherwise than in any of the forms or modes specified in sub-s. (5);…. (2) Without prejudice to the generality of the provisions of cl. (c) of sub-s. (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 subs. (3),—…. (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 person referred to in sub-s. (3) has a substantial interest. (3) The persons referred to in cl. (c) of sub-s. (1) and sub-s. (2) are the following, namely : (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds five thousand rupees; (c) where such author, founder or person is an HUF, a member of the family; (cc) any trustees of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in cls. (a), (b), (c), (cc) and (d) has a substantial interest.”

At the hearing before us, the learned advocate for the Revenue submitted that the meaning of the expressions “fund” and “invest” as occurring in s. 13(2)(h) should be construed not only with reference to dictionaries but also taking into account the meaning of the said expressions as understood commercially and by accountants. It was submitted that in the instant case, the said shares after being donated to the assessee constituted funds in the hands of the assessee. As the assessee held on to the said shares, the funds of the assessee continued to remain invested in the company in which the persons specified in s. 13(3) had a substantial interest. Therefore, the assessee was not entitled to claim exemption under s. 11 by itself or read with the second proviso to s. 13(1)(c).

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 a 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.” (b) Dictionary for Accountants, 4th edn., by Eric L. Kohler : “1. An asset or group of assets within any organization, separated physically or in the accounts or both from other assets and limited to specific uses. Examples : a petty cash or working fund; a replacement and renewal fund; an accident fund; a contingent fund; a pension fund. 2. Cash, securities, or other assets placed in the hands of a trustee, principal or income or both being expended in accordance with the terms of a formal agreement. Example

: a trust fund created by a will; an endowment fund; a sinking fund…. pl. : Current assets less current liabilities (on an accrual basis); working capital; a term used in cash flow statements. pl. : cash.”

13. The learned advocate for the Revenue also cited a decision of the Supreme Court in Nawn Estates (P) Ltd. vs. CIT 1977 CTR (SC) 19 : (1977) 106 ITR 45 (SC), where the Supreme Court quoted with approval an observation of the House of Lords in IRC vs. Tootal Broadhurst Lee Co. Ltd. (1949) 29 Tax Cases 352 as follows : “The meaning of ‘investment’ is not its meaning in the vernacular of the man in the street but in the vernacular of the businessman. It is a form of income-yielding property which the businessman looking at the total assets of the company would single out as an investment….. The businessman would not limit income from investments to income from the kinds of securities which are quoted on the stock exchange, and he would, I think, regard as income from investment a profitable rent from a sub- lease of office premises, or the like….”

14. The learned advocate for the Revenue also cited another English decision in Allchin vs. Corporation of South Shields (1942) 25 Tax Cases 445, where the English Court of Appeal also construed the meaning of the expression “fund” as follows : “The word ‘fund’ may mean actual cash resources of a particular kind (e.g., money in a drawer or at a bank) or it may be a mere accountancy expression used to describe a particular category which a person uses in making up his accounts. The word ‘payment out of’ when used in connection with the word ‘fund’ in its first meaning connote actual payment, e.g., by taking the money out of the drawer of drawing a cheque on the bank. When used in connection with the word ‘fund’ in its second meaning, they connote that, for the purposes 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…. 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.”

15. The learned advocate for the Revenue also cited Sharda Trust vs. CIT (1980) 16 CTR (P&H) 36 : (1981) 127 ITR 236 (P&H) : TC23R.1578. 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 10th April, 1971/15th April, 1971. In the assessment year involved, the accounting year ending on 31st March, 1971, the question arose whether the assessee was entitled to exemption from income-tax in respect of the said amounts donated under s. 13(2)(h). The claim of the assessee for exemption was rejected by the ITO but was allowed by the AAC. On further appeal, the Tribunal set aside the decision of the AAC and upheld the decision of the ITO. On a further reference before the Punjab & Haryana High Court, it was held that as soon as credit entries were made in favour of the assessee, the latter would be deemed to have been put in possession of the said amounts. The firm would thereafter be holding the amounts as a debtor of or on behalf of and for the benefit of the assessee. It was found that the assessee had shown the amounts as recoverable from the firm in its balance-sheet indicating that the amount was allowed to remain in the firm till the same was demanded and paid. It was held that s.13(2)(h) applied in the facts and the assessee was not entitled to exemption under s. 11.

The learned advocate for the assessee reiterated the submissions made on behalf of the assessee before the Tribunal. He submitted that the expressions “fund” and “invest” should be construed according to their dictionary meanings. The expressions “fund” in the context of s. 13(2) (h) was a noun and the meaning of the said expression in the standard dictionaries was as follows : Chambers’ Twentieth Century Dictionary, New edn., 1972 (p. 526) : “Fund n.1 a sum of money on which some enterprise is founded or expense supported : a supply or source of money :” The Concise Oxford Dictionary, 5th edn., 1964 (p. 494) : “Fund n.1. Permanent stock of something ready to be drawn upon—stock of money—pecuniary resources.” Webster’s Seventh New Collegiate Dictionary— based on Webster’s Third New International Dictionary (p. 538) : “Fund. n. 1. an available quantity or material or intangible resources; supply; 2. a sum of money or other resources the principal or interest of which is set apart for a specific objective.”

The expression “invest” in the said s. 13(2)(h) was a verb and the meaning of the said expression as in the standard dictionaries was as follows : Chambers’ Twentieth Century Dictionary, New edn., 1972 (p. 691) : “….to lay out for profit as by buying property, shares, etc. The Concise Oxford Dictionary, 5th edn., 1964 (p. 640) : “…lay out money on as—in a car.” Webster’s Seventh New Collegiate 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.”

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 s. 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.

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 1st June, 1970, and, therefore, the assessee was entitled to the benefit conferred by the second proviso to s. 13(1)(c)(ii) as the user or application of the property of the trust related to a period prior to 1st June, 1970.

20. In support of his contentions, the learned advocate for the assessee cited the following decisions : (a) Duncan Bros. & Co. Ltd. vs. CIT (1978) 111 ITR 885 (Cal). In this case, a Division Bench of this Court considered and construed the meaning of the expression “fund” as appearing in r. 1 of the Second Schedule to the Super Profits Tax Act, 1963, and r. 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. In the judgment to which I was a party, the observations of Lord Greene M.R. in his judgment in Allchin’s case (1942) 25 Tax Cases 445 (HL) were quoted. (b) Duncan Bros. & Co. Ltd. vs. CIT (1981) 128 ITR 302 (Cal) : In this case, a Division Bench of this Court had to consider and construe the meaning of the expression “fund” in r. 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. In the judgment to which I was party, it was noted that in a circular issued by the CBR, being Circular No. I.P. (XV-5) of 1968 dt. 23rd Jan., 1968, it was laid down that as the expression “fund” had not been defined in the Companies (Profits) Surtax Act, the same had to be given its ordinary meaning as understood in common parlance. It was further noted in the said circular that etymologically, “fund” meant a sum of money available for the payment or discharge of liabilities. The meaning of the expression “fund” in Jowitt’s Dictionary of English Law, 2nd edn., Vol. 1, was quoted as follows (p. 840) : “Fund, a sum of money available for the payment or discharge of liabilities. Thus, the assets of a testator form a fund for the payment of his debts.” (c) CIT vs. Nachimuthu Industrial Association (1982) 31 CTR (Mad) 50 : (1982) 138 ITR 585 (Mad) : TC23R.1508. In this case, the assessee was a private limited company incorporated for promoting charitable objects. Some time in 1958, the assessee settled the income from all its properties as also income derived from business carried on by it in trust for carrying out charitable objects as set out in the trust deed. The assessee was a partner in seven firms holding defined shares. The assessee retired from the said partnership prior to 31st Dec., 1970. On the date of the retirement of the assessee, the said firms did not have adequate resources to pay the amounts due to the assessee on account of capital or share of profits. The amounts due to the assessee were transferred to the current account of the firm as outstanding. In the assessment year involved, the assessee claimed exemption under s. 11 which was rejected by the ITO. The decision of the ITO was set aside by the AAC and the Tribunal affirmed the order of the AAC.

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 s. 13(2)(a). The High Court construed s. 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.

The learned advocate for the assessee also contended that mere holding of the shares donated to the assessee could not be deemed to be an investment of the funds of the assessee. In this connection, he drew our attention to s. 13, as amended by the Finance Act, 1983, w.e.f. 1st April, 1983. The said amended section reads as follows : “13(1) Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof—…. (d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year— (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983, otherwise than in any one or more of the forms or modes specified in sub-s. (5) of s. 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983, otherwise than in any one or more of the forms or modes specified in sub-s. (5) of s. 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) any shares in a company [not being a Government company as defined in s. 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act] are held by the trust or institution after the 30th day of November, 1983;”

It was submitted that in the aforesaid amended section, a distinction had been made between investment of funds of a trust and holding by the trust of any shares in a company. If s. 13(2)(h) as suggested on behalf of the Revenue was accepted, it would not have been necessary to make a specific provision in the amended cl. (d) of sub-s. (1) of s. 13 for shares held by a trust in a company other than the Government companies or statutory corporations.

It appears to us that in construing s. 13(2)(h), the meaning of the expression “fund” will have to be determined not only with reference to dictionaries or to commercial parlance or to the principles of accountancy but also in the context of the said section itself. The expression in the said section is “funds” and not “fund”. One of the meanings of the said expression “funds” in the dictionaries is money in hand or cash. In our view, in the context of the said 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 if 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 a 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.

The expression “invest” in s. 13(2)(h), in our view, connotes a 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.

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 a decision of the trust laid out or committed in a concern of a nature specified, before it can be held that such an investment comes within the mischief of s. 13(2)(h).

It appears from the facts as found that the assessee in the instant case 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. All that the assessee has done is to hold on to the shares which it received by way of gifts. Some light is thrown on the point by the amendment incorporated in s. 13 of the IT Act, 1961 under the Finance Act, 1983, noted hereinbefore. Under the said amended section, the benefit conferred by s. 11 stands withdrawn not only where the funds of the trust are invested or remain invested in a manner other than that prescribed but also where the trust holds any shares in a company other than a Government company or a statutory corporation after a specified date. A positive distinction has been made between a case where the funds of the trust are, or remain, invested in a manner other than that prescribed and a case where the trust continues to hold shares in companies other than those excepted.

We also note that the assessee is a trust which was founded in 1920 long before the commencement of the Act and that the assessee received the said shares of the company prior to 1st June, 1970. Therefore, the user or the application of any property of the assessee for the benefit of persons referred to in s. 13(3), if any, occurred prior to 1st June, 1970. It can well be contended that the proviso to s. 13(1)(d)(iii) is applicable in the case of the assessee in the instant case and the assessee was entitled to claim exemption in respect of dividends received from the said shares. This has been found by the Tribunal. On this point, no submission was made before us on behalf of the Revenue.

For the reasons as stated above, we are unable to accept the contentions of the Revenue. We answer the question referred in the affirmative and in favour of the assessee. There will be no order as to costs.

SHYAMAL KUMAR SEN, J.:

I agree.

[Citation : 170 ITR 150]