Investment in Shares Merely Accretion of Bonus Shares: ITAT Confirms Section 11 Exemption for Tata Social Welfare Trust [Read Order]
The Tribunal noted that bonus shares are merely accretions to existing holdings, not active or prohibited investments. Precedent and Coordinate Bench rulings confirmed that such passive accretions do not trigger disqualification under Section 13(1)(d). Accordingly, the Trust’s Section 11 exemption remains intact
ITAT Mumbai, Bonus Shares, Tata Social Welfare Trust
ITAT Mumbai, Bonus Shares, Tata Social Welfare Trust
The Mumbai bench of Income Tax Appellate Tribunal (ITAT) upheld Tata Social Welfare Trust’s claim for exemption under Section 11, rejecting the revenue’s allegation that bonus shares violated Section 13(1)(d).
This appeal concerned the disallowance of the exemption claimed under Section 11 of the Income Tax Act, 1961, by Tata Social Welfare Trust, on the basis that investment in shares of Tata Sons Ltd. allegedly violated Section 13(1)(d).
The AO contended that such investment in shares constituted a prohibited mode of investment, thereby disqualifying the Trust from claiming exemption. Reference was made to the Supreme Court’s decision in Bharat Diamond Bourse to support the complete denial of exemption in similar circumstances.
The Trust argued that the investment in question represented the accretion of bonus shares, which are not considered new investments and do not fall within the prohibited transactions under Section 13(1)(d).
The CIT(A) examined the factual matrix and the sequence of share allotments, observing that no active deployment of new funds had occurred and the bonus shares merely reflected augmentation of existing holdings.
The Tribunal concurred with the CIT(A), noting that the statutory provision under Section 13(1)(d) is intended to prevent active diversion of trust funds into prohibited modes of investment. Bonus shares, being automatic accretions, do not constitute such a prohibited investment. The Tribunal relied on earlier Coordinate Bench rulings and precedent, holding that the exemption under Section 11 cannot be denied for the accretion of bonus shares.
Consequently, the two-member bench comprising N.K. Billaiya (Accountant Member) and Saktijit Dey (Vice President) dismissed the revenue’s appeal, affirming the CIT(A)’s order to allow the Trust’s exemption under Section 11. The ruling reinforces that passive accretions, including bonus shares, are distinct from active investments and do not trigger the disqualification provisions under Section 13(1)(d) of the Act.
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