R.C. Mankad, J.
1. The assessee is a public charitable trust. The assessment year under consideration is 1973-74, the corresponding previous year being the financial year 1972-73 which ended on March 31, 1973.
2. Miss Mrudula Sarabhai donated 89 ordinary shares of M/s. Karamchand Premchand Pvt. Ltd. and 15 ordinary shares of Ahmedabad Manufacturing and Calico Printing Company Limited of the value of Rs. 2,06,592 to the assessee-trust in March, 1972. The assessee-trust received Rs. 3,636 by way of dividend in respect of the said shares in the previous year. One of the questions which arose before the Income-tax Officer in the course of the assessment for the assessment year 1973-74 was whether this dividend income of Rs. 3,636 was exempt from payment of income-tax under section 11 of the Income-tax Act, 1961 ('the Act' for short). The other questions which arose for consideration before the Income-tax Officer in the course of the assessment are not relevant for the purpose of the present reference. The Income-tax Officer took the view to the effect that the provisions of section 13(2)(h) read with section 13(2)(c) of the Act were attracted. He, therefore, held that the assessee-trust's right to exemption under section 11 was forfeited to the extent of the dividend income of Rs. 3,636. In other words, the Income-tax Officer held that the assessee-trust was not entitled to claim exemption in respect of the said dividend income under section 11 of the Act.
3. The Appellate Assistant Commissioner upheld the view taken by the Income-tax Officer in appeal preferred by the assessee-trust against the assessment order made by the Income-tax Officer. The assessee carried the matter in further appeal before the Income-tax Appellate Tribunal ('the Tribunal' for short). The Tribunal, relying on a decision of the Full Bench of the Tribunal, held to the effect that the condition precedent under section 13(2)(h) requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the persons referred to in section 13(3) have substantial interest. Therefore, held the Tribunal, assuming that the persons referred to in section 13(3) have substantial interest in the companies whose shares were donated to the assessee-trust, the condition precedent in section 13(2)(h) was not fulfilled in the instant case. The view which the Tribunal took was to the effect that the assessee-trust itself had not invested the funds of the trust in the said shares which were donated to it. It, therefore, could not be said that the funds of the assessee-trust are invested or continue to remain invested in the said companies within the meaning of section 13(2)(h). In the view which the Tribunal took, the Tribunal held that the assessee-trust was entitled to claim exemption in respect of the dividend income of Rs. 3,636 under section 11 of the Act. It is in the background of the above facts that the following questions are referred to us for our opinion under section 256(1) of the Act :
'1. Whether the Income-tax Appellate Tribunal was right in law in holding that the condition precedent in section 13(2)(h) of the Income-tax Act is not fulfilled in this case because that condition requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the persons referred to in section 13(3) have substantial interest and because such funds were not invested in purchasing the shares which were donated to the trust
2. Whether the burden lay on the Revenue to show that the provisions of section 13(1)(c) of the Income-tax Act applied to the case of the assessee in view of Explanation (3) to that section
3. Whether the Income-tax Appellate Tribunal was right in law in holding that the case of the assessee was not hit by the provisions of section 13(2)(h) of the Income-tax Act ?'
4. In order to appreciate the controversy involved in this reference, it is necessary to read the relevant provisions of sections 11, 12 and 13 of the Act which are as under :
'11. (1) Subject to the provisions of sections 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;... 12. 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 of the trust or institution) shall for the purposes of section 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 section 13 shall apply accordingly.
13. (1) Nothing contained in section 11 or section 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 -
(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income ensures, or
(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 sub-section (3) :......
(2) Without prejudice to the generality of the provisions of clause (c) of sub-section (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-section (3), -
(a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both;
(b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation;
(c) if any amount is paid by way of salary, allowance or other- wise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services;
(d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation;
(e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in subsection (3) during the previous year for consideration which is more than adequate;
(f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate;
(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3) :
Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property so diverted does not exceed one thousand rupees; (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-section (3) has a substantial interest.
(3) The persons referred to in clause (c) of sub-section (1) and sub-section (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 a Hindu undivided family, a member of the family;
(cc) any trustee 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 clauses (a) (b), (c), (cc) and (d) has a substantial interest.'
5. The assessee-trust is a charitable trust eligible to claim exemption in respect of the income derived by it under section 11(1)(a). It is, however, urged on behalf of the Revenue that the provisions of section 13(2)(h) are attracted and, therefore, the assessee-trust is not entitled to claim exemption in respect of the dividend income of Rs. 3,636. The short question which arises for our consideration is whether the dividend income in respect of which the assessee-trust claims exemption is includible in the assessee's total income under section 13(1)(c) read with section 13(2)(h). For the purpose of resolving this controversy, it was conceded by the assessee-trust that the shares which were donated to it by Ms. Mrudula Sarabhai were of concerns in which persons specified in section 13(3) have substantial interest.
6. It is urged on behalf of the Revenue that the shares which the assessee-trust received as donation represented the funds of the assessee-trust and since these funds of the assessee-trust continued to remain invested during the previous year in the concerns in which the persons specified in sub-section(3) of section 13 have substantial interest, the dividend income derived from such shares cannot be excluded while computing the total income of the assessee-trust. The argument is that the term 'funds' used in clause (h) of sub-section (2) of section 13 is wide enough to cover all properties and assets of the trust whether in cash or in kind. The shares represent funds of the assessee-trust in kind. When the assessee-trust received shares from Ms. Mrudula Sarabhai, its funds were augmented. The shares are investments in concerns covered by section 13(2)(c) and the assessee-trust has continued to hold these shares during the previous year. It must, therefore, be held that the funds of the assessee-trust represented by the shares had continued to remain invested during the previous year in the concerns covered by section 13(3)(c). According to the Revenue, since the funds of the assessee-trust represented by the shares continued to be invested as aforesaid, it was not entitled to claim exemption in respect of the dividend income derived therefrom.
7. On the other hand, it was submitted on behalf of the assessee that the shares have been received by the assessee-trust as donation. The assessee-trust had not invested its funds in the said shares within the meaning of section 13(2)(h). It was submitted that no funds belonging to the assessee-trust had been utilised to purchase the said shares or to make investment in the said shares. The shares were gifted to the assessee-trust and, therefore, the assessee could not be said to have made investment out of its own funds. It is not investment made by the assessee-trust from its own funds which has been continued in the previous year as urged on behalf of the Revenue. It was submitted that there is distinction between investment of funds of the assessee-trust and holding of shares of the aforesaid concerns by the assessee-trust.
8. Both learned counsel referred to the following different meanings of the expressions 'fund' or 'funds' and 'invest' given in the standard dictionaries which have been reproduced in the judgment of the Calcutta High Court in CIT v. Birla Charity Trust : [1988]170ITR150(Cal) :
'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. ' (p. 606).
' (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......
4. Pl. Current assets less current liabilities (on an accrual basis); working capital; a term used in cash flow statements.
5. Pl : cash (pp. 204-208).'
'Chambers' Twentieth Century Dictionary, New edn., 1972 (p. 526).
'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., 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. 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 section 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 (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.''
9. We may also refer to the meanings of the expressions 'fund' or 'funds' given in Corpus Juris Secundum, Volume XXXVII, which are as follows :
'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...'
10. Mr. S. N. Soparkar, learned counsel for the Revenue, invited our attention to the following passage from the judgment of the Court of Appeal in Allchin v. Coulthard [1942] 2 KB 228 : [1942] 2 All ER 39, which is reproduced by the Supreme Court in paragraph 59 of its judgment in R. K. Dalmia v. Delhi Administration, : [1963]1SCR253 :
'Much of the obscurity which surrounds this matter is due to a failure to distinguish the two senses in which the phrase 'payment out of a fund' may be used. The word 'fund ' may mean actual cash resources of a particular kind (e.g., money in a drawer or 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 words '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 or 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. Thus, if a company makes a payment out of its reserve fund - an example of the second meaning of the word 'fund' - the actual payment is made by cheque drawn on the company's banking account, the money in which may have been derived from a number of sources.'
11. 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 section 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 clause (h) of sub-section (2) of section 13 covers investment of the trust funds in any concern in which any of the persons specified in sub-section (3) have substantial interest ('specified persons' in short) and if such investment of the trust funds is made after December 31, 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 January 1, 1971, exemption would be forfeited if the funds continued to remain so invested even after December 31, 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 December 31, 1970. In order to attract the provisions of section 13(2)(h), what is essential is that the funds of the trust are invested in a concern covered by section 13(2)(c) and if such investment is made prior to January 1, 1971, funds are continued to be not invested after December 31, 1970. It is only if the funds of the trust itself are invested that it would result in forfeiture of the exemption available under section 11. The funds have to be such as are capable of investment. Therefore, in order to attract section 13(2)(b), 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 even after December 31, 1970, the trust whose funds are so invested will not be entitled to claim exemption under section 11.
12. In this connection, it is interesting to refer to the instructions issued by the Central Board of Direct Taxes ('the CBDT' for short) when the above provision came to be inserted. Sub-paragraph (v) of paragraph 21 of the Explanatory Notes in connection with the Finance Act, 1970, issued under Circular No. 45 dated September 2, 1970, is in the context of section 13(2)(h) and this sub-paragraph (v) reads as under :
' (v). In regard to the transactions referred to in clause (h) of subsection (2) of section 13, it has been specifically provided that investment of the trust funds in any concern in which any of the specified persons has a substantial interest would result in forfeiture of the exemption from tax only where such investment is made after 31st December, 1970, or having been made before 1st January, 1971, the funds continue to remain so invested after 31st December, 1970. In other words, if a trust which has invested its funds in any such concern, arranges to divest itself of such investments before 1st January, 1971, it will not forfeit the exemption from tax on this ground. Further, by virtue of new sub-section (4) of section 23, even where such investment continues to be held after 31st December, 1970, the exemption from tax will be forfeited on the whole of the income of the trust only where the quantum of the investment of the trust funds in the relevant concern exceeds 5 per cent. of the capital of that concern. Where the investment does not exceed 5 per cent. of the capital of the concern, the exemption from tax will be forfeited by the trust only in relation to the income from such investment and not in relation to the remainder of its income.'
13. It is, therefore, necessary to understand the meaning of the expression 'fund' used in section 13(2)(h). Does this expression include shares held by a trust as in the case of the assessee-trust Sub-section (2) of section 13 sets forth certain categories of transactions which would be considered as tantamount to use or application of the trust income or property for the benefit of the specified persons. Those transactions mentioned in clauses (a) to (h) of sub-section (2) are as follows :
(a) lending of the income or property of the trust or institution to any of the specified persons without either adequate security or adequate interest or both;
(b) making available land, building or other property of the trust or institution for the use of any of the specified persons without charging adequate rent or other compensation;
(c) payment of excessive remuneration to any of the specified persons for services rendered by them to the trust or institution;
(d) making services of the trust or institution available to any of the specified person without adequate remuneration or other compensation;
(e) purchase of shares, securities or other property for the trust or institution from any of the specified persons for more than adequate consideration;
(f) sale of shares, securities, or other property of the trust or institution to any of the specified persons for less than adequate consideration;
(g) diversion of a substantial portion of income or property of trust or institution in favour of any of the specified persons; and
(h) investment of trust funds in any concern in which any of the specified persons as a substantial interest.
14. The transactions at (a), (b) and (h) above would result in forfeiture of exemption not only where they are entered into during the previous year but also where these have been entered into in any other earlier previous year and the arrangement continued to be in force for any period during the relevant previous year.
15. The Legislature has, while categorising the transactions in clauses (a) to (h) of section 13(2), laid down as to in what regard each transaction must relate. Clause (a) is in regard to income or property of the trust; clause (b) is in regard to land, building or other property of the trust; clauses (c) and (d) are in regard to services; clauses (e) and (f) are in regard to shares, securities or other property; clause (g) is in regard to income or property; and clause (h) is in regard to trust funds. Therefore, while construing the expression 'trust funds' employed in clause (h), what is provided in clauses (a) to (g) has to be kept in mind. Wherever the Legislature wanted the transaction to relate to income or property or land or building or shares or securities, it has specifically done so. Therefore, when in the same provision, namely, sub-section (2), while mentioning the trust funds in clause (h), income or properties are not mentioned, it would mean that income or property would not be included in the expression 'trust funds'. The expression 'trust funds' employed in clause (h) is employed in contradistinction to what is provided in clauses (a) to (g). As pointed out above, one of the dictionary meanings of the expression 'funds' is 'money in hand or cash' The general meaning of the expression 'fund' or 'funds' given in Corpus Juris Secundum (supra) is money in common speech, although technically it may be employed to cover other articles of value. It is also stated therein that the term 'fund' is generally understood to mean money. In our opinion, in the context of the setting in which the expression 'trust funds' is employed, the meaning which should be attributed to that expression is actual or available money or cash resources such as money in hand, money in cash, money in bank. No other meaning of the expression 'funds' is relevant for construing that expression employed in section 13(2)(h). What clause (h) contemplates is funds of the trust which are capable of investment. If the funds of the trust are not capable of being invested in any concern in which any of the specified persons has a substantial interest, such funds would not come within the purview of clause (h) of sub-section (2) of section 13. 'Funds', as observed above, means actual or available money or cash resources of the trust and if such funds are invested in any concern in which any of the specified person has a substantial interest or if investment out of such funds is continued in the relevant previous year, section 13(2)(h) would be attracted. However, if there is no such investment of funds of the trust, this provision would not be attracted.
16. In the instant case, admittedly, the assessee-trust did not invest its funds in purchasing the shares in question. It was the donor who had purchased the shares. The shares, after they were purchased by the donor, were donated to the assessee-trust. The assessee-trust, no doubt, continued to hold these shares in the previous year, but, for that reason, it could not be said that it was the investment made out of its own funds that was continued. It is only if the funds of the trust are invested and if such investment is continued that the provision of clause (h) would be attracted. Had the shares in question been purchased out of the funds of the assessee-trust and had the assessee-trust continued this investment in the previous year, such investment would fall under clause (h). However, such is not the position here. The shares are not covered by the expression 'funds', but even if they are, the investment in shares had to be out of the funds, that is, actual or available money or cash resources of the assessee-trust, to fall under clause (h). However, we do not agree with learned counsel for the Revenue that the shares held by the assessee-trust are covered by the expression 'funds'. The expression 'funds' may have a wider meaning and under the principles of accountancy, it may include an asset or group of assets as urged on behalf of the Revenue, but, in our opinion, having regard to the context in which the expression 'funds' or 'trust funds' is used, no meaning other than 'actual or available money or cash resources' can be attributed to that expression. As pointed out above, the dictionary meaning of the term 'invest' is 'to lay out money on' or 'to lay out for profit as by buying property, shares, etc. ' Therefore, when clause (h) in sub-section (2) of section 13 says : 'if any funds of the trust are invested', it means that the trust lays out money for investment. The assessee-trust did not lay out money for the shares held by it. It is, therefore, not an investment which is hit by the said clause (h).'Funds', as discussed above, must be such as are capable of investment. Therefore, ordinarily, shares could not be said to be 'funds' within the meaning of the said clause (h). If the trust, on its own volition, invests its funds or money as envisaged in clause (h), then only the transaction would come within the mischief of clause(h) and not otherwise. Investment out of the funds of the trust by the act of the trustees of the trust would bring the transaction within the mischief of clause (h). Therefore, in our opinion, reading clause (h) in the context of the setting in which the expression 'trust funds' is employed and the object which the Legislature had in view, the shares held by the trust, though they may be of the concerns in which any of the specified persons has a substantial interest, would not be hit by that clause. The assessee-trust has not invested its own funds in purchasing the shares and, therefore, even if it continued to hold those shares in the previous year, those shares or the investment represented by those shares would not come within the mischief of the said clause (h).
17. Mr. Soparkar, learned counsel for the Revenue, however, placed strong reliance on the decision of the Punjab and Haryana High Court in Sharda Trust v. CIT in support of his contention that the expression 'funds' employed in clause (h) of sub-section (2) of section 13 would include property or asset like shares. That was a case in which an amount of Rs. 10,000 was donated by each of the four partners of a firm to the assessee-trust in March, 1971. The donations were made by debiting the accounts of each of the partners and crediting the account of the trust. In the balance-sheet of the trust relating to the accounting period ending on March 31, 1971, the aforesaid amount of Rs. 40,000 was added to the general funds and shown as donations receivable. The amounts were actually delivered to the assessee within one month. The Income-tax Officer denied exemption to the assessee under section 13(2)(h) of the Act and this was upheld by the Tribunal. On a reference, it was contended on behalf of the assessee that no completed gift came into being by the close of the accounting year ending on March 31, 1971. It was in the context of this contention raised on behalf of the assessee-trust that the court held that the moment the credit entries were made in the name of the trust, the subject-matter of the gift would be deemed to have been put in possession of the trust and the firm thenceforth would be holding the amount only as a debtor or on behalf and for the benefit of the trust. The fact that the amount has been shown as receivable in the balance-sheet of the trust would further show that the parties had agreed to the arrangement that the amount would be allowed to remain with the firm till it was demanded and paid to the trust. The court, therefore, held that section 13(2)(h) applied and that the assessee was not entitled to exemption under section 11. We fail to see how this decision of the Punjab and Haryana High Court can be of any assistance to the Revenue. No question similar to the one raised in the present reference was raised before the said court. The question which that court was called upon to decide was whether a completed gift had come into being before the close of the accounting year. We, therefore, find ourselves unable to agree that this decision supports the view canvassed on behalf of the Revenue.
18. Mr. Soparkar next relied on a decision of the Andhra Pradesh High Court in Talaprolu Bapanaiah Vidya Dharma Nidhi Trust v. CIT : [1987]167ITR482(AP) . The facts in that case were as follows. The assessee had constituted a trust of a sum of Rs. 20,000 for a charitable purpose. The said sum was invested in a partnership firm in which the assessee had substantial interest. The assessee for the accounting years relevant to the assessment years 1972-73 to 1974-75, claimed exemption under section 11 in respect of interest derived from the trust property. The Income-tax Officer, however, applied section 13(2)(h) and held that the said interest derived was to be included in the income of the assessee. On appeal, the Appellate Assistant Commissioner and on further appeal, the Tribunal confirmed the view taken by the Income-tax Officer. It was urged on behalf of the assessee before the Andhra Pradesh High Court that the Legislature has intended to apply the word 'fund' in a restricted sense only to the accumulated income but not to the corpus and, therefore, the taxing authorities and the Tribunal were not right in including the aforesaid income in the assessee's total income. The Andhra Pradesh High Court negatived the above contention of the assessee and held that not only the corpus but also the income derived therefrom could not be excluded from the computation of the total income of the author for the purpose of income-tax of the previous year. The decision of the Tribunal to compute the interest in the chargeable total income of the assessee was, therefore, upheld. The same question which has arisen for our consideration in this reference did not arise before the Andhra Pradesh High Court. The question which arose for its consideration was entirely different from the one which has arisen for our consideration in this reference. In our opinion, therefore, this decision of the Andhra Pradesh High Court is of no avail to the Revenue.
19. Mr. Soparkar had placed reliance on clause (d) in sub-section (1) and sub-section (5) of section 13, which were inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1977, in support of his contention that a wider meaning should be given to the expression 'funds' employed in section 13(2)(h). These provisions were inserted with a view to regulate the modes and forms in which the funds of trusts or institutions claiming exemption under section 11 or section 12 can be deposited or invested. Clause (d) of section 13(1) provides that if any funds of a charitable or religious trust or institution are invested or deposited or remain invested or deposited in any mode or form other than those specified in section 13(5) at any time during any previous year commencing on or after April 1, 1978, the income of the said trust would lose exemption from income-tax. We fail to see how section 13(2)(h) could be construed in the light of the provision which has been subsequently introduced. Again, clause (d) in sub-section (1) and sub-section (5) of section 13 deal with altogether a different matter and they cannot have any relevance in construing section 13(2)(h). It may be that, as contended by Mr. Soparkar, the term 'funds' could be attributed a wider meaning under the said provision; but that cannot lead to the inference or conclusion that the term 'funds' which is employed in section 13(2)(h) has the same wider meaning. Section 13(2)(h) has to be construed in the setting in which it finds place and not in the content of subsequent legislation. We, therefore, find ourselves unable to agree with Mr. Soparkar that the aforesaid provisions, which were subsequently inserted in the Act, supports the view which he canvasses.
20. The question similar to the one which has arisen for our consideration had arisen before the Calcutta High Court in CIT v. Birla Charity Trust [l988] 170 ITR 150. The Calcutta High Court, after considering the above provisions and various dictionary meanings of the expression 'funds' and 'investment' referred to above, held as follows (p. 161) :
'It appears to us that in construing section 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 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 a bank account, the same are not capable of being invested as such. Other assets of the trust apart from money in hand or bank will have to be converted into money or cash before the same can be invested.
The expression 'invest' in section 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 section 13(2)(h).'
21. We are in respectful agreement with the view taken by the Culcutta High Court.
22. In the light of the above discussion, we hold that section 13(2)(h) will be attracted only in cases where 'funds', that is, moneys from actual or available money or cash resources of the trust itself are invested or continue to remain invested for any period during the previous year in any concern in which any person referred to in sub-section (3) of section 13 has substantial interest. The Tribunal was, therefore, right in law in holding that section 13(2)(h) did not apply.
23. In the view which we are taking, we answer the first and third questions referred to us in the affirmative and against the Revenue. In view of our answer to questions Nos. 1 and 3, the second question does not survive and, therefore, it need not be answered.
24. Reference answered accordingly with no order as to costs.