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income-tax Officer Vs. Narender Mohan Foundation - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1982)1ITD490(Delhi)
Appellantincome-tax Officer
RespondentNarender Mohan Foundation
Excerpt:
.....year 1976-77 ended on 31-3-1976 during this year the trustees were major kapil mohan, smt. comilla mohan, shri sagar suri and shri s. mohinder singh bedi. the trustees run a hospital at mohan nagar, district ghaziabad (up). the main income of the trust is from dividends and donations.2. mohan meakin breweries ltd. has issued 85,08,479 shares out of which 11,25,418 are held by the assessee-trust and 27,64,856 shares are held by the following persons : list a shares heldname of the personlate shri n.n. mohan 1,59,709smt. ram rakhi mohan 19,377major kapil mohan 65,254late col. v.r. mohan 39,960shri sukh dev mohan 1,30,000shri g. sagar suri 1,499smt. comilla mohan 79,848shri b.s. mohan 18,902shri hari chand mohan 25shri b.d. mohan 919smt. neeta rani bali 21,548shri rakesh mohan 85,000shri.....
Judgment:
1. The assessee Narender Mohan Foundation is a public charitable trust created by Late Shri N.N. Mohan in 1964. The objects of the trust include relief to the poor, education, medical relief and advancement of any other objects of general public utility. The previous year for the assessment year 1976-77 ended on 31-3-1976 During this year the trustees were Major Kapil Mohan, Smt. Comilla Mohan, Shri Sagar Suri and Shri S. Mohinder Singh Bedi. The trustees run a hospital at Mohan Nagar, District Ghaziabad (UP). The main income of the trust is from dividends and donations.

2. Mohan Meakin Breweries Ltd. has issued 85,08,479 shares out of which 11,25,418 are held by the assessee-trust and 27,64,856 shares are held by the following persons : LIST A Shares heldName of the personLate Shri N.N. Mohan 1,59,709Smt. Ram Rakhi Mohan 19,377Major Kapil Mohan 65,254Late Col. V.R. Mohan 39,960Shri Sukh Dev Mohan 1,30,000Shri G. Sagar Suri 1,499Smt. Comilla Mohan 79,848Shri B.S. Mohan 18,902Shri Hari Chand Mohan 25Shri B.D. Mohan 919Smt. Neeta Rani Bali 21,548Shri Rakesh Mohan 85,000Shri Pankaj Mohan 96,346Shri Hemant Mohan 37,250Shri Vinay Mohan 50,000Smt. Kaushalya Devi 2,835Smt. Pushpa Mohan 63,125Smt. Usha Mohan 22,038Shri B.D. Bali 3,621Shri Jagdish Mohan 2,571Smt. Shanti Devi 7,973Shri Satish Mohan 1,642Shri Prem Mohan 175Shri R.D. Bali 175Shri Sanjiv Bali 500Shri Rajiv Bali 450Shri (Dr.) Birender Singh 7,000Smt. Shyama Suri 2,299Shri K.S. Dutta 2,745Mrs. Seeta Rani Dutta 500Shri Ravi Dutta 500M/s. Trade Links (P.) Ltd. 1,98,235M/s. National Cereals Products Ltd. 4,000(A) N.N. Mohan & Sons (HUF) 2,62,413 V.R. Mohan & Sons (HUF) 78,313 Kapil Mohan (HUF) 1,00,000 Sukhdev Mohan & Sons (HUF) 1,15,659 Comilla Mohan Rakesh Mohan (HUF) 95,982 Comilla Mohan Pankaj Mohan (HUF) 78,482 7,38,849 shares pledged with a bank 2,50,000(C) Km. Nilma Mohan 12,025 Km. Poonam Mohan 12,500 Km. Molina Mohan 25,000 Km. Seema Mohan 16,500 Bakshi Sampuran Singh 64,485 Shri Dalbir Singh 29,915 Shri Ranbir Singh 29,615 Shri Kulbir Singh 29.515 2,19,555(D) Shares held by banks to whom the shares or the trusts for obtaining loans 4.38,431 16,38,835 3. In view of the aforesaid shareholding of different persons in Mohan Meakin Breweries Ltd., the ITO examined the position whether the provisions of Section 13(2)(h), 13(3), and Explanations 1 and 3 thereto, of the Income-tax Act, 1961 ("the Act"), were applicable. In other words, the ITO ascertained the position whether shareholding of the author of the trust and his relatives in Mohan Meakin Breweries Ltd. was 20 per cent or more. There was no dispute before the ITO that 11,26,021 shares were to be considered for purposes of Section 13(2)(h). In respect of the shares mentioned at items (A), (B) and part of shares mentioned in item (C) and item (D) of List B aforesaid, it was pleaded that these shares should be excluded while considering the investment of the founder and his relatives. The reason for excluding shares at item (A) of List B was that HUFs are not relatives of an individual. In respect of shares at item (B) of List B it was pleaded that the trustees were holding shares for urborn children and future spouses of the members of the Mohan family and as the beneficiaries were not even in existence such shares could not be considered to have been owned beneficially for any person.

4. Shri Sampuran Singh, Dalbir Singh and Kulbir Singh are the lineal descendants of the sister of the spouse of the author of the trust and it was submitted that as after the death of Shri N.N. Mohan in July 1969, Smt. Ram Rakhi Mohan ceased to be the spouse of the author of the trust, her shares and shares of any relatives tracing relationship through her should not be considered to be the holding of the relatives of the spouse of the author of the trust. Shares of Smt. Rakhi Mohan are included in List A. The ITO did not accept any of the arguments raised by the assessee. He held that all the disqualifying conditions mentioned in Section 13(2)(h) were satisfied and, accordingly, the income of the trust was not exempt under Section 11, The assessee's submission before the ITO was that out of 11,25,418 shares held by the trust itself, 10,17,337 shares (5,11,261 shares received as donations and 5,06,076 shares received as bonus shares) should be excluded as these shares could not be considered as "invested in a concern" as required under Section 13(4) and, therefore, the balance investment of 1,08,081 shares was less than 5 per cent of the total shares of Mohan Meakin Breweries Ltd. This contention was not accepted by the ITO. The ITO held that the funds invested by the trust in Mohan Meakin Breweries Ltd. exceeded 5 per cent of the capital of the company and, therefore, the benefit of Section 13(4) will not be available to the trust.

5. Against the loss of Rs. 1,21,152 shown in the return of income the total income from dividends (Rs. 6,75,001) and voluntary contributions (Rs. 5,704) was determined at Rs. 6,80,705.

6. Aggrieved by the order of the ITO, the assessee filed an appeal to the Commissioner (Appeals). It was first argued that 10,17,337 shares (5,11,261 shares received as donations and 5,06,076 received by way of bonus shares should be excluded from the holding of 11,25,418 shares and thereafter the investment in balance 1,08,081 shares will be less than 5 per cent of the total number of shares issued by Mohan Meakin Breweries Ltd. It was submitted that receipt of shares by way of donations or as bonus on such shares did not involve any investment on the part of the trust and, therefore, for working out the ratio of funds invested by the assessee-trust, such shares should be excluded.

In support of this argument reliance was placed on the following orders of the Tribunal: - Order dated 2-6-1977 of Delhi Bench "C" in IT Appeal Nos. 5333 and 5334 (Delhi) of 1975-76 in the case of Sir Shri Ram Foundation.

- Order dated 7-10-1977 of Delhi Bench "B" in IT Appeal No. 827 (Delhi) of 1977-78 in the case of Sir Sobha Singh Public Charitable Trust.

- Order dated 24-6-1977 of Bombay Bench 'B' in WT Appeal Nos. 841 and 842 (Bom.) of 1974-75 with some other cases.

The Commissioner (Appeals) accepted this argument and held that the investment of the trust in Mohan Meakin Breweries Ltd. was 1,08,081 shares which was about 1.3 per cent of the total capital of the concern and this was less than 5 per cent. The assessee was, thus, entitled to the benefit of Section 13(4).

7. It was next argued before the Commissioner (Appeals) that the prohibited category of persons mentioned in Section 13(3) did not have substantial interest during this assessment year in Mohan Meakin Breweries Ltd. in which funds of the assessee-trust also continued to remain invested and, therefore, the provisions of Section 13(2)(h) were not applicable. The case of the ITO was that 27,64,856 shares of Mohan Meakin Breweries Ltd. were held by the prohibited category of persons and this holding exceeded 20 per cent of the total shares issued by the said concern. On behalf of the assessee it was argued that the shareholding of the prohibited category of persons in the said concern was only 9,26,352 shares [11,26,021 minus 1,59,709 (in the name of late N.N. Mohan) minus 39,960 (in the name of late V.R. Mohan)] and this holding was less than 20 per cent of the total shares issued by Mohan Meakin Breweries Ltd. The Commissioner (Appeals) did not accept the assessee's contention that 1,59,709 shares in the name of late N.N.Mohan and 39,960 in the name of late V.R. Mohan should be excluded from the shareholding of persons mentioned in Section 13(3) because the legal as well as the beneficial ownership of these shares, on the death of the aforesaid two persons, passed to persons mentioned in Section 13(3). The Commissioner (Appeals) did not accept the assessee's argument that till the estate of late N.N. Mohan and late V.R. Mohan was administered the shares standing in their names should not be taken into account for purposes of Section 13(2)(h).

8. It was next argued that 7,30,849 shares held by six HUFs should not be considered for purposes of Section 13(2)(h) because the HUFs were separate entities and shares held by the HUFs could not be considered the shares held by their individual members. It was explained that during the existence of a HUF it cannot be predicated as to what is the individual share of a member in the assets of the HUF. The Commissioner (Appeals) accepted this argument and held that 7,30,849 shares should not be taken into account for purposes of Section 13(2)(h).

9. It was next argued that 3,00,000 shares held by trusts for unborn children and future spouses of the members should not also be taken into account for purposes of Section 13(2)(h). The reason advanced was that the trusts were separate assessees, the authors of the trusts could not revoke the trusts, and a trust could not be equated with either its founder or its trustees. The beneficiaries of the trusts were unknown and, therefore, it could not be said that the shares held by the trusts were held beneficially for any person mentioned under Section 13(3). The Commissioner (Appeals) observed that the trusts as such whether public or private did not find a place in Section 13(3).

He accepted the assessee's contention and held that 3,00,000 shares held by trusts for unborn children and future spouses of members of Mohan family should not be taken into account for purposes of Section 13(2)(h).

10. Out of the block of 2,19,555 shares the inclusion of the shareholding of the following persons only was objected to :Bakshi Sampuran Singh 64,485Shri Dalbir Singh 29,915Shri Ranbir Singh 29,915Shri Kulbir Singh 29,215 Bakshi Sampuran Singh is the husband of the sister of Smt. Ram Rakhi Mohan, widow of late N.N. Mohan, who died in 1969. The other three persons are sons of Bakshi Sampuran Singh. For the inclusion of these shares for purposes of Section 13(2)(h) the ITO had relied on Sub-clauses (vi) and (vii) of Explanation 1 to Section 13. It was argued that after the death of late N.N. Mohan, Smt. Ram Rakhi Mohan did not remain a spouse and, therefore, the shareholding of the aforesaid persons was not covered by Sub-clauses (vi) and (vii) of Explanation 1 to Section 13. It was submitted that the term "relative" was used in Explanation 7 in a very wide and extended term and there appeared to be very little scope for giving the term "spouse" also used in Explanation 1 a further extended meaning. For the argument that the term "spouse" should be given a strict construction reliance was placed on the judgments in CIT v. Mani Lal Dhanji [1962] 44 ITR 876 (SC) and CIT v. Keshav Lal Lallubhai Patel [1965] 55 ITR 637 (SC). For the meaning of the term "spouse" reference was made to the judgment in Philip John Plasket Thomas v. CIT [1963] 49 ITR 97 (SC) and the judgment in Vinodkumar Ratilal v. CIT [1975] 100 ITR 564 (Guj.). The Commissioner (Appeals) accepted this contention and held that after the death of late Shri N.N. Mohan, Smt. Ram Rakhi Mohan did not remain a spouse and, therefore, the shareholdings of Bakshi Sampuran Singh and his three sons was not to be considered for purposes of Section 13(2)(h).

11. It was next argued that 3,88,431 shares (after excluding 50,000 shares from 4,38,431 shares) pledged with the banks by the following persons, should not be considered for purposes of Section 13(2)(h) :Shri Kapil Mohan 36,846Trade Links Ltd. 2,79,474U.R. Mohan and Smt. Comilla Mohan 72,111 The fact that these shares were beneficially held by the aforesaid persons was admitted but the argument raised was that these shares were the property of the banks with whom these had been pledged and since the banks were not covered by Section 13(3), these shares should be excluded from consideration under Section 13(2)(h). This contention was not accepted because the dividend income from these shares was received by the aforesaid persons and they were the beneficial holders of shares.

12. Thus the Commissioner (Appeals) held that 11,85,079 shares (7,30,849 + 3,00,000+1,54,230) were not to be considered for purposes of Section 13(2)(h). The balance shares held by prohibited category of persons were 15,79,777 (27,64,856-11,85,079) and as this holding was less than 20 per cent of the total number of shares, viz., 85,08,479, issued by Mohan Meakin Breweries Ltd., the trust could not be denied exemption under Section 11 or 12 of the Act. In this view of the matter the other contentions raised by the assessee were not dealt with by the Commissioner (Appeals).

13. Aggrieved by this order of the Commissioner (Appeals), the revenue has filed this appeal and the following grounds have been raised : 1. On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals)-IX was not justified in holding that the shares held by HUFs (7,30,849), shares held by trustees (3,00,000) and shares held by relatives (1,54,230) were liable to be excluded from the list of shares held by prohibited persons as envisaged under Section 13(3) of the Income-tax Act, 1961.

2. On the facts and in the circumstances of the case, Commissioner of Income-tax (Appeals)-IX was not justified in holding that the exemption available under Section 11 or 12 could not be denied to the assessee-trust in respect of any sources of income.

During the course of hearing the learned departmental representative submitted the following additional ground of appeal, which has been admitted after hearing the learned representatives of both the sides : On the facts and in the circumstances of the case, the Commissioner (Appeals) erred in holding that the exemption under Sections 11 and 12 of the Income-tax Act was available to the assessee in respect of dividend income relating to shareholdings of 10,17,337 shares.

14. We have heard the learned representatives of both the sides. The assessee-trust has sought exemption of its income under Sections 11 and 12 but this exemption was denied by the ITO as, according to him, the funds of the trust remained invested in Mohan Meakin Breweries Ltd. in which the persons mentioned in Section 13(3) had substantial interest and, therefore, the provisions of Section 13(2)(h) were applicable. The point for consideration before us is whether the provisions of Section 13(2)(h) are applicable to the case of this trust. The other provisions which require consideration are Sections 13(3), 13(4) and Explanations 1 and 3 to Section 13.

15. We may first deal with 11,25,418 shares of Mohan Meakin Breweries Ltd. held by the trust out of the total issue of 85,08,479 shares by the said company, with a view to ascertain whether the funds of the trust invested in the said company exceed five per cent of the capital of the said company. It is not controverted before us that 5,11,261 shares were received by the trust as donations and 5,06,076 shares were received as bonus shares on the donated shares. The question whether shares received as donations by a trust are to be considered as investment of funds of a trust or not have been considered by the Tribunal in the following cases : Special Bench "B" Bombay in WT Appeal Nos. 841 and 842 (Bom.) of 1974-75 dated 24-5-1977; Delhi Bench "C" in IT Appeal Nos. 5333 and 5334 (Delhi) of 1975-76 dated 2-6-1977 ; and Delhi Bench "B" in IT Appeal No. 827 (Delhi) of 1977-78 dated 7-10-1977. In these orders it has been held that shares received as donations are not to be considered as investment of the funds of the trust in any concern. In IT Appeal Nos. 5333 and 5334 (Delhi) of 1975-76 there were bonus shares also and those shares were also not considered as investment of the trust in any concern. Respectfully following the aforesaid orders, we hold that 10,17,337 shares do not represent investment of the trust funds in Mohan Meakin Breweries Ltd. Thus, only 1,08,081 shares of Mohan Meakin Breweries Ltd. are held to be out of the investment of the trust funds. The investment is less than 5 per cent of the total shares and, therefore, the benefit of Section 13(4) will be available to the assessee.

16. We may now take up the holding of 7,30,849 shares by six HUFs to determine whether these shares are covered by Section 13(2)(h). The names of the members of different HUFs, as furnished to us during the hearing, are as under : The learned departmental representative submitted that a HUF cannot be shareholder of a company because a HUF is not a legal person. The HUF cannot be a contracting party as the karta of the HUF enters into a contract and not the HUF. For this submission reliance is placed on the judgments in CIT v. Kalu Babu Lal Chanel [1959] 37 ITR 123 (SC), CIT v.Rameshwarlal Sanwarmal [1971] 82 ITR 628 (SC), CIT v. London Machinery Co. [1979] 117 ITR 111 (All.) and CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC). He further submitted that members of the HUFs are covered by the definition of the term "relative" of the founder of the Trust. He relied on Sections 13(3)(a) and 13(3)(d) for his submission that the holding of HUFs cannot be excluded for purposes of Section l3(2)(h). The learned counsel for the assessee reiterated his arguments before the authorities below and submitted that the shareholding of the HUFs was rightly not considered by the Commissioner (Appeals) for purposes of Section 13(2)(h) read with Section 13(3) and Explanation 1.

He submitted that in Explanation 1 to Section 13, the term "individual" was mentioned while denning the term "relative" and, therefore, the HUFs cannot be considered as relatives of an "individual". He submitted that the judgments in CIT v. Rameshwarlal Sanwarmal (supra) and CIT v.C.P. Sarathy Mudaliar (supra) only interpreted the term "shareholder" in the context of Section 2(6A)(e) of the 1922 Act, and these were not at all helpful to the revenue. He also submitted that the judgments in Raghuvanshi Mills Ltd. v. CIT [1961] 41 ITR 613 (SC), CIT v. Jubilee Mills Ltd. [1963] 48 ITR 9 (SC) and Raghuvanshi Mills Ltd. v. CIT [1965] 56 ITR 470 (Bom.) were decided in the context of Section 23A of the 1922 Act and were not helpful in resolving the controversy in this case. He did not dispute the proposition of law laid down in the judgments-CIT v. Kalu Babu Lal Chand (supra) and CIT v. London Machinerty Co. (supra)-but submitted that these judgments were of no assistance to the revenue. He also referred to Explanation 2(i) to Section 64(1) to show that only beneficial ownership should be considered. He also referred to Commentary by Kanga & Palkhivala (7th edn.), page 69.

17. During the course of the hearing we required the learned counsel for the assessee to ascertain from Mohan Meakin Breweries Ltd. the persons in whose names the shares in question stood registered. A certificate dated 8-6-1981 has been filed which reads as under : This is to certify that as on 31-3-1976 the following were registered as shareholders in our register of members in respect of shares noted against their names :4. Smt. Comilla Mohan and Shri Pankaj Mohan, Manager Smt. Comilla Mohan 78,4826. Smt. Comilla Mohan and Shri Rakesh Mohan, Karta Shri Rakesh Mohan 95,982 We are unable to accept the contention of the learned departmental representative that the shares in question do not belong to the respective HUFs, but to the kartas of the respective families in their individual capacities. The stand taken by the revenue is opposed to facts as established by the certificate quoted above. The shares in question stand in the names of HUFs themselves through their respective kartas. Even if the shares had stood only in the names of the kartas or the manager of the HUFs, it would make no difference to the ownership of the shares in law. It is not denied that the HUF's funds of the respective families have been invested in these shares. It, therefore, follows that these shares can belong only to the HUFs and not to the individual kartas as contended by the revenue. The decision of the Supreme Court in Kalu Babu Lal Chand (supra) far from supporting the case of the revenue supports the case of the assessee as could be seen from the following passage appearing at page 130 of the said Report : ... The joint family assets were used for acquiring the concern and for financing it and in lieu of all that detriment to the joint family properties the joint family got not only the shares, standing in the names of two members of the family but also, as part and parcel of the same scheme, the managing directorship of the company when incorporated....

The judgment in CIT v. London Machinery Co. (supra) deals with Section 40(b) and has no relevance to the point at issue. The judgment in CIT v. Rameshwarlal Sanwarmal (supra) shows that shares held by the karta of a HUF could be considered to be shares held by the HUF and consequently the loans made to the said family could be treated as dividend under Section 2(6A)(e) of the 1922 Act. This decision also supports the case of the assessee and not of the revenue. The judgment in C.P. Sarathy Mudaliar (supra) interprets the term "shareholder" in the context of Section 2(6A)(e) of the 1922 Act, for the purpose of bringing to tax certain amounts as deemed dividends. This decision is also not against the assessee because there is no prohibition against members of a HUF acquiring shares in a company with the funds of the family. The term "relative" in relation to a person mentioned in Section 13(3) is defined in Explanation 1 to Section 13. Explanation 1 to Section 13 only enumerates for the purposes of that section the persons who should be regarded as "relative" in relation to an "individual". A HUF is not one of the categories of relatives enumerated in Explanation 1 to Section 13. In Section 64(1) also the term "individual" is used and it is a well-settled proposition of law that Section 64 does not apply to HUFs. Section 13 creates an artificial liability to tax similar to Section 64 and has, therefore, to be construed strictly. In this connection reference may be made to the judgments in Mani Lal Dhanji (supra) and Keshav Lal Patel (supra).

Since the six HUFs do not fall within the prohibited category of persons specified in Section 13(3) read with Explanation 1, the question of applicability of Explanation 3 does not arise. For these reasons we agree with the Commissioner (Appeals) that 7,30,849 shares held by the six HUFs are not to be considered for the purposes of Section 13(2)(h).

18. We now consider the block of 3,00,000 shares settled by members of Mohan family in trust for the benefit of unborn members of the family and future spouses of the members of the family. The learned departmental representative submitted that under Section 153 of the Companies Act, a trust cannot be a legal owner of shares. The trustees were the legal owners though they would hold the shares beneficially for certain persons specified in the trust deeds. He submitted that all these shares were required to be taken into consideration for purposes of Section 13(2)(h). The learned counsel for the assessee submitted that the term "substantial interest in a concern" was defined in Explanation 3 to Section 13 and it was explained therein that the concerned person should own the shares "beneficially". He submitted that as the beneficiaries of these trusts were unknown, the trustees did not hold the shares beneficially for any known persons. He referred to page 69 of the Commentary by Kanga & Palkhivala wherein it has been observed as under : ... Beneficial ownership, and not legal ownership, of shares is the criterion. Thus, the registered holder of even the majority of equity shares would not fall within this definition if he has no beneficial interest in the shares ; and conversely, a person who is beneficially entitled to twenty per cent or more of the equity capital would be covered by this definition even if he is not the registered holder of any shares.

This commentary is under Section 2(32) of the Act wherein the words used are "person who has a substantial interest in the company" and these words are similar to the words used in Explanation 1 to Section 13. He submitted that Explanation 2 to Section 64(1) of the Act was analogous to Explanation 3 to Section 13 and the words used therein also were "owned beneficially by such person...". He further submitted that there was no nexus between Section 153 of the Companies Act and Section 13 of the Income-tax Act. He submitted that a trust could have no relative and, therefore, the shares held by trusts were not to be considered for purposes of Section 13(2)(h). The learned departmental representative, in reply, submitted that the beneficiaries of the trust had to be considered as on 31-3-1976. He referred to the judgment in CWT v. Trustees of H.E.H. Nizam's Family Trust (Remainder Wealth) [1977] 108 ITR 555 (SC) for the submission that the beneficiaries were to be determined as on 31-3-1976.

1. Deed dated 22-5-1973 executed by Mrs. Comilla Mohan for the benefit of the first son of Shri Hemant Mohan in respect of 60,000 shares of Mohan Meakin Breweries Ltd. 2. Deed dated 22-5-1973 executed by Shri Rakesh Mohan for the benefit of the first son of Shri Pankaj Mohan in respect of 60,000 shares of Mohan Meakin Breweries Ltd. 3. Deed dated 18-7-1973 executed by Mrs. Comilla Mohan for the benefit of the first son of Shri Vinay Mohan in respect of 60,000 shares of Mohan Meakin Breweries Ltd. There are two other trust deeds but copies thereof have not been furnished. Major Kapil Mohan is the trustee in respect of deed (7), Smt. Comilla Mohan is the trustee in respect of deed (2) and Shri Rakesh Mohan is the trustee in respect of deed (3). The shares settled on trust have to be held by the trustees and in this respect we accept the submission of the learned departmental representative. Though copies of the other two trust deeds are not before us, the admitted position before us is that members of Mohan family have created those trusts and the members of the same family are trustees also. The trustees of the five trusts are persons covered by Section 13(3) but the further position to be seen is whether they hold the shares "beneficially". The beneficiaries of these five trusts are unknown as the beneficiaries are unborn children and future spouses of the members of the Mohan family. When the beneficiaries are unknown, it cannot be held that the shares held by these trustees are owned beneficially by them. The term "owned beneficially" has to be given a strict construction as Section 13 creates liability to tax by giving extended meaning to the term "person" and "relative". Moreover, the trustees themselves have no beneficial ownership in these 3,00,000 shares. The commentary by Kanga & Palkhivala supports this view. Thus, we hold that the Commissioner (Appeals) was justified in excluding 3,00,000 shares held by live trusts from consideration under Section 13(2)(h).

20. We now take for consideration 1,53,530 shares (wrongly mentioned as 1,54,230 shares) (out of 2,19,555 shares) held by Bakshi Sampuran Singh and his three sons. The learned departmental representative submitted that the entire language of Section 13(3) had to be considered with reference to the author of the trust, namely, late N.N. Mohan.

According to him, relationship was not to be considered only during the previous year relevant to this assessment. He submitted that it would be ridiculous if the view of the Commissioner (Appeals) in this respect was upheld. The learned counsel for the assessee supports the order of the Commissioner (Appeals). In our opinion, the view of the Commissioner (Appeals) in respect of 1,53,530 shares is required to be upheld. We cannot accept the contention of the learned departmental representative that relationship to the founder of the trust is not limited to the previous year relevant to this assessment. Section 1.3(2)(h) uses the words "if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year . .." and Explanation 3 to Section 13 uses the words "... if its shares ... carrying not less than 20 per cent of the voting power are, at any time during the previous year, owned beneficially by such person ...".

Thus, the investment of the funds of the trust is to be seen for any period during the previous year and similarly the holding of the persons mentioned under Section 13(3) for purposes of Section 13(2)(h) is also to be seen for any period during the previous year. Late Shri N.N. Mohan having died in 1969, Smt. Ram Rakhi Mohan no longer remained a spouse and, therefore, the shareholding of Bakshi Sampuran Singh and his three sons is not required to be considered for purposes of Section 13(2)(h). The Commissioner (Appeals) has rightly relied on the decisions in Phillip Thomas v. CIT (supra) and Vinod Kumar Radial (supra).

21. The next block of shares is 3,88,431 shares (after excluding 50,000 shares from 4,38,431) which have been held by the Commissioner (Appeals) to be includible for purposes of Section 13(2)(h). On this point the assessee is not in appeal and, therefore, this aspect of the matter is not required to be considered by us.

22. Thus, we hold that out of 27,64,856 shares of Mohan Meakin Breweries Ltd., the following shares are to be considered for purposes of Section 13(2)(h) : The aforesaid shares compared to the total shares 85,09,479 give a percentage of 18.5 per cent, which is less than 20 per cent. Thus, the prohibited category of persons mentioned in Section 13(3) does not have substantial interest in the concern in which funds of the trust are invested and, therefore, the provisions of Section 13(2)(h) are not applicable,


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