Investment in shares by charitable society

Tax queries 164 views 2 replies

shashi kant mehta

Partner

21 Points Joined January 2011

A haritable society, 75 years old running schools and colleges. Got shares of TISCO as donation 20 years back. Entered in books of account and shown under the head Investments. As registration certificate under old act (of 1922) was not available (corresponding to 12A of IT Act 1961) reapplied for registration under 12A abount 10 years back. Three years accounts submitted with the application. Society was issued a fresh certificate. Investments are still in Books of account amounting to Rs.40,000. Society's total assets are approx 35 crores (Fixed assets, cash and bank balances and grants receivable).As per sec 13(1)(d) Investment can't be held in shares. What are the implications? Are there any cases or circulars in favour of Society as investment is negligible at 0.01% of total assets.

Replies (2)

hiten shah

Student CA Final

54 Points Joined October 2013

Investment in shares of Public Sector Company will not amount to contravention of Sec 13(1)(d)

A.Gopal

Partner

63 Points Joined January 2014

It has been stated in the query that TISCO shares have been received as donations and not out of funds laid out by Trust.

It has been held in CIT vs Insanyat Trust 173 ITR 248 (Guj) and followed in CIT vs Shreyas Nidhi 258 ITR 712 (Guj) that the meaning to be attributed to the expression “trust funds “ as used in Sec 13(1)(d) and Sec 13(2)(h) is actual or available money or cash resources such as money in hand and money in the bank.

Therefore, if the TISCO shares were not acquired by the Trust but received as gifts then the Trust can continue to hold the said shares as it would not represent investment of Trust Funds as per the aforesaid decisions.

However, it is to be noted that under Sec 13(4) of the Act, in cases where the investment made by Trusts in concerns in which persons detailed in Sec 13(3) are interested, disallowance of Sec 11 exemption is restricted only to income from such investments in cases where such investments do not exceed 5 % of the capital of the said concern and not to the whole of the Trust’s income.

But the said sub section does not provide for restriction in non granting of Sec 11(1) exemption in relation to other investments such as shares of TISCO, etc,.

Further, it is not clear whether the decisions cited above have been accepted by the Department as not representing investments made out of Trust funds.