Law:

Section:

Section 13 of the Income-tax Act, 1961 - Charitable or religious trust - Denial of exemption - Assessment years 1976-77 and 1977-78 - Whether bonus shares received by a trust cannot be said to be funds invested by trust for purposes of section 13(4) - Held, yes - Whether it is not possible to read section 13(3) as bringing within fold of term prohibited persons, an HUF, which is a taxable entity by itself - Held, yes - Whether even if property of trust is being held for benefit of yet to be born person, it cannot be said that requirement of section 13(2)(h), read with section 13(3), is not met - Held, yes - Whether death of a spouse would result in ceasing of legal capacity of that spouse - Held, no Interpretation of statutes : Rule of strict interpretation FACTS The assessee-trust was founded by one 'N', who was the Managing Director of a company 'M'. It purchased 1,08,082 shares of 'M'. In addition the assessee also received 5,06,076 bonus shares of 'M'. The assessee filed its return disclosing certain dividend income and claimed exemption of same. The Assessing Officer found that the shares held by the assessee in 'M', including the bonus shares and shares received by way of donation, were more than 5 per cent of the total shareholding of 'M' and, therefore, the benefit of section 13(4) was not available to it. The Assessing Officer also scrutinized the pattern of shareholding in 'M' held by a certain category of persons and found that six HUF's, having members of 'N' family, five trusts settled by N's family members for benefit of unborn persons and future spouses, and one 'B' along with his three sons held 7,30,849, 3,00,000 and 1,53,530 shares respectively and that if the said shares were added to the shares held in 'M' by the assessee, then the holding of the prohibited category of persons in terms of section 3(2)(h), read with section 13(3), would exceed 20 per cent of the total paid up share capital of 'M', which would make the assessee's income ineligible for exemption in terms of sections 11 and 12. On appeal, the Commissioner (Appeals) held that the bonus shares had to be excluded for computing the percentage of the assessee's shareholding in 'M'…

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