COMMISSIONER OF INCOME TAX Vs. CHANDRIKA EDUCATIONAL TRUST

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Cochin Bench, has referred the following four questions under Section 256(1) of the Income-tax Act, 1961 ("the Act"), in Income-tax References Nos. 472 to 474 of 1982, out of which two are at the instance of the Revenue and two at the instance of the assessee :

(2.) IN INcome-tax Reference No. 482 of 1982, the following questions have been referred at the instance of the Revenue :

(3.) THE Sreenarayana Chandrika Trust (hereinafter referred to as "the trust") is a public charitable trust, created on March 15, 1972. A firm, Beena Enterprises, was constituted on April 1, 1972, with the trust as one of its three partners, the other two partners being close relatives of the authors of the trust, who fell within the purview of Sub-section (3) of Section 13 of the Act. THE capital of the firm was Rs. 30,000, of which the trust contributed Rs. 5,000. THE firm earned substantial profits during the accounting years 1974-75 and 1975-76. THE share of the trust in the profits of the firm for these two years was Rs. 1,49,782 and Rs. 94,365, respectively, as determined after audit. THE trust withdrew its share of the profits for the accounting year 1974-75 in two instalments of Rs. 35,000 and Rs. 1,14,782 on July 26, and August 29, 1975, respectively, after it was intimated about the amount of profits due to it on July 20, 1975. THE share profits for the subsequent year was withdrawn in a lump sum on August 31, 1976. THE trust was one registered under Section 12A and its income was exempted from payment of tax under Section 11 up to and inclusive of the assessment year 1974-75. THE assessing authority similarly exempted its income for the assessment year 1975-76 as well. But this order was set aside by the Commissioner of Income-tax on November 17, 1979, by his order annexure B passed in exercise of the powers under Section 263 of the Act. THE Commissioner took the view that the delayed withdrawal of the share of profits due for the accounting year 1974-75 ending on March 31, 1975, on July 26, and August 29, 1975, amounted to investment of the funds of the trust in the firm, Beena Enterprises, in which persons referred to in Sub-section (3) of Section 13 had a substantial interest. THE trust thus violated the provisions of Section 13(1)(c)(ii) of the Act and its income was not entitled to exemption under Section 11. THE order of assessment was, therefore, set aside and the Income-tax Officer was directed to dispose of the matter afresh. THE assessee challenged this order in appeal before the Tribunal.