Kerala High Court
Commissioner Of Income-Tax vs Chandrika Educational Trust on 21 July, 1993
Equivalent citations: [1994]207ITR108(KER)
JUDGMENT T.L. Viswanatha Iyer, J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following four questions under Section 256(1) of the Income-tax Act, 1961 ("the Act"), in Income-tax References Nos. 472 to 474 of 1982, out of which two are at the instance of the Revenue and two at the instance of the assessee :
At the instance of the Revenue (assessment years 1975-76 and 1976-
77):
"1. Whether, on the facts and in the circumstances of the case and on an interpretation of Section 13(1)(c)(ii) of the Income-tax Act and also in view of the finding that 'the property of the charitable trust had been used and applied for the benefit of persons referred to in Sub-section (3) of Section 13 during the relevant previous year' the assessee is entitled to exemption ?
Assessment year 1975-76 :
2. Whether, on the facts and in the circumstances of the case and also in view of the finding by the Tribunal, that 'the Commissioner of Income-tax considered that the order of the Income-tax Officer allowing exemption under Section 11 erroneous on the sole ground that by the delayed withdrawal of profits the assessee contravened the provisions of Section 13(1)(c)(ii)', the Tribunal is right in not considering the issue under Section 13(1)(c)(ii) of the Income-tax Act, 1961 ?
At the instance of the assessee (assessment year 1976-77) :
3. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the assessee has forfeited the exemption from tax on its entire income on contravention of Section 13(1)(c)(ii) and Section 13(2)(h) read with Section 13(3) for the assessment year 1976-77 ?
4. Whether the Tribunal is right in holding that, in the instant case, due to the contribution of capital by the trust, the funds of the trust was invested in a concern and that such investment exceeded five per cent. of the capital of that concern and that the income arose to the trust or such investment so as to attract Section 13(3) and (4) ?"
2. In Income-tax Reference No. 482 of 1982, the following questions have been referred at the instance of the Revenue :
"1. Whether, on the facts and in the circumstances of the case and on an interpretation of Section 13(1)(c)(ii) of the Income-tax Act, the assessee is entitled to the exemption ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in not considering the issue under Section 13(1)(c)(ii) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the delayed withdrawal of profits from the firm would not amount to 'investment' ?"
3. We shall briefly state the facts leading to these references.
4. The assessees in these cases are two different trusts, Income-tax References Nos. 472 to 474 of 1982 being concerned with the Sreenarayana Chandrika Trust and Income-tax Reference No. 482 of 1982 with the Chandrika Educational Trust. The references relate to the assessment years 1975-76 and 1976-77.
5. The Sreenarayana Chandrika Trust (hereinafter referred to as "the trust") is a public charitable trust, created on March 15, 1972. A firm, Beena Enterprises, was constituted on April 1, 1972, with the trust as one of its three partners, the other two partners being close relatives of the authors of the trust, who fell within the purview of Sub-section (3) of Section 13 of the Act. The capital of the firm was Rs. 30,000, of which the trust contributed Rs. 5,000. The firm earned substantial profits during the accounting years 1974-75 and 1975-76. The share of the trust in the profits of the firm for these two years was Rs. 1,49,782 and Rs. 94,365, respectively, as determined after audit. The trust withdrew its share of the profits for the accounting year 1974-75 in two instalments of Rs. 35,000 and Rs. 1,14,782 on July 26, and August 29, 1975, respectively, after it was intimated about the amount of profits due to it on July 20, 1975. The share profits for the subsequent year was withdrawn in a lump sum on August 31, 1976. The trust was one registered under Section 12A and its income was exempted from payment of tax under Section 11 up to and inclusive of the assessment year 1974-75. The assessing authority similarly exempted its income for the assessment year 1975-76 as well. But this order was set aside by the Commissioner of Income-tax on November 17, 1979, by his order annexure B passed in exercise of the powers under Section 263 of the Act. The Commissioner took the view that the delayed withdrawal of the share of profits due for the accounting year 1974-75 ending on March 31, 1975, on July 26, and August 29, 1975, amounted to investment of the funds of the trust in the firm, Beena Enterprises, in which persons referred to in Sub-section (3) of Section 13 had a substantial interest. The trust thus violated the provisions of Section 13(1)(c)(ii) of the Act and its income was not entitled to exemption under Section 11. The order of assessment was, therefore, set aside and the Income-tax Officer was directed to dispose of the matter afresh. The assessee challenged this order in appeal before the Tribunal.
6. A view similar to that taken by the Commissioner in annexure B was taken by the Income-tax Officer, while completing the assessment for the year 1976-77 and he denied the trust the benefit of the exemption under Section 11. But the assessment was set aside in appeal by the Commissioner of Income-tax (Appeals) who upheld the assessee's contention that mere retention of the profits due in Beena Enterprises would not amount to investment. The Revenue went up in appeal to the Income-tax Appellate Tribunal. This appeal was heard along with the assessee's appeal for 1975-76 and they were disposed of by the consolidated order annexure E out of which the four questions mentioned earlier have been referred for the opinion of this court.
7. Income-tax Reference No. 482 of 1982 relates to the assessment year 1975-76. The facts and the sequence of events are similar to those of Sree Narayana Chandrika Trust for 1975-76 and we are not therefore repeating them here.
8. We shall deal with Income-tax References Nos. 472 to 474 of 1982, in the first instance. The contention of the Revenue before the Tribunal, as it was before us, in relation to both the assessment years, was that the profits due to a partner from a firm arose from day to day, and, therefore, the share of profits due to the assessee. from Beena Enterprises should have been withdrawn before the close of the accounting year. By retaining it in the firm beyond that date, the amount remained invested in the firm thereby disentitling the assessee to the benefit of the exemption, under Section 11, by virtue of Section 13(2)(h). This did not find favour with the Tribunal who held that there was no forfeiture of the exemption by the delayed withdrawal of the profits. The suo motu revisional order of the Commissioner of Income-tax was, accordingly, set aside.
9. But this did not avail the assessee for the year 1976-77, where the Revenue specifically raised the further plea that the contribution of capital by the assessee-trust in Beena Enterprises was investment in a concern in which the persons referred to in Sub-section (3) of Section 13 had a substantial interest and, therefore, Section 13(2)(h) precluded any exemption of the assessee's income. This was upheld by the Tribunal and the Departmental appeal was allowed. But, the Tribunal did not apply this ratio for the year 1975-76 for the reason that the Commissioner of Income-tax had set aside the order of assessment only on the sole ground of delayed withdrawal of the share of profits, and it was not open to the Tribunal to sustain it on other grounds.
10. Now, coming to the common question which arises for both the years, Section 11 provides, inter alia, that income derived from property held under trust wholly for charitable or religious purposes shall not be included in the total income of the person in receipt of the income. There is no dispute that the trust in question is one wholly for charitable purposes. Section 13 enumerates certain contingencies when Section 11 will not apply. We are concerned with Sub-clause (ii) of Clause (c) of Sub-section (1) of the section which provides that nothing contained in Section 11 shall operate to exempt the income of a trust for religious or charitable purposes, if any part of the income or any property of the trust is, during the previous year, used or applied directly or indirectly for the benefit of any person referred to in Sub-section (3). Sub-section (3) refers to various persons the benefit derived by whom precludes the trust from claiming the benefit of exemption under Section 11. There is no dispute that the other two partners of Beena Enterprises are those referred to in Sub-section (3). Sub-section (2) of Section 13 mentions certain circumstances in which the income or the property of the trust will be deemed to have been used or applied for the benefit of a person referred to in Sub-section (3). It contains eight Clauses (a) to (h) of which we are concerned with Clause (h) only. It provides that the income or the property of a trust shall be deemed to have been used or applied for the benefit of a person referred to in Sub-section (3), if any funds of the trust are, 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) has a substantial interest. Clause (h) reads :
"13. (2)(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."
11. We may also refer to Sub-section (4) which provides that, notwithstanding anything contained in Clause (c) of Sub-section (1), in a case where the aggregate of the funds of the trust invested in a concern in which a person referred to in Sub-section (3) had a substantial interest did not exceed five per cent. of the capital of that concern, the exemption under Section 11 shall not be denied in relation to any income other than the income arising to the trust from such investment, by reason only that the funds of the trust have been invested in a concern in which such person had a substantial interest. Since it is Section 13(2)(h) that is invoked by the Revenue, the question for consideration is whether any funds of the assessee-trust continued to remain invested in the firm Beena Enterprises merely by reason of the alleged delay in the withdrawal of the share of profits by a few months, after the end of the previous year.
12. We may also point out that this case of the Revenue, based on the delayed withdrawal of the profits after the close of the previous year on March 31, does not, on its face, attract the exclusionary provision of Clause (h) of Sub-section (2) even assuming that such delayed withdrawal amounted to investment. What the provision stipulates is investment, initial or continued, of the funds of the trust in the concern in question for any period during the previous year. An investment or the continuance of the investment during any part of the previous year is the sine qua non for the applicability of this clause. Non-withdrawal of the profits or the retention thereof beyond the end of the previous year is thus outside the pale of Sub-section (h) while dealing with the assessment for the year corresponding to the aforesaid previous year. The conditions referred to in Clause (h) are cumulative all of which have to be satisfied before the deeming provision in Sub-section (2) could be attracted, and the assessee held to have used or applied the income of the trust for the benefit of a person referred to in Sub-section (3). The assessee cannot, therefore, be deprived of the exemption under Section 11 relying on Clause (h) above quoted for the years 1975-76 and 1976-77, merely because the share of profits was withdrawn from the firm only after the end of the previous year.
13. Standing counsel for the Department, however, pleaded that the share of profits due to a partner accrued from day to day, and the assessee-trust should periodically withdraw its share of profits without waiting for the end of the accounting period or for audit or settlement of accounts. This argument need not detain us long because, in our view, the crucial ingredient for Clause (h) of Sub-section (2) of Section 13 to apply, is an investment of the funds of the trust in a concern of the nature mentioned. If mere delay in withdrawal of profits by the trust does not ipso facto constitute "investment" of the funds of the trust, the question of profits accruing de die in diem, stressed by standing counsel loses its relevance. Moreover, we shall deal with the point in brief though we do not find any substance in this contention of the Revenue.
14. This question arose for consideration before the Supreme Court in CIT v. Ashokbhai Chimanbhai [19651 56 ITR 42 ; AIR 1965 SC 1343.
Ashokbhai, representing a Hindu undivided family, was a partner in a firm Amrit Chemicals for which the accounting year was the calendar year. The family was disrupted by a deed of partition dated November 12, 1955, and its properties were divided. Ashokbhai was allotted the profits of the firm for the year commencing January 1, 1955, the accounts for which were yet to be made up. An amount of Rs. 21,051 was later received by Ashokbhai as the share of profits for the year 1955, and the question was whether the whole or any portion of this amount was liable to be assessed in the hands of the Hindu undivided family, as having accrued to it before November 12, 1955. In that context, the court observed (at page 46) :
"In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss ; on such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed. But dormant profits cannot be equated with profits charged to tax under Sections 3 and 4 of the Income-tax Act. The concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law. If profits accrue to the assessee directly from the business the question whether they accrue de die in diem or at the close of the year of account has at best an academic significance, but when upon ascertainment of profits the right of a person to a share therein is determined, the question assumes practical importance, for it is only on the right to receive profits or income, profits accrue to that person. If there is no right, no profits will be deemed to have accrued."
15. The observations of Bhagwati J., in E. D. Sassoon and Co, Ltd. v. CIT [1954] 26 ITR 27 (SC), that it would be absurd to suggest that the profits of a company could accrue from day to day or even from month to month were referred to. The working of a company from day to day could certainly not indicate any profit or loss, even its working from month to month could not be taken as a reliable guide for the purpose. It would be only reasonable to determine the profit or loss as the case may be at the end of every year. The court then went on to observe (at page 49) ;
"In the case of a partnership, where by a covenant binding between the partners the accounts are to be made at stated intervals, the right of a partner to demand his share of the profits does not arise until the contingency which by operation of law or under a covenant of the partnership deed gives rise to that right has arisen."
16. In Dulichand Laxminarayan v. CIT [1956] 29 ITR 535 (SC), the court held that it cannot be inferred that whenever a partnership receives gross receipts in respect of a business transaction in which is embedded some profit or loss, that profit or loss results immediately on the gross receipts reaching the partnership to the individual partners in their aliquot shares. Normally, for profits to accrue or arise, there should be a right either under the statute or under a contract between the taxpayer and others which entitles the former to make a demand for those profits.
17. It cannot, therefore, be laid down as an absolute proposition that the right of a partner to receive his share of profits arises from day to day. It depends on the agreement between the parties, and as to when he can demand his share of the profits. This is for the reason that it could not be said at any given point of time during the accounting period, that there is any profit liable to be divided between the partners, the fortunes of the firm fluctuating at different times.
18. What the Supreme Court had held in Ashohbhai's case [1965] 56 ITR 42 has not in any manner been whittled down by the observation in page 376 of the decision in CIT v. Bangalore Transport Co. Ltd. [1967] 66 ITR 373 (SC) (while referring to Ashokbhai's case [1965] 56 ITR 42 (SC) or by Raja Mohan Raja Bahadur v. CIT [1967] 66 ITR 378 (SC) on which counsel for the Revenue laid stress. We are, therefore, of the opinion that the profits of a partnership accrue to a partner when he gets the right to demand the same either under the provisions of the agreement between the parties, or in their absence, under the provisions of the Partnership Act. If this be the position, the contention of counsel for the Revenue that there should be a periodical withdrawal of the profits, on pain of the unwithdrawn amounts being treated as investment in the firm cannot be accepted. It is too much to expect a partner to withdraw amounts by way of profits from day to day when there is no knowing even, whether the firm is making a profit or a loss. That matter will stand crystallised only at the end of the year when the accounts are settled between the partners.
19. But, as mentioned by us earlier, this question is really not of any relevance, the crucial question being whether non-withdrawal of the share of profits from the firm by itself, can amount to "investment". At this stage, we must refer, if only for the purpose of rejection, to a contention raised by standing counsel for the Revenue that the word "invested" in Clause (h) is not of any significance as, according to him, all that is required is that any funds of the trust continued to remain in any concern, whether it was an investment or not. He would read the expression "or continue to remain" as qualifying the expression "in any concern", and not the word "invested". Such a reading, to say the least, does violence to the plain language of the provision and we reject the invitation of the Revenue to read Clause (h) in this fashion. We are satisfied that Sub-clause (h) requires that the funds of the trust are or continue to remain, invested in any concern of the nature mentioned therein. So the question is, what is "investment" ?
20. An investment popularly means every application of money which is intended to fetch a 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 Tax Commissioner v. Australian Mutual Provident Fund Society [1902] 22 NZLR 445, as extracted in Law Lexicon by Venkataramaiya). The High Court of Madras had occasion to consider the meaning of the term "investment" in CIT v. Nachimuthu Industrial Association [1982] 138 ITR 585. The facts of that case are apposite. The assessee, a private limited company incorporated for promoting charitable objects, was a partner in several firms. The assessee retired from those firms, but the firms did not have adequate cash resources to pay the amounts due to the" assessee on the settlement of accounts by way of contribution to capital and share of profits. The amounts due were, therefore, transferred to current accounts in the name of the assessee in the respective firms. The exemption under Section 11 having been denied, the question arose whether the retention of the amounts in the firms constituted investment of the funds of the assessee in those firms. After referring to various decisions on the point, the court observed (at page 593) :
" From the above, it is clear that in order to constitute an investment, the moneys must be laid out in such a manner as to acquire some species of properties which would bring an income to the investor. Viewed in that sense, we are unable to conclude that there has been an investment of any moneys by the assessee with any of the partnership firms. The various partnership firms are bound to return the moneys due and payable to the assessee-firm as and when demanded. It has not been found either by the Tribunal or by the lower authorities that the said moneys have been invested by the assessee-firm as understood in business parlance with a view to obtain any profit. It necessarily follows that Clause (h) of Sub-section (2) of Section 13 is equally not attracted."
21. In CIT v. Birla Charity Trust [1988] 170 ITR 150 (Cal), it was observed that 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. The High Court of Madras took a similar, view in .
22. The retention of the share of profit of the trust in the firm, Beena Enterprises, does not, in the circumstances, constitute any investment, which as we have mentioned earlier, is a necessary ingredient of Section 13(2)(h).
23. We are of the opinion, for the various reasons stated above, that the assessee-trust is not deprived of the benefit of the exemption under Section 11 for the year 1975-76 by virtue of Section 13(2)(h) of the Act. The Tribunal was justified in setting aside the order of the Commissioner of Income-tax under Section 263 denying such exemption to the assessee.
24. Counsel for the Department contended however, that the view taken by the Tribunal against the assessee for the year 1976-77, applied with equal force for 1975-76 also. The Tribunal had overruled this plea on the ground that the Commissioner of Income-tax had set aside the order of assessment only on the ground that delayed withdrawal of the profits by the assessee constituted "investment". The Tribunal held that the Department was not entitled to support the Commissioner's order in revision under Section 263, on any other ground, a view for which they drew support from the decision of the Punjab and Haryana High Court in CIT v. Jagadhri Electric Supply and Industrial Co. [1983] 140 ITR 490. That was a case where the order of the Income-tax Officer allowing continuation of the registration of a firm was cancelled by the Commissioner of Income-tax in exercise of his powers under Section 263 on the ground that the firm was not entitled even to registration, because the share allocation actually adopted in the books was different from that mentioned in the deed of partnership and that the constitution of the firm had changed and, therefore, the firm could not be granted renewal of registration. The Appellate Tribunal found these premises to be erroneous and allowed the assessee's appeal. But the Tribunal observed that the Income-tax Officer's order was erroneous for another reason, mentioned by it. The question arose whether it was competent for the Tribunal to sustain the order of the Commissioner under Section 263 on grounds other than those taken by the Commissioner. The court held (at page 502) :
"The jurisdiction vested in the Commissioner under Section 263(1) of the Act is of a special nature or, in other words, the Commissioner has the exclusive jurisdiction under the Act to revise the order of the Income-tax Officer if he considers that any order passed by him was erroneous in so far as it was prejudicial to the interests of the Revenue. Before doing so, he is also required to give an opportunity of being heard to the asses-see. If after hearing the assessee in pursuance of the notice issued by him under Section 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed will contain the grounds for holding the order of the Income-tax Officer to be erroneous, as contemplated under Section 263(1) of the Act. Feeling aggrieved therefrom, the assessee may file an appeal against the same, as provided under Section 253(1)(c) of the Act. In the memorandum of appeal, the assessee is supposed to attack the order of the Commissioner and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the ground available to the Commissioner to pass an order under Section 263(1) of the Act, then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the Act. It is all the more so, because the Revenue has not been given any right of appeal under the Act against an order of the Commissioner under Section 263(1) of the Act. In case he proceeds thereunder after hearing the assessee in pursuance of the notice given by him, then the appeal filed by the assessee under Section 253(1)(c) of the Act cannot be treated on the same footing as an appeal against the order of the Appellate Assistant Commissioner passed in assessment proceedings, where both the parties have been given the right of appeal. In this view of the matter, the argument raised on behalf of the Revenue, that, in appeal, the Tribunal may uphold the order appealed against on grounds other than those taken by the Commissioner in his order, is not tenable. Under Section 263 of the Act, it is only the Commissioner who has been authorised to proceed in the matter and, therefore, it is his satisfaction according to which he may pass necessary orders thereunder in accordance with law. If the grounds which were available to him at the time of the passing of the order do not find a mention in his order, appealed against, then it will be deemed that he rejected those grounds for the purpose of any action under Section 263(1) of the Act. In this situation, the Tribunal, while hearing an appeal filed by the assessee, cannot substitute the grounds which the Commissioner himself did not think proper to form the basis of his order."
25. We are in agreement with this view. In entertaining an appeal from the Commissioner's order what the Tribunal does is to examine whether the said order is sustainable in law and whether it is within the powers conferred by Section 263. Therefore, when the Commissioner has chosen to set aside the order of the Income-tax Officer only on a particular ground, the Tribunal is not entitled to go beyond and sustain the order of the Commissioner on grounds different from that relied on by the Commissioner himself. Even otherwise, the question whether there was an investment of the funds of the trust in this case, during any part of the previous year is basically a question of fact on which the Commissioner had not rendered any finding for the year 1975-76. The finding of the Income-tax Officer was to the contrary and in favour of the assessee. The Tribunal was, therefore, justified in not entertaining this plea of the Department and in holding that the assessee was entitled to the benefit of the exemption after setting aside the order of the Commissioner. The decision of the Tribunal for 1975-76 has therefore only to be affirmed.
26. We now come to the year 1976-77. Here, the assessee is at the losing end before the Tribunal. The assessee's entitlement to the exemption again depends on the construction of Clause (h) of Sub-section (2) of Section 13. Thereunder, the exemption under Section 11 will be denied if any funds of the trust are invested during any period of the previous year in any concern in which a person referred to in Sub-section (3) had substantial interest. The assessee-trust had contributed a capital of Rs. 5,000 out of Rs. 30,000 to the firm, Beena Enterprises. The Tribunal held that this capital contribution of Rs. 5,000 attracts Clause (h) and, therefore, the assessee is not entitled to the exemption. The assessee's contention is that capital contribution to a firm in which it is a partner, is not an "investment" and secondly, that the "concern" contemplated by Clause (h) does not include a firm in which the assessee-trust is a partner. It is argued that the scheme of Clauses (a) to (h) contemplates the existence of a third party who is benefited by the assessee's investment and the like, one to which the assessee is a stranger. A partnership in which the trust is a partner is the trust itself, it is part of it and, therefore, it is not a concern, contribution to whose capital will attract the exclusionary Clause (h)..
27. The question is whether this is correct. Counsel, inter alia, referred us to the decisions of the Supreme Court in CIT v. R.M. Chidambaram Pillai [1977] 106 ITR 292 and Malabar Fisheries Co. v. CIT [1979] 120 ITR, 49 and of a Full Bench of this court in CWT v. Kunhali Varma (Kaethikamal Kumari Varma) [1989] 179 ITR 543, to emphasise that a firm is not a legal person, distinct from its partners, but a plurality of persons, and, therefore, there can be no dealings between a partner and the firm as such. The business of the firm is the business of the partners, and its profits their profits. The assessee contends on the strength of these decisions that the contribution of capital to a firm in which it is a partner is not hit by Section 13(2)(h).
28. We have already referred to the meaning of the term "investment" as the laying out of money with a view to fetch a return. Contribution of capital to a firm is made ordinarily with the expectation of deriving a profit from the venture. It is not laid out for any other purposes. It cannot, therefore, be termed as anything other than an investment. In fact, in common parlance, the expenditure of money for the purpose of a business is always referred to as investment in the business. We are unable to agree with counsel for the assessee that contribution of share capital to a firm is not an "investment" made by the partner.
29. Before dealing with the other points raised, we shall refer to a subsidiary contention that the investment contemplated by Clause (h) is an investment which will generate an income by itself without any other effort, and not income earned by any business activity carried on with the aid of the money invested. It refers to fixed deposits and such other investments which will by that very fact, and without anything more, fetch a return or income regularly ; something which fetches unearned income and not earned income--says counsel. But we do not find any warrant for limiting the meaning of the term "investment" in Clause (h) in this fashion ; particularly when loans to such concerns are covered by Clause (a) of Sub-section (2) of Section 13. The decision of the Supreme Court in Nawn Estates (P.) Ltd. v. CIT [1977] 106 ITR 45 relied on by counsel does not lay down any such proposition. We overrule the contention.
30. The main thrust of counsel's arguments was, however, that contribution of capital to a firm of which the trust is a partner is not hit by Clause (h) for the reason that the concern contemplated therein is a stranger concern and not a concern in which the trust is itself a partner. We are not able to join counsel for the assessee to draw inspiration from Clauses (a) to (g) of Sub-section (2) of Section 13 to hold that the firm or institution in which the trust invests should be a total stranger for the purpose of Clause (h) as well. What counsel wants is to read the expression "any concern" as meaning "any concern in which the trust is not a partner".
31. He wants to read an exemption into the section that the concern therein means something other than a partnership of which the trust is a partner. Apart from the inability of this court to read words into the section which are not there, which is part of the legislative, and not judicial process, we are of the opinion that the words "any concern" are comprehensive and embrace every concern which satisfy the qualification of being one in which any person referred to in Sub-section (3) has a substantial interest. If the concern in which the funds of the trust are invested satisfies this condition, that is sufficient to bring it within the ambit of Clause (h). We do not find any ambiguity in the language of the section which requires us to adopt an interpretative process and read it in the way in which the assessee wants it. The question of applying liberal or strict rules of construction, as laid down in certain decisions relied on by either side, will arise only if there is any ambiguity which requires to be resolved. None such exists here.
32. What Section 13(1)(c)(ii) does is to fetter the exemption provided by Section 11 and to deny it to the assessees who have used or applied their income for the benefit of any person referred to in Sub-section (3). Sub-section (2) of Section 13 creates a fiction as to when the income of the trust can be stated to be used or applied for the benefit of such a person. This fiction has to be given its full effect. Clause (h) itself is clear and specific in its terms and so far as we could see, without ambiguity in it. Therefore, we hold that "any concern" in Clause (h) refers also to a concern in which the trust is a partner, provided it is one in which any person referred to in Sub-section (3) has a substantial interest and the funds of the trust are, or continue to remain, invested in that concern during any period of the previous year.
33. It may be true as pointed out by counsel for the assessee, that a trust may be prevented from venturing into profitable activities by entering into partnership with persons in whom it has confidence, on pain of its forfeiting the exemption under Section 11. That, states counsel, will be the result of accepting the Departmental view. But then, the legislative intent has primarily to be gathered from the words of the section. The very purpose of Section 13 is to prevent evasion of tax by the creation of spurious trusts. If Parliament limits the exemption to certain classes of trusts satisfying certain conditions, it is not permissible for this court to expand the exemption de hors the provisions or by reading words therein which are not there. It may be that genuine trusts like the assessee also suffer denial of exemption, but that is no reason to deviate from the plain language of the statute. We cannot, therefore, accept the contentions of the assessee regarding the applicability of Section 13(2)(h) to cases where the trust contributes capital to a firm of which it is a partner.
34. A feeble contention was raised that the capital contribution of Rs. 5,000 is less than five per cent. of the capital of Beena Enterprises and, therefore, the case is covered by Sub-section (4) of Section 13. We cannot agree. The capital of Beena Enterprises was Rs. 30,000 and the contribution of the trust is Rs. 5,000, which exceeds five per cent. The fact that further amounts were occasionally pumped in for the day to day working of the firm will not make those amounts capital for the purpose of Sub-clause (4). We overrule this plea.
35. The assessee-trust is not, therefore, entitled to the benefit of the exemption under Section 11 for the year 1976-77. The order of the Tribunal is correct for this year.
36. The decision rendered by us in Income-tax References Nos. 472 to 474 of 1982 for the year 1975-76 must govern Income-tax Reference No. 482 of 1982 also where the facts are parallel with the Income-tax Officer exempting the income of the assessee under Section 11, for the year 1975-76, the Commissioner of Income-tax setting aside the said order under Section 263 of the Act on the ground of alleged delayed withdrawal of the assessee's share of profits from the two firms Chandrika Enterprises and Lathika Enterprises, and the Tribunal in turn setting aside the order of the Commissioner on precisely the same grounds as those in the case of the Sree Narayana Chandrika Trust. For the reasons stated by us in Income-tax References Nos. 472 to 474 of 1982, Income-tax Reference No. 482 of 1982 has also to be answered in favour of the assessee.
37. Accordingly, we dispose of the references, answering the questions referred to us for the year 1975-76 in favour of the assessees and against the Revenue, and the questions referred for the year 1976-77 against the assessee and in favour of the Revenue.
38. There will be no order as to costs.