COMMISSIONER OF INCOME TAX vs. VIKRAM A SARABHAI TRUST NO.2,

ITR/302/1985HC GujaratGJHC24012430198505 March 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
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What were the facts?

The assessee, Vikram A Sarabhai Trust No. 2, filed a refund application for assessment year 1974-75, declaring a loss of Rs. 21,770/-. The Trust sold shares for Rs. 95,128/- and claimed that the sale proceeds were kept in fixed deposits with the purchasers, attracting the provisions of section 11(1A) of the Income-tax Act, 1961, thus exempting capital gains. The Income-tax Officer (ITO) rejected this claim, applied section 52(2), and also forfeited dividend income exemption under section 13(3). The appellate authority held section 11(1A) applicable and that the assessee was not hit by section 13(2)(h). The Income-tax Appellate Tribunal (ITAT) upheld the applicability of section 11(1A) and the exemption from section 13(2)(h), following its own prior decisions.

What did the High Court hold?

The High Court, while considering the reference, noted that it had previously opined on an identical question in CIT vs. Ambalal Sarabhai Trust No. 3 (173 ITR 683). In that case, the Court had held that capital gains resulting from the sale of shares were required to be exempted under section 11(1A) of the Act. For the same reasons as given in the Ambalal Sarabhai Trust No. 3 judgment, the High Court answered the question in the affirmative, in favour of the assessee and against the Revenue. The Court did not explicitly address the arguments related to section 13(3) or section 80(L) in this specific judgment, as the reference question focused solely on section 11(1A). The reference was disposed of accordingly.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the provisions of section 11(1A) of the Income-tax Act, 1961, were applicable to the sale of shares by the assessee, and that no capital gains tax was chargeable, despite 90% of the sale proceeds remaining unrealised and kept as fixed deposits with the purchasers? (Question of law) Assessee's Contention: The assessee argued that the sale proceeds were kept in fixed deposits with the purchasers, attracting the provisions of section 11(1A) of the Act, thereby exempting capital gains. The assessee also claimed shares were received by donation and no investment was made in a concern where a person referred to in section 13(3) had a substantial interest. Revenue's Contention: The Revenue, through the ITO, rejected the applicability of section 11(1A) and proceeded to calculate capital gains under section 52(2). The ITO also invoked section 13(3) to forfeit dividend income exemption and disallowed deduction under section 80(L). The ITAT, in appeal, followed its earlier decisions in ITO vs. Ambalal Sarabhai Trust No. 3 and CIT vs. Insaniat Trust.

Which sections of the Income-tax Act were involved?

Section 11(1A),Section 52(2),Section 13(3),Section 80(L),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 302 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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