Delhi H.C : Whether, on the facts and in the circumstances of the case the Tribunal was correct in law to give a finding that the assessee was not covered by s. 13(2)(h) of the IT Act or any other provision of s. 13 and thereby allowing its claim for exemption from tax of its dividend income under s. 11 of the IT Act.

High Court Of Delhi

CIT vs. Sir Shri Ram Foundation

Sections 11, 13(2)(h)

Asst. years 1971-72, 1973-74

Arijit Pasayat, C.J. & S.K. Agarwal, J.

IT Ref. Nos. 307 & 308 of 1978 & 337 of 1980

16th February, 2001

Counsel Appeared
R.D. Jolly with Ms. Prem Lata Bansal, for the Petitioner : S.K. Aggarwal, for the RespondentJUDGMENT

ARIJIT PASAYAT, C.J. :

These references made by Income-tax Appellate Tribunal, New Delhi (in short, the Tribunal) involve identical points for adjudication in relation to Sir Shri Ram Foundation, hereinafter referred to as assessee for the asst. yrs. 1971-72 and 1972-73 and 1973-74. Following question has been referred under s. 256(1) of the IT Act, 1961 (in short, the Act) : “Whether, on the facts and in the circumstances of the case the Tribunal was correct in law to give a finding that the assessee was not covered by s. 13(2)(h) of the IT Act or any other provision of s. 13 and thereby allowing its claim for exemption from tax of its dividend income under s. 11 of the IT Act.”

2. Factual position in a nutshell is as follows : Assessee is a public charitable trust which was originally registered as a society under the name “(Sir-Sic) Sri Ram & Sons Charitable Trust Society” under the Societies Registration Act, 1860, on 7th May, 1941. Name of the trust was changed to its present name “Sir Sri Ram Foundation” as per certificate of registration, dt. 30th May, 1963, granted by the Registrar of Societies. There were seven subscribers to the memorandum of association of whom three, namely, Sir Sri Ram, L. Bharat Ram and L. Charat Ram constituted Board of Trustees. On 10th Feb. 1955, L. Charat Ram donated to the trust, 200 shares of Bharat Ram Charat Ram (P) Ltd. (hereinafter referred to as “BRCRP Ltd’) of the face value of Rs. 100 each. On the said date Smt. Bharat Ram also donated 90 shares of BRCRP Ltd. In respect of these 290 shares received as donation by the trust, BRCRP Ltd, issued 870 bonus shares and thus the trust came to hold 1,160 shares of BRCRP Ltd. The total shareholding BRCRP Ltd. consisted of 19,997 shares, of which 11,359 shares were held by relatives of L. Bharat Ram and L. Charat Ram who were the founder members of the trust and were treated by the Revenue authorities as “excluded persons” in terms of cl. (b) of s. 13(3) of the Act. Thus, the percentage of shares held by excluded persons came to 56.79 per cent while that of shares held by the trust worked out to 5.8 per cent.

On being moved for reference, question, as set out above, has been referred for opinion of this Court. We have heard the learned counsel for Revenue and for the assessee. Stand of the learned counsel for the Revenue is that there is scope for misuse and evasion of tax if interpretation given by the Tribunal is accepted. The language of the provisions, according to him, shows that the amount must have remained invested for a specific period and merely because, for the sake of argument, it can be said that originally the amount was not invested by the assessee yet when it remained invested subsequently, the provision of s. 13(2)(h) are applicable. The stress, according to him, is on the concern and not on the funds invested, except that it should remain invested in thconcern. Learned counsel for the assessee, on the other hand, submitted that the language used as “funds” which must have been invested. If it was originally not invested the question of funds remaining invested in the manner suggested by the learned counsel for Revenue is not borne out from the statute.

In order to appreciate rival submissions, the relevant provisions need to be noted. Secs. 11, 12 and 13(2)(h) at the relevant time read as follows : “Sec. 11(1). Subject to provisions of ss. 60 and 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 extend to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property : any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus if the trust or institution) shall for the purposes, of s. 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and s. 13 shall apply accordingly. (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

:(a) *** *** *** (b) *** *** *** (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof. (i) *** *** *** (ii) if any part of such income of any property of the trust or the 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 sub-s. (3) *** *** *** *** *** *** (2) Without prejudice to the generality of the provisions of cl. (c) and cl. (d) 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 sub-s. (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.” A similar issue had come up before various High Courts and there is unanimity in the view, as that taken by the Tribunal. In construing the provisions of s. 13(2)(h), the expression “funds” has to be understood in the context of the provision and not only with reference to dictionaries or to commercial parlance or to the principles of accountancy. It is to be noted that the expression used is “funds” and not “fund”. “Funds” means money in hand or cash according to some dictionaries. This, according to us, would be the proper meaning to be attributed to the expression “funds” as appearing in the provision. The fundamental requirement of s. 13(2)(h) is that there must be investment of funds of a trust. If any expanded meaning is given to include assets other than money in hand or cash or credit balance in a bank account, it is evident that they are not capable of being invested as such. Other assets of the trust apart from money in hand or cash or balance in bank will have to be converted into money or cash before the same can be invested, as was observed by Calcutta High Court in CIT vs. Birla Charity Trust (1987) 66 CTR (Cal) 172 : (1988) 170 ITR 150 (Cal) : TC 23R.1532. The expression “invest” 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 a profit or financial advantage or return. What is contemplated is that the trust having assets in the form of money or cash or balance in a bank or any other form capable of being invested or by a positive act pursuant to a decision of the trust was 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).

The meaning of expression “funds” given in the standard dictionaries are as follows : “Black’s Law Dictionary, Fifth Edn. : Fund….An asset or group of assets set aside for the 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 a 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 organisation, separated physically or in the accounts or other from both assets and limited to specific uses.

Examples: a petty cash or working fund; a replacement and renewal fund; accident fund a contingent fund; a pension fund. 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 statement. Pl. cash (pp. 204-

208).” Chambers ‘Twentieth Century Dictionary, New Edn. “Fund : n. a sum or money on which some enterprise is founded or expense supported a supply or source of money’ : The Concise Oxford Dictionary, 5th Edn. ‘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. 1 an available quantity of 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) is used as a verb and the meaning of the said expression in the standard dictionaries is as follows : Chamber’s Twentieth Century Dictionary, New Edn. “………..to lay out for profit as by buying property, shares etc.” The Concise Oxford Dictionary, 5th Ed. ‘………..lay out money on, as (invest) 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 advantage—vt. To make an investment.” “In general.—The word has a variety of meanings, but the sense in which it is employed must be gathered from the context. It is not a legal term with a settled meaning but it is a term in common use, suggesting money, in common speech, although technically it may be employed to cover other articles of value, for the term ‘fund’ or ‘funds’ is generic and all embracing as compared with the term money, etc. which is specific……..” In the plural. “Capital : cash, money or moneys; money and negotiable paper immediately or readily convertible into cash, available pecuniary resources; money in hand or available for the payment of a debt, legacy, etc.; specie, or a stock of convertible wealth; and ‘funds’ may mean or include not only money, as the term is generally understood, but other circulating medium or instrument or tokens in general use in the commercial world as the representatives of value, such as bank notes, bills, cheques, drafts, notes, stocks and bonds, deposits or certificates of deposit, evidences of money lent to the Government, constituting a national debt, for which interest is paid at prescribed intervals…….” Corpus Juris Secundum Vol. XXXVII “In General.—The word has a variety of meanings, but the sense in which it is employed must be gathered from the context. It is not a legal term with a settled meaning but it is a term in common use, suggesting money, in common speech, although technically it may be employed to cover other articles of value, for the term “fund” or “funds” is generic and all embracing as compared with the term ‘money’, etc. which is specific……..” In the plural, “capital: cash, money, or moneys; money and negotiable paper immediately or readily convertible into cash, available pecuniary resources; money in hand or available for the payment of a debt, legacy, etc. specie, or a stock of convertible wealth; and ‘funds’ may mean or include not only money, as the term is generally understood, but other circulating medium or instrument or tokens in general use in the commercial world as the representatives of value, such as bank notes, bills, cheques, drafts, notes, stocks and bonds, deposits or certificates of deposit, evidences of money lent to the Government, constituting a national debt, for which interest is paid at prescribed intervals.”

8. In R.K. Dalmia vs. Delhi Administration AIR 1962 SC 1821, it was observed that word “fund” may mean actual cash resources of a particular kind (e.g. money in a drawer or in 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. Similar view was expressed in Allchin vs. Coulthad (1942) 2 KB 228. The expression “fund” or “funds” has a variety of meanings but the sense in which it is employed must be gathered from the context. It would not be correct to adopt a strictly literal or technical meaning of this expression while construing s. 13(2)(h). In other words, we must not construe that provision mechanically. We must construe it having regard to the object which the legislature had in view in enacting it and in the context of the setting in which it occurs. That provision came to be inserted in the Act by the Finance Act, 1970. On a plain reading of that provision, it is clear that cl. (h) of sub-s. (2) of s. 13 covers investment of the trust funds in any concern in which any of the persons specified in sub-s. (3) have substantial interest (“specified persons” in short) and if such investment of the trust funds is made after 31st Dec., 1970, it would result in forfeiture of exemption from tax. However, if the trust funds have already been invested in any concern as aforesaid before 1st Jan.,1971, exemption would be forfeited if the funds continued to remain so invested even after 31st Dec., 1970. The object of the above provision is to discourage investment of trust funds in the concerns in which specified persons have substantial interest and if an investment is already made in such concerns, to discourage continuance thereof after 31st Dec., 1970. In order to attract the provisions of s. 13(2)(h), what is essential is that the funds of the trust are invested in a concern covered by s. 13(2)(c) and if such investment is made prior to 1st Jan., 1971, funds are continued to be not invested after 31st Dec., 1970. It is only if the funds of the trust itself are under s. 11. The funds have to be such as are capable of investment. Therefore, in order to attract s. 13(2)(h), it has to be established that the funds of the trust which are capable of being invested have been utilised for making investment as provided therein. When the funds of the trust are so invested and such investment is continued after 31st Dec., 1970, the trust whose funds are so invested will not be entitled to claim exemption under s. 11. Above position has been elaborately dealt with by the Gujarat High Court in CIT vs. Insaniyat Trust (1988) 71 CTR (Guj) 145 : (1988) 173 ITR 248 (Guj) : TC 23R.1545.

9. The word investment means to lay out money in business with a view to obtain income or profit. In order to constitute an investment the amount laid down should be capable of resulting in an income or return or profit to the investor and in every case of investment, the intention and positive act on the part of the investor should be to earn such income, return or profit to the investor. In order to constitute an investment, the money shall be laid out in such manner, as to acquire some species of property which bring on an income to the investor. An investment popularly means every application of money which is intended to fetch return by way of interest income or profit. This only employed as capital in a business is money invested in business. [Vide Edwards J., in TaxCommissioner vs. Australian Mutual Provident Fund Society (1902) 22 NZLR 445]. In Arnaild vs. Grinstead 21 WR Eng. 155 it was observed that in its most comprehensive sense it is generally understood to signify the laying out of money in such a manner that it produces a revenue. An illuminating observation was made in IRC vs. Deswater Bros. Ltd. (1946) 1 All ER 57 (CA) about what “investment” means. It was observed that the word “investment” is not a word of art, but has to be interpreted in a popular sense. It is not capable of legal definition, but a word of current vernacular. The words “invest” and “investment” are to be taken in the business sense of laying out of money for interest or profit.

10. The plea similar to the one taken by the learned counsel for Revenue was raised before the Kerala High Court in CIT vs. Chandrika Education Trust (1993) 114 CTR (Ker) 212 : (1994) 207 ITR 108 (Ker) : TC 23R.1567. There also it was pleaded that the expression ‘continued to remain’ qualifies the expression ‘in any concern’ whether it was an investment or not. The plea was rejected by Kerala High Court. It was observed that it would be doing violence to the plain language of the provision. Sec. 13(2)(h) requires that the funds of the trust are, or continue to remain invested in any concern of the nature mentioned therein. [underlined, italicised in print, for emphasis]

11. The interpretation suggested by learned counsel for Revenue would do violence to the plain language used. The dictum of Rowlett J. as quoted with approval by Viscount Simon in Cape Brandy Syndicate vs. IRC (1921) 1 KB 64, which has become locus classics can be aptly applied to the facts of the case. Following illuminating words were used by the learned Judge: “In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used”. The position has been reiterated time and again by the apex Court. [See Sutlej Cotton Mills Ltd. vs. CIT (1990) 90 CTR (SC) 130 : AIR 1991 SC 218, Saraswati Sugar Mills vs. Haryana State Board AIR 1992 SC 224, Oswal Agro Mills Ltd. vs. Collector of Central Excise AIR 1993 SC 2288, Calcutta Jute Manufacturing Co. vs. CTO AIR 1997 SC 2920].

12. As indicated above, several High Courts have taken the view expressed by the Calcutta High Court in Birla Charity’s case (supra). See [J.K. Trust vs. CWT (1994) 205 ITR 524 (Cal) : TC 65R.839, CIT vs. Bhoruka Public Welfare Trust (1999) 157 CTR (Cal) 40 : (2000) 240 ITR 513 (Cal), CIT vs. Sahitya Trust (1993) 111 CTR (Guj) 186 : (1993) 203 ITR 349 (Guj) : TC 23R.1556, CIT vs. Lalbhai Dalpatbhai Charity Trust (1994) 116 CTR (Guj) 404 : (1994) 209 ITR 865 (Guj), Sarabhai Foundation vs. CIT (1993) 115 CTR (Guj) 443 : (1994) 209 ITR 390 (Guj) : TC 23R.1560, CIT vs. J.K. Charitable Trust (1992) 196 ITR 31 (All) : TC 23R.1523, Trustees of Mangaldas N. Verma Charitable Trust vs. CIT (1993) 112 CTR (Bom) 209 : (1994) 207 ITR 332 (Bom) : TC 23R.1556, CIT vs. Pittie Charitable Trust (1994) 207 ITR 1053 (Bom).

13. It appears that SLP’s filed against judgments of Gujarat High Court and Kerala High Court in Insaniyat Trust(supra) and Chandrika Educational Trust (supra) have been dismissed [See. (1995) 212 ITR (St) 369 and (1995)212 ITR (St) 366 respectively].

14. The inevitable conclusion from the analysis made above is that the Tribunal was justified in its view. Accordingly, we answer the question referred in the affirmative in favour of the assessee and against Revenue.

[Citation : 250 ITR 55]

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