COMMISSIONER OF INCOME TAX vs. AMBALAL SARABHAI TRUST NO.30

ITR/301/1985HC GujaratGJHC24012429198505 March 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
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What were the facts?

The assessee, Ambalal Sarabhai Trust No. 30, is challenging the Revenue's actions for the assessment year 1974-75. The assessee filed a refund application declaring a loss of Rs. 753/- after selling shares for a net consideration of Rs. 13,226/-. The assessee claimed that the sale proceeds were kept as fixed deposits, attracting Section 11(1A) of the Income-tax Act, 1961. The Income-tax Officer (ITO) rejected this, calculating capital gains under Section 52(2). The ITO also invoked Section 13(3) to forfeit exemption on dividend income, citing an investment in a concern where a person under Section 13(3) had a substantial interest. The appellate authority held Section 11(1A) applicable and that Section 13(2)(h) was not attracted. The Tribunal upheld these findings, referencing its own prior decisions.

What did the High Court hold?

The High Court answered both questions in favour of the assessee and against the Revenue. For the first question, the Court referred to its own prior decision in CIT vs. Ambalal Sarabhai Trust No. 3 (173 ITR, 683), which held that capital gains from the sale of shares were exempt under Section 11(1A). The Court found the present case identical and thus answered the question in the affirmative. For the second question, the Court relied on its judgment in CIT vs. Insaniat Trust (173 ITR, 248). This earlier decision held that Section 13(2)(h) was not applicable when the assessee Trust did not invest its funds in purchasing the shares, but rather the shares were purchased by the donor and then gifted to the Trust. Consequently, the dividend income was entitled to exemption. The Court answered the second question in the affirmative, against the Revenue and in favour of the assessee. The reference was disposed of accordingly.

What were the issues?

The High Court was asked to decide two questions of law referred by the Income-tax Appellate Tribunal: 1. Whether, on the facts and in the circumstances, the Tribunal was right in law in concluding that Section 11(1A) of the Income-tax Act, 1961, was applicable to the sale of shares by the assessee, even though 90% of the unrealised sale proceeds were kept as fixed deposits with the purchasers? 2. Whether, on the facts and in the circumstances, the Tribunal was right in law in concluding that Section 13(2)(h) of the Income-tax Act, 1961, was not applicable to the facts of the case? Assessee's Contentions: The assessee argued that the sale proceeds of shares were kept as fixed deposits, attracting Section 11(1A). They also contended that shares were received by donation and that there was no investment made by trustees in a concern where a person referred to in Section 13(3) had a substantial interest, thus Section 13(2)(h) was not applicable. Revenue's Contentions: The Revenue, through the Commissioner of Income Tax, challenged the Tribunal's findings on both counts, leading to the reference.

Which sections of the Income-tax Act were involved?

Section 11(1A),Section 52(2),Section 13(3),Section 80(L),Section 13(2)(h)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 301 of 1985

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question 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?

The order continues below.

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