| SooperKanoon Citation | sooperkanoon.com/64357 |
| Court | Income Tax Appellate Tribunal ITAT Madras |
| Decided On | Aug-31-1990 |
| Judge | T R Rao, N Krishnamurthy, S |
| Reported in | (1991)39ITD251(Mad.) |
| Appellant | Meenakshi Achi Trust |
| Respondent | Wealth-tax Officer |
The latter four appeals again by the assessee arose out of the fresh assessment orders completed against the assessee for the assessment years 1984-85 to 1987-88 passed in pursuance of the Commissioner's revisionary order mentioned above and the common order dated 14-8-1989 passed by the Deputy Commissioner (Appeals), 'D' Range, Madras, dismissing the appeals preferred against each of such fresh assessments framed for the assessment years 1984-85 to 1987-88.
2. The few facts for appreciation of the real point involved in these appeals are as follows. The assessee is a trust. On 18-4-1985,18-6-1985,6-5-1986 and 22-6-1987 the assessee trust filed its returns of wealth claiming full exemption under Section 5(1)0) of the Wealth-tax Act and in the original assessments dated 11-8-1986 for the assessment years 1984-85 and 1985-86 and dated 3-2-1988 for the assessment year 1986-87 the claim of the assessee for exemption was granted by the Wealth-tax Officer while he framed the assessments against the assessee trust for those three assessment years. For the assessment year 1987-88 the assessee returned a wealth of Rs. 2,77,233 and claimed exemption under Section 5(1)(i) of the Wealth-tax Act to the extent of Rs. 2,50,000. The Wealth-tax Officer while making the original assessment dated 3-2-1988 against the assessee trust determined the taxable wealth of the assessee at Rs. 27,230 and framed the original assessment for the assessment year 1987-88 accordingly.
From the balance sheets of the assessee trust for these four assessment years it could be seen that the assessee owned silver articles weighing 68.100 kgms. and these silver articles were received by the assessee trust as gift from Smt. C.T. Opilal Achi as per her letter dated 24-3-1983. Since the assessee was holding these assets in contravention of Section 13(1)(d) of the Income-tax Act, the learned Commissioner held that grant of exemption under Section 5(1)(i) of WT Act, 1957 for the assessee is both erroneous and prejudicial to the Revenue and therefore he sought to revise the original assessment orders and after giving notice to the assessee trust about his intention to revise and after hearing the assessee, he had passed his common order dated 11-1-1989. It is contended before him that the trust did not voluntarily make investment in silver articles. On the other hand the trust received certain silver articles from the donor with the specific direction to treat them as forming part of the corpus of the trust.
There was no investment by the trust in any silver articles. There is no violation of Section 21 A(iii) of the Wealth-tax Act read with Section 13(1)(d) of the Income-tax Act. This contention did not receive the acceptance of the learned Commissioner. The learned Commissioner in his revisionary order dated 11-1-1989 held that the Wealth-tax Act gives no discretion to the Income-tax Officer or the trustee to make any investments other than in the specified securities or modes of investments. It would also appear that the trust has to comply with the provision even where the corpus donation is made. He further held that it is also highly doubtful as to the purpose behind corpus donations of silver articles to a trust if the trust which has to do charitable work, if the silver articles had to be kept in custody for ever without converting into cash for the purpose of the trust.
3. As already noted above fresh assessments were made in pursuance of the revisionary order of the learned Commissioner. For the assessment year 1984-85 the fresh assessment order was passed on 10-2-1989 determining the total wealth of the assessee trust at Rs. 2,43,953 and its net wealth at Rs. 2,32,336. For the assessment year 1985-86 the fresh assessment was passed on 10-2-1989 fixing the total wealth at Rs. 2,70,978 and the net wealth at Rs. 2,58,074. So also for the assessment year 1986-87 the assessment dated 10-2-1989 was passed determining the total wealth at Rs. 2,74,892 and the net wealth at Rs. 2,69,502. For the assessment year 1987-88 the fresh assessment dated 10-2-1989 was passed fixing the total wealth of the assessee at Rs. 3,27,759 and the net wealth at Rs. 3,21,332. In each of the fresh assessment orders the Wealth-tax Officer had taken the view that the assessee was holding the silver articles weighing 68.500 kgms. on each of the valuation dates relevant to these four assessment years in contravention of Section 13(1)(d) of the Income-tax Act and, therefore, the assessee is not eligible for exemption under Section 5(1)(i) of the Wealth-tax Act. It was contended on behalf of the assessee that the assessee itself had not voluntarily made any investments in silver articles but only received the silver articles from a donor along with a specific direction to treat them as forming part of the corpus of the trust. It was contended that no funds belonging to the assessee trust had been utilised to purchase the said silver articles or to make any investments in silver articles. Hence the assessee trust could not be said to have made any investment. It was the contention of the assessee that in order to deny exemption to the trust it should be established by the department that the assessee trust had intentionally laid out its funds in a particular asset with the object of earning profit.
These contentions were negatived by the Wealth-tax Officer observing in each of the fresh assessment orders that Section 13(1)(d) of the IT Act clearly indicated that the funds of the trust should be invested only in the modes specified under Section 11(5) of the IT Act and it is not shown anywhere that the investments made voluntarily by the trust are hit by the provisions. Though the gifts have been received in 1983 they have been continued to be held in the same form and the assets have not been converted into the modes specified in Section 11(5) of the IT Act.
The Wealth-tax Officer further held that it is not necessary that the funds should have been utilised to purchase the silver utensils. What is implied under Section 13(1)(d) of the IT Act is holding of the assets in the modes other than the ones mentioned under Section 11(5).
In view of the fact that the assessee was holding the same assets in the same form as they were received the exemption under Section 5(1)(i) cannot be allowed to the assessee. Consequently the assessee trust was assessed with the maximum marginal rate on the net wealth determined for each of these four assessment years.
4. As against the fresh assessment orders she assessee went in appeal before the Deputy Commissioner (Appeals), 'D' Range, Madras, who consolidated all the four appeals and disposed them of by his common order dated 14-8-1989. In the first batch of four appeals the revisionary order dated 11-1-1989 passed by the Commissioner, Tamilnadu- III was the subject matter of the appeals, whereas the latter four appeals arose out of the common order of the Deputy Commissioner (Appeals), 'D' Range, Madras dated 14-8-1989. Thus the matter stands for our consideration. Section 13(1)(d) as far as relevant for our purposes reads as follows :- 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- (d) in the case of a trust for charitable or religious purposes or 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-section (5) of Section 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-section (5) of Section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973 and such assets were not purchased by the trust or institution or acquired by it by conversion of, or in exchange for, any other asset Section 13(1)(d) is substituted by the Finance Act, 1983 with effect from 1-4-1983 and therefore the provision extracted above applies to each of the four assessment years under consideration. The main question involved in these appeals is when a trust holds silver articles weighing 68.100 kgms. towards the corpus of the trust and the silver articles represent the corpus donation made by one of the donors of the trust can it be said that any funds of the trust are invested or deposited in contravention of the forms and modes of investments specified in Section 11(5) of the Income-tax Act on or after 28-2-1983? The next important question would be whether keeping or holding the corpus donation of 68.100 kgms. silver as part of the assets of the trust even beyond 30-11-1983 would amount to the funds of the trust continued to remain invested or deposited after 30-11-1983 in contravention of the modes and forms of investments specified in Sub-section (5) of Section 11, and whether for the above reason, the assessee is not entitled to exemption under Section 5(l)(i) of the Wealth-tax Act. The matter is no longer res integra but was concluded by the decisions of several High Courts. Both under Sections 13(1)(d) and 13(2)(h) of the Income-tax Act we come across the important words 'the funds of the trust'. In the case of the former provision the funds of the trust should not be invested or deposited after 28-2-1983 in any other form or modes of investment other than those specified in Sub-section (5) of Section 11. In the case of the latter provision the funds of the trust should not 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 a substantial interest. So under both the provisions occasion arose to find out the true meaning of the words 'the funds of the trust'.
5. In CIT v. Birla Charity Trust [ 1988] 170 ITR 150 (Cal.) the true meanings of 'funds of the trust' and 'investment' were explored. The Calcutta High Court was concerned with Section 13(2)(h) in that case.
They held that one of the meanings of the said expression 'funds' in the dictionaries is money in hand or cash and for the purpose of Section 13(2)(h) their Lordships held that this is the meaning which could be attributed to the expression 'funds'. The second contemplates that there will be investment of funds of a trust. If any other meaning is given 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 Section 13(2)(h) 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. It has to be established that a trust having assets in the form of money or cash 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). Now, in that case the trust was found in 1920. Its income was spent for charitable purposes. Between 1956 and 1963 the assessee received ordinary shares of a company in which the settler had substantial interest. For the assessment year 1971-72 the assessee received dividends on the said shares amounting to Rs. 1,44,735. The Income-tax Officer denied the exemption in view of Section 13(2)(h) but the Tribunal held that the assessee was entitled to exemption. The Calcutta High Court held that the assessee received 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). Ultimately their Lordships held that the assessee was entitled to claim exemption in respect of dividends from the said shares. In our opinion the ratio of the Calcutta High Court decision, even though rendered in the context of the correct interpretation of Section 13(2)(h), equally applies to a case governed by Section 13(1)(d) inasmuch as the language employed in both the Sections 13(1)(d) and 13(2)(h) is quite similar. Thus the 'funds of the trust' should be deemed to carry the meaning as the money in hand or cash or the money in a bank account. The other assets held by the trust cannot be said to be the funds of the trust since they are not capable of being invested unless they are converted into money. In the case before us also the assessee did nothing except accepting the corpus donation of silver articles of 68.100 kgms. The assessee did neither convert the said asset into money nor invested the money, into which they were so converted, in any of the modes other than the modes and forms specified in Sub-section (5) of Section 11. For investment, we have to hold that there should be a positive act on the part of the assessee trust. However, the assessee cannot be said to have acted positively in the case before us except holding the corpus donation of 68.100 kgms. of silver. Therefore the silver articles cannot represent the trust funds or the funds of the trust. Unless the assets were converted into money and those moneys were invested it cannot be said that the assessee invested the funds of the trust in the modes and forms other than those specified in Sub-section (5) of Section 11.
Therefore we are of the opinion that there was no contravention of Section 13(1)(d) read with Section 11(5) by the assessee trust in this case.
6. In CIT v. Insaniyat Trust [1988] 173 ITR 248 the Gujarat High Court held while interpreting the words 'funds of the trust' occurring in Section 13(2)(h) as per the headnote of the decision at pages 249 and 250 as follows: "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 (A), 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 fund'. The expression 'trust funds' employed in Clause (h) is employed in contradistinction to what is provided in Clauses (a) to (g). One of the dictionary meanings of the expression 'fund' is 'money in hand or cash'. General meaning of expression 'fund' or 'funds' given in Corpus Juris Secundum 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 the context of the setting in which the expression 'trust funds' is employed in Section 13(2)(h), the meaning which should be attributed to that expression is actual or available money or cash resources such as money in hand and money in the bank. No other meaning of the expression 'fund' is relevant for construing that expression employed in the section. 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 person" has a substantial interest, such funds would not come within the purview of Section 13(2)(A). Therefore, Section 13(2)(h) will be attracted only in case 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 subsection (3) of Section 13 has a substantial interest." In that case also the assessee received donation of shares in a company in which the founder of the trust had substantial interest and for that reason the exemption is sought to be denied by applying Section 13(2)(h). The Gujarat High Court held that the assessee trust did not invest its funds in purchasing the shares in question. It was the donor who has purchased the shares. The shares after the purchase by the donor were donated to the assessee trust. The assessee trust no doubt continued to hold the shares in the previous year but for that reason it could not be said that it was an investment made out of its own funds that was continued. Ultimately they held that Section 13(2)(h) was not applicable and the dividend received from the shares by the assessee were entitled to exemption.
7. Section 13(1)(d) itself came up for consideration before the Madras High Court in yet a recent decision in Auditor Dasaradha Rami Reddy Charities v. CIT [1989] 177 ITR 249. In that case the assessee received promissory notes donated to it and kept them intact. The question was whether there was investment of funds belonging to the trust in the modes and forms other than those specified in Section 11(5) after 28-2-1983 and if so whether the assessee charitable trust should be denied exemption under Sections 11 and 12 because of the provisions of Section 13(1)(d) read with Section 11(5). The Madras High Court held that promissory notes are negotiable instruments and they are not funds. The Madras High Court held that normally 'funds' means cash on hand or in bank capable of being drawn upon and dealt with in a manner as desired by the person entitled or authorised to do so. A promissory note cannot be equated to funds but at best could only be an actionable claim. The Madras High Court further held as per the headnote of the decision at pages 250 and 251 as follows: "That the society received the promissory notes donated to it and kept them intact. There was no investment of the funds of the trust in the pronotes by a person authorised to do so on its behalf. The use of the words 'funds of the trust or institution are invested or deposited' clearly contemplated that monies belonging to the trust or institution should be invested or deposited by a positive act on behalf of the trust or institution, and if such investment is not in any of the modes specified under Section 11(5) of the Act, only then, the benefit of exclusion of such income from the total income would not be available to the trust. Therefore, to deny the benefit of exclusion under Sections 11 and 12 and of exemption under Section 80G of the Act by applying Section 13(1)(d)(i) of the Act, the money available to the trust should have been invested or deposited by a definite positive act on its part, otherwise than in the modes specified in Section 11(5) of the Act. The society had merely held on the donated promissory notes and it had not done anything towards an investment or deposit of the amounts covered by the donated pronotes, except to later invest the subsequent realisations from the debtors, in the modes specified under Section 11(5) of the Act". Thus it can be seen that the above quoted Madras High Court decision not only interpreted the crucial words occurring in Section 13(1)(d) but also decided the substantial question involved in these appeals, viz., whether holding the donated silver articles weighing 68.100 kgms.
towards the corpus of the trust as directed by the donor would amount to investing or holding the trust funds. According to the Madras High Court we should hold that it does not amount to holding any funds.
Further by mere act of holding the silver articles towards the corpus of the trust does not amount to investing the funds of the trust. The assessee did not voluntarily act and converted the silver into money and invested the same in order to be covered fully by Section 13(1)(d).
Therefore we should hold that there was no violation of Section I3(1)(d) read with Section 11(5) of the Income-tax Act, since the assessee never invested its funds (money cash or bank balance) in any modes or types of investments not specified under Section 11(5).
Further we should hold that the assessee trust never invested since it had not acted in any other manner than by merely keeping custody of the silverware donated to the trust. In the result we are of the opinion that the withdrawal of exemption under Sections 11 and 12 to the assessee trust on a supposed violation of Section 13 (1)(d) as ordered by the learned Commissioner by his revisionary order is quite unwarranted and in any event the grant of exemption under Sections 11 and 12 of the Income-tax Act and under Section 5(1)(i) of the Wealth-tax Act to the assessee trust, as was done under the original assessments passed by the Wealth- tax Officer, is quite justifiable, and it cannot be said that the assessments are vitiated by any error and therefore they cannot be held to be prejudicial to the interests of the Revenue. We, therefore set aside the common revisionary order of the Commissioner for these four assessment years and the original assessments made by Wealth-tax Officer for each of these four assessment years are restored. Since the very basis on which the fresh assessments were framed was knocked out the fresh assessments made for each of these four years cannot be valid. However, we may add that since the assessee already succeeded in the first batch of the four appeals and since the original assessments were restored, the appeals arising out of the fresh assessments for these assessment years become unnecessary. In the result WTA Nos. 114 to 117 (Mds)/1989 are allowed and WTA Nos. 1510 to 1513 (Mds)/1989 are dismissed.