COMMISSIONER OF INCOME TAX Vs. VANCHI TRUST

JUDGEMENT

(1.) In these two connected references made to this Court under S.256 (1) of the Income Tax Act, 1961 (hereinafter called the Act the Income Tax Appellate Tribunal, Cochin Bench-for short the Tribunal-has referred the following question of law as arising out of the common order passed by it in R. A. No. 176 (Coch) /77-78 and R. A. No. 177 (Coch)/77-78 dated 16-12-1977:

(2.) The assessees (respondents) are two public charitable trusts to which the provisions of S.11 of the Act are admittedly applicable. The relevant assessment year is 1971-72 for which the accounting period is the financial year ending 31-3-1971. During the course of the accounting year the Trustees in each case had received as donation from a different Trust 3000 shares in a limited company and a cash donation of Rs. 5000/- subject to the stipulation made by the donor-trust and accepted by the assessee trust that the subject matter of the said donation should be held by the assessee trust as corpus and only the income therefrom should be expended on charitable purposes of the assessee trust. The said stipulation is contained in two identically worded letters dated 5-7-1970 passed to the assessee trust by the donor-trust. Annexure "A" is a copy of one of those letters.

(3.) The Income Tax Officer, finalised the assessment in each case by induing in the income of the assessee trust the cash receipt of Rs. 5000/- and the market value of the donated shares of the limited company which form the subject matter of the donation. In doing so the Income Tax Officer took the view that the provisions of S.2(2) of the Act were attracted to these cases and the contributions made to the assessee trust by the donor-trust had to be deemed to be income derived by the assessee trust from property by virtue of the operation of S.12(2).