COMMISSIONER OF INCOME TAX vs. AMBALAL SARABHAI CHARITY TRUST

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ITR/142/1985HC GujaratGJHC24012274198521 September 2000Author: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE D.M.DHARMADHIKARI,HONOURABLE MR. JUSTICE ANIL R. DAVE4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court decided not to answer questions 1 and 2, stating they were incorporated due to an oversight and were not relevant to the present reference. Regarding question 3, the court held that the dividend income of Rs. 1,777/- would need to be bifurcated. Dividend received on shares donated to the assessee and shares received by way of bonus would be exempt from tax, as Section 13(2)(h) would not apply to such shares. Conversely, dividend income received on shares purchased by the assessee would be subject to tax under Section 13(2)(h). Since the judgment did not contain the necessary details to ascertain the exact amounts for each category of shares, the court left it to the Tribunal to ascertain the relevant facts and pass appropriate orders. The operative direction was to remand the matter to the Tribunal for factual determination.

What were the facts?

This case involves an Income Tax Reference filed by the revenue against Ambalal Sarabhai Charity Trust for assessment year(s) not specified. The High Court of Gujarat was asked to decide three questions referred under Section 256(1) of the Income Tax Act, 1961. The court noted that questions 1 and 2 were incorporated into the present reference due to an oversight, referencing a previous decision in the case of Sarabhai Foundation (ITR No. 557 of 1980). Consequently, the court decided not to answer questions 1 and 2. The dispute primarily revolved around the taxability of dividend income amounting to Rs. 1,777/-.

What were the issues?

The High Court was asked to decide three questions of law: 1. Whether at least 20% of the voting power must be exercisable by the assessee or persons referred to in sub-clause (3) of Section 13 of the Income Tax Act, 1961, in light of Explanation III to Section 13. 2. Whether shares held by a charitable trust could be considered held by the assessee or persons referred to in sub-section (3) of Section 13 of the Act. 3. Whether the assessee was entitled to exemption for dividend income amounting to Rs. 1,777/- Contentions: Assessee: The dividend income received on shares donated to the trust and shares received by way of bonus would be exempt from tax as Section 13(2)(h) would not apply. However, dividend income on purchased shares would be taxable. Revenue: The judgment does not record specific contentions for the revenue on question 3, but the reference itself indicates a dispute over the exemption of dividend income.

Which sections of the Income-tax Act were involved?

Section 13,Section 13(2)(h),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 142 of 1985

For Approval and Signature:

Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE A.R.DAVE

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO --------------------------------------------------------------

COMMISSIONER OF INCOME TAX

Versus

AMBALAL SARABHAI CHARITY TRUST

-------------------------------------------------------------- Appearance: MR Akil Qureshi with Mr RP BHATT for Petitioner

Mr R. K.Patel with Mr.B./D.Karia for Respondent No. 1

---------------------------------------------------------

CORAM : CHIEF JUSTICE MR DM DHARMADHIKARI and MR.JUSTICE A.R.DAVE

Date of decision: 21/09/2000

ORAL JUDGEMENT

Per Dave, J.:-

At the instance of the revenue, following three questions have been referred for opinion of this court under the provisions of section 256 (1) of the Income tax Act,1961 (hereinafter referred to as `the Act'):

1.

Whether it would be necessary that at least 20% of the voting power is exercisable by the assessee or by the persons referred to in sub clause (3) of section 13 of the Income tax Act, 1961 in view of explanation III to section 13 of the said Act?

2.

Whether the shares held by charitable trust could be said to have been held by the assessee or the persons referred to in sub section (3) of section 13 of the said Act?

3.

Whether the assessee was entitled to exemption of the dividend income amounting to Rs. 1,777/-? received by the assessee, which is Rs. 1,777/- will have to be bifurcated into two parts.

A. The dividend, which was received by the assessee on the shares which were donated to the assessee and shares which were received by the assessee by way of bonus , the provisions of section 13 (2) (h) would not apply and, therefore, the said amount of dividend would be exempted from tax.

B. So far as shares which were purchased by the assessee are concerned, the dividend which the assessee had received thereon would be subject to tax as the said shares would be subject to the provisions of section 13 (2) (h) of the Act.

From the question which has been referred to this court, it is not clear as to how much dividend was received by the assessee on the shares which were donated to the assessee and the shares which were received by the assessee by way of bonus; moreover, it is also not clear as to what was the amount of dividend which the assessee had received on the shares which were purchased by the assessee.

In view of the fact that the details with regard to break-up of the dividend as mentioned above are not available to this court, we answer the question as under:

The dividend which was received by the assessee on the shares which were donated to the assessee and the shares which were received by way of bonus by the assessee, would be exempted as per provisions of the Act and the dividend which was received on the shares which were purchased by the assessee would be subject to the provisions of section 13 (2) (h) of the Act.

We thus answer the question as stated above and leave it to the Tribunal to ascertain the relevant facts and pass appropriate orders. Reference is accordingly disposed of in view of the answer stated above with no order as to costs.

(D. M. Dharmadhikari, C.J.)

(A. R. Dave,J.) parekh

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