1. Since common points are involved, these appeals are being disposed of together.
2. The WTO held that the funds of the trust are invested in a business concern, viz., Dorabji Bros, wherein two of the trustees are substantially interested. The trust was assessed to income-tax from the assessment years 1971-72 to 1978-79 on the deposits with Dorabji Bros, and other organisations. The trust is not registered with the Commissioner of Income-tax as required under Section 12A of the Income-tax Act, 1961 ('the 1961 Act'). He rejected the assessee's contention that it is a charitable institution and, hence, its wealth should be exempted from tax.
3. The assessee appealed to the AAC. The AAC held that the assessee-trust would be entitled to exemption under Section 5(1)(i) of the Wealth-tax Act, 1957 ('the Act') up to 1972-73 but thereafter the assessee will not be entitled to exemption in view of the introduction of Section 21A in the Act, wherein exemption under Section 5(1)(i) is available subject to the provisions of Section 21A only. He held that as the funds of the trust were invested in a firm in which the trustees were partners with substantial interest, the WTO was justified in denying exemption under Section 5(1). Section 21A applies to the assessee, as the trust property was used or applied for the benefit of the persons, i.e., the trustees referred in Section 13(3) of the 1961 Act. He did not accept the assessee's contention that the provisions of Section 13(2)(a) or 13(2)(A) will not be applicable to the assessee. He also held that the assessee was not entitled to exemption under Section 5(1)(xxiii) as the shares held by an individual or a HUF only would be entitled to this exemption. Against the said order, the assessee has preferred these appeals.
4. The learned counsel for the assessee strongly urged that neither the provisions of Section 13(2)(a) nor of Section 13(2)(h) would apply to the assessee's case, as lending of the amount does not amount to investment and the amount has been lent for adequate interest. Hence, Section 21A also will not be applicable, and the assessee is entitled to exemption under Section 5(1). Alternatively, he submitted in the additional grounds that the assessee should be treated as an individual as per the provisions of Section 21A and, hence, the assessee is entitled for exemption under Section 5(1)(xxiii). We admit the additional grounds as it is purely a legal issue and the AAC has also dealt with it.
5. The learned departmental representative strongly urged that no security has been taken for the amounts deposited. Even the interest paid on the deposits, which is less than 5 per cent, cannot be considered as adequate interest. Thus, the assessee is clearly hit by the provisions of Section 13(2)(a). He also urged that the assessee is hit by Section 13(2)(ft) as the funds of the trust continued to remain invested in the concern in which the trustees have substantial interest. He also urged that the assessee is not entitled for the exemption under Section 5(1)(xxiii).
6. Under Section 5(1)(i), the property held under the trust or other legal obligation for any public purpose of a charitable or religious nature in India is exempt from wealth-tax. But this exemption is not available under Section 21A with effect from the assessment year 1973-74, where the trust violates the conditions laid down in Section 13 by making use of the trust property or its income for the benefit of persons referred to in Section 13(3). Section 13 makes Section 11 of the 1961 Act inapplicable in certain cases. Under Section 13(2), benefit of Section 11 shall not be available to the income of the trust or institution if its income or property has been used or applied to the benefit of a person specified in Section 13(3). Trustees are one category of persons who come under Section 13(3). Under Sub-section (2)(a) of Section 13, if any part of the income or property of the trust is, or continues to be, lent to any person specified in Subsection (3) of Section 13 without adequate security or interest or both, then the income or property of the trust shall be deemed to have been used or applied for the benefit of the person referred to in Sub-section (3) of Section 13. Once this provision applies, Section 21A is attracted and wealth-tax will be leviable.
7. In the instant case, the assessee-trust has lent money to Dorabji Bros., in which two of the trustees had substantial interest. The interest charged at 5 per cent on the amount lent to the said firm was not adequate interest. Further, no adequate security had been taken for the amount lent to the said firm. Thus, this is a case where Section 13(2)(a) is clearly attracted as the assessee has lent the amount without adequate interest and adequate security to the benefit of the trustees, who come under specified category of persons under Section 13(3). Since Section 13(2)(a) applies, it is not necessary for us to consider the applicability of Section 13(2)(h). Sub-section (4) of Section 13 does not apply to the assessee as the interest of the trustees in Dorabji Bros, exceeds 5 per cent of the capital of that concern. In CIT v. Eternal Science of Man's Society  128 ITR 456, the Delhi High Court has held that if the funds of the trust are invested in debentures or loans then Clause (a) of Sub-section (2) of Section 13 applies. Thus, in the instant case, the assessee is hit by Section 13(2)(a) and Section 13(3) of the 1961 Act and as such under Section 21A of the 1957 Act, the assessee is liable to wealth-tax and it is not entitled to exemption under Section 5(1)(i).
8. We find force in the alternative contention raised by the assessee by way of additional ground, which we have admitted. Under Section 21A, wealth-tax shall be leviable and recoverable from the trustee or the manager in the like manner and to the same extent as if the property were held by an individual In view of ths above status, the assessee has to be taken as individual. Once the status is taken as individual, exemption under Section 5(1)(xxiii) will be available to the assessee.
Thus, we direct the WTO to allow exemption under Section 5(1)(xxiii).