JUDGMENT : G. T. Nanavati, J. On being moved by the Revenue under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred to this court the following four questions : "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in sustaining the finding of the Appellate Assistant Commissioner directing the Income-tax Officer to allow exemption in respect of dividend income from 2,070 shares of T. Maneklal Mfg. Co. Ltd. and 896 shares of SLM Maneklal Industries Ltd., which were held by the assessee on May 31, 1970, on the ground that the finding has to be sustained without going into the question as to whether exemption cannot be denied to the assessee under section 13(4) of the Income-tax Act ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee is entitled to succeed on the ground that in respect of these shares, section 13(1)(c)(ii) would have no application so far as the use or application of the income of the trust related to the period before the first day of June, 1970, in view of the second proviso to section 13(1)(c) of the Income-tax Act, 1961 ? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that whatever shares were donated to the corpus and whatever bonus shares were received thereon could not be said to be funds of the trust invested ? (4) Whether the Appellate Tribunal was right in law on the facts and in the circumstances of the case in holding that the Income-tax Officer was not right in disallowing the deduction of Rs. 1,175 spent for the objects of the trust ?" 2. The assessee is a trust. It was created on February 9, 1982 (sic) before the commencement of the Act. It had received 1,000 shares of T. Maneklal Mfg. Co. Ltd. as donation to the corpus. As against its holding of 1,000 shares, the assessee received 350 shares by way of bonus. It purchased 360 shares before May 31, 1970, and received 150 more bonus shares. It appears to have acquired some more shares of T. Maneklal Mfg. Co. Ltd. and its total holding as on March 31, 1972, was 2,376 shares. As against its holding of 1,000 shares, the assessee received 350 shares by way of bonus. It purchased 360 shares before May 31, 1970, and received 150 more bonus shares. It appears to have acquired some more shares of T. Maneklal Mfg. Co. Ltd. and its total holding as on March 31, 1972, was 2,376 shares. The assessee also held shares of SLM Maneklal Industries Ltd. It had received 895 shares of that company as donation. It thereafter acquired some more shares and as on March 31, 1973, it was holding in all 2,074 shares of that company. The assessee is a charitable trust. It derived income from interest and dividend. 3. During the assessment proceedings for the assessment year 1972-73, the assessee claimed exemption of income received from these shares. It also claimed a deduction of Rs. 1,175 as that amount was spent by it for charitable purposes. The Income-tax Officer rejected the claim for exemp tion on the ground that, during the relevant previous year, i.e., April 1, 1971, to March 31, 1972, the assessee had applied the property of the trust for the benefit of persons referred to in section 13(3). He was of the view that the persons specified in section 13(3) had substantial interest in the said two companies in which part of the property of the trust, viz., shares, was invested. He was also of the view that the interest of these specified persons in the said companies exceeded five per cent. of the capital of these companies. Thus, according to the Income-tax Officer, the assessee had committed breach of sections 13(2)(h), 13(3) and 13(4) of the Act. As regards the claim for deduction of Rs. 1,175, he disallowed the same on the ground that there was violation of the provisions of section 13. 4. The assessee preferred an appeal to the Appellate Assistant Commissioner who held that the assessee was entitled to exemption in respect of dividend income received from 2,070 shares of T. Maneklal Mfg. Co. Ltd. and 895 shares of SLM Maneklal Industries Ltd., which were held by the assessee as on May 31, 1970. He, therefore, directed the Income-tax Officer to allow exemption as indicated by him. As regards the claim for deduction, the Appellate Assistant Commissioner found that Rs. Co. Ltd. and 895 shares of SLM Maneklal Industries Ltd., which were held by the assessee as on May 31, 1970. He, therefore, directed the Income-tax Officer to allow exemption as indicated by him. As regards the claim for deduction, the Appellate Assistant Commissioner found that Rs. 3,684 was spent by the assessee for the object of the trust and, therefore, that amount was deductible from the total income of the assessee. 5. Aggrieved by the order passed by the Appellate Assistant Commissioner, the Revenue preferred an appeal to the Tribunal. The view taken by the Appellate Assistant Commissioner as regards the claim for exemption was confirmed by the Tribunal. But with respect to the claim for deduction, the Tribunal held that as the assessee had claimed deduction of Rs. 1,175 only, the assessee was entitled to deduction of Rs. 1,175 only. The Appellate Assistant Commissioner was not justified in granting deduction of the larger amount. It, therefore, held that the assessee was entitled to deduction of Rs. 1,175 only. 6. As the Revenue was not satisfied with the decision of the Tribunal, it moved the Tribunal for referring six questions to this court and the Revenue is satisfied with the same. 7. What is contended by learned counsel for the Revenue is that as some shares were purchased by the trust before May 31, 1970, it can be said that the trust had used or applied its income or property for the benefit of persons specified in sub-section (3) of section 13. The said shares should have been reinvested by the assessee, but as they continued to remain invested in the concerns in which the persons referred to in section 13(3), as it stood at the relevant time, had substantial interest, the fiction created by sub-section (2) applied and section 13(1)(c) was again attracted. Therefore, all the income of the assessee became taxable. But as section 13(4) would apply to this case, only the income which arose out of investment made before May 31, 1970, would get the benefit of exemption or exclusion. In our opinion, there is no substance in the contention raised on behalf of the Revenue. Section 11 of the Act excludes income derived from property held under trust wholly for charitable or religious purposes from the computation of total income. In our opinion, there is no substance in the contention raised on behalf of the Revenue. Section 11 of the Act excludes income derived from property held under trust wholly for charitable or religious purposes from the computation of total income. This benefit of exemption or exclusion is taken away by section 13(1)(c), if any part of such income or any property of the trust or institution is, during the previous year, used or applied for the benefit of any person referred to in sub-section (3) of that section. But the proviso to that section makes an exception to the forfeiture of the exemption or exclusion, if the use or application of income or property of the trust related to any period before June 1, 1970. For the purpose of determining when any part of the income or property of the trust or institution can be said to have been directly or indirectly used or applied for the benefit of any person referred to in sub-section (3), sub- section (2) of that section has made a provision by creating a fiction. It, inter alia, provides that the income or the property of the trust or institution or any part of such income or property shall, for the purposes of clause (c) of sub-section (1), be deemed to have been used or applied for the benefit of a person referred in sub-section (3), if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern in which any person referred to in sub-section (3) has a substantial interest. Sub-section (4) of that section carves out another exception, in that the exemption under section 11 or section 12 is not to be denied in relation to any income other than the income arising to the trust or the institution from such investment, by reason only that the funds of the trust or the institution were invested in a concern in which such person had a substantial interest, if the aggregate of the funds of the trust or the institution invested in a concern in which any person referred to in sub-section (3) has a substantial interest, does not exceed five per cent. of the capital of that concern. of the capital of that concern. All these provisions indicate that in the case of a trust for charitable or religious purposes, or a charitable or religious institution, the income derived by it from the property held for charitable or religious purposes is exempt from taxation under the Act. But that exemption or benefit of exclusion available for such income would get forfeited if such trust or institution has been created or established after the commencement of the Act and, under the terms of the trust or the rules governing the institution, any part of such income enures, directly or indirectly or if any part of such income or any property of the trust or the institution is, during the previous year, used or applied, directly or indirectly, for the benefit of the specified persons. Prohibited application or investment of trust funds would thus deprive a trust or the institution of the benefit of exemption. But even while providing for forfeiture of such exemption, the Legislature has provided certain exceptions, and one such exception is in respect of a trust created or established before the commencement of the Act, if the use or application of income or property of such trust relates to any period before June 1, 1970. So far as sub-section (2) of section 13 is concerned, it is a deeming provision. It creates a fiction for the purposes of clause (c) of sub-section (1). It provides a guideline for the purpose of determining whether any part of income or property of the trust has been used or applied for the benefit of any specified person. As the said fiction is created for the purposes of clause (c) of sub-section (1), it can be said to have served its utility when it is determined whether any part of the income or property of the trust was used or applied in the prohibited manner. It cannot have any effect upon the second proviso to clause (c) of sub-section (1) so as to take away the benefit sought to be granted by that proviso. That proviso would apply, provided the conditions specified therein are satisfied, even if the trust can be said to have used or applied its income or property in a prohibited manner and even if it is so determined with the help of sub-section (2)(h). 8. That proviso would apply, provided the conditions specified therein are satisfied, even if the trust can be said to have used or applied its income or property in a prohibited manner and even if it is so determined with the help of sub-section (2)(h). 8. In this case, it is not in dispute that part of the income of the trust was used or applied for the benefit of the specified persons. What is contended by learned counsel for the Revenue is that the prohibited use or application of the income of the trust continued even after June 1, 1970, and, therefore, the assessee lost the benefit of the proviso as it again falls within the purview of section 13(1)(c)(ii). In support of his submission, learned counsel relied upon the decision of this court in CIT v. Insaniyat Trust (1988) 173 ITR 248, wherein it was held that section 13(2)(h) will be attracted only in cases where "funds", that is, moneys from actual or available money or cash resources of the trust itself, are invested or continue to remain invested for any period during the previous year in any concern in which any person referred to in sub-section (3) of section 13 has a substantial interest. In our opinion, reliance placed upon this judgment by learned counsel is misplaced. In that case, the question which fell for consideration was : When can a trust be said to have invested its funds ? After noticing different meanings of the expressions "funds" or "fund", it was held that the expression "trust funds" employed in clause (h) means actual or available money or cash resources such as money in hand, money in cash, money in bank. It further held that when clause (h) in sub-section (2) of section 13 says : "If any funds of the trust are invested", it means that the trust lays out money for investment. It further held that when clause (h) in sub-section (2) of section 13 says : "If any funds of the trust are invested", it means that the trust lays out money for investment. If the trust on its own volition, invests its funds or money as envisaged in clause (h), then only the transaction would come within the mischief of clause (h) and not otherwise." It was in this context that this court observed as under (at page 258) : "On a plain reading of that provision, it is clear that clause (h) of sub-section (2) of section 13 covers investment of the trust funds in any concern in which any of the persons specified in sub-section (3) have substantial interest ('specified persons', in short) and if such investment of the trust funds is made after December 31, 1970, it would result in forfeiture of exemption from tax. However, if the trust funds have already been invested in any concern as aforesaid, before January 1, 1971, exemption would be forfeited if the funds continued to remain so invested even after December 31, 1970. The object of the above provision is to discourage investment of trust funds in the concerns in which specified persons have substantial interest and if an investment is already made in such concerns, to discourage continuance thereof after December 31, 1970. In order to attract the provisions of section 13(2)(h), what is essential is that the funds of the trust are invested in a concern covered by section 13(2)(c) and if such investment is made prior to January 1, 1971, funds are continued to be not invested after December 31, 1970. . . ." 9. This court was called upon to consider the effect of section 13(2)(h) on the proviso to clause (c) of sub-section (3). In this case, what we are required to decide is as to whether in spite of the application of section 13(1)(c)(ii) read with section 13(2)(h), the proviso can apply or not. As pointed out above, the purpose of section 13(2) is not to take away any benefit by way of an exception from the exemption granted by section 13. Its only purpose is to create a fiction as to when a trust can be said to have used or applied its income or property for the benefit of any specified person. As pointed out above, the purpose of section 13(2) is not to take away any benefit by way of an exception from the exemption granted by section 13. Its only purpose is to create a fiction as to when a trust can be said to have used or applied its income or property for the benefit of any specified person. Even after providing for forfeiture in section 13(1)(c)(ii), the Legislature thought it fit to further enact the proviso and provide for an exception. We, therefore, see no reason why the benefit of that exception should not be made available to a trust for charitable or religious purposes, merely because it can be said with the help of section 13(2)(h) to have used or applied its income or property for the benefit of any specified person. The assessee-trust was established before the commencement of the Act. Most of the shares were received by it by way of donation and bonus shares. Some shares were no doubt, purchased by it but that was before December 31, 1970. Thus, the use or application, if at all it can be said to be use or application of the trust funds, related to a period before June 1, 1970. The exemption which was otherwise available to the assessee-trust was sought to be denied by the Revenue only on the ground that the funds of the trust continued to remain invested in the concerns in which specified persons had substantial interest. But, as pointed out above, that can have no bearing upon the applicability of the proviso to clause (c) of sub-section (1). Even after finding that the case of the trust would be covered by section 13(1)(c), if the conditions of the proviso are satisfied, then the benefit of that proviso has to be given to the trust and thus the trust would become again entitled to exemption under section 11 of the Act. 10. We are also supported in taking this view by the decision of the Bombay High Court in CIT v. Trustees of Mrs. Kasturbai Walchand (1990) 181 ITR 47. 10. We are also supported in taking this view by the decision of the Bombay High Court in CIT v. Trustees of Mrs. Kasturbai Walchand (1990) 181 ITR 47. Even after holding that the case of the assessee could fall under section 13(2)(h), the Bombay High Court examined the impact of section 13(1)(c) and observed as under (at page 50) : "Section 13(2) along with its clauses including clause (h) is a non obstante proviso to section 13(1)(c), and thus broadens the net spread by section 13(1)(c) for the purpose of forfeiting the exemption. The pertinent question would still remain when one of the two provisos to clause (c) of sub-section (1) of section 13 (in this case, the second proviso) is admittedly applicable, the effect of which is that the exemption cannot be forfeited, could one accept the Department's case that the date mentioned in proviso (ii) has lost relevance so much so that the proviso has become otiose. We will certainly avoid such a construction unless compelled by the plain language of the provisions. Under the circumstances, having regard to the undisputed finding of the Tribunal that the case falls within proviso (ii) to clause (c) to sub-section (1) of section 13, it will, in our view, have to be held that the income is entitled to exemption and that the Tribunal was right in its conclusion." We, therefore, answer all the questions in the affirmative, that is, against the Revenue and in favour of the assessee. No order as to costs.