COMMISSIONER OF INCOME-TAX Vs. BIRLA JANAHIT TRUST

JUDGEMENT

(1.) IN this reference under Section 256(1) of the Income -tax Act, 1961, for the assessment year 1977 -78, two questions of law have been referred to this court. The first question is as follows : 'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Raja Baldeodas Birla Santotikosh made a legally valid transfer of shares of Messrs. Jiyaji Rao Cotton Mills Ltd., and the assessee was the rightful owner thereof, being assessable on the dividend income arising from such shares and also entitled to tax credit under Section 199 of the Income -tax Act ?' This question came up for consideration before us in Income -tax Reference No. 51 of 1980 (CIT v. Birla Janhit Trust) for the assessment year 1975 -76, where the judgment was delivered on August 7, 1990. Following the said decision, we answer the question by saying that the transfer in favour of the assessee -trust was voidable but until it is avoided, and irrespective of the fact whether the assessee was the rightful owner of such shares, the income from dividend on those shares shall be assessed in the hands of the assessee -trust and, accordingly, the assessee is entitled to the benefit of tax credit under Section 199 of the Income -tax Act, 1961.

(2.) LET us now turn to question No. 2 which is as follows : 'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the net dividend should be considered for the purpose of Section 11 of the Income -tax Act and that the adjustment of establishment expenses should not be done to arrive at the figure of 75 per cent. of the income to be applied for charitable purposes ?' The second question relates to the administrative expenses to the tune of Rs. 13,459 deducted by the Income -tax Officer from the gross income of the assessee. The Income -tax Officer took the balance as the income of the trust and applied the rate of 75 per cent. to this balance in order to determine the amount that should be spent to enable the assessee to claim exemption under Section 11 of the Income -tax Act. The assessee filed an appeal to the Appellate Assistant Commissioner contending that the administrative expenses should not have been deducted from the gross income. The Appellate Assistant Commissioner accepted the claim of the assessee and directed the Income -tax Officer to consider the administrative expenses as an amount spent for charitable purposes.

(3.) BEFORE us, the contentions urged before the Tribunal have been reiterated.