COMMISSIONER OF INCOME TAX Vs. HINDUSTHAN WELFARE TRUST

JUDGEMENT

(1.) In this reference under Section 256(1) of the Income-tax Act, 1961 ("the Act"), the following question of law has been referred to this court at the instance of the Revenue for the assessment year 1981-82 :

(2.) The brief facts giving rise to this reference are that the assessee-trust is a public charitable trust whose income is entitled to exemption under Section 11 of the Act. During the previous year ending March 31, 1981, corresponding to the assessment year 1981-82, the assessee-trust held shares in 14 limited companies and it sold the same during the said previous year for a total sum of Rs. 63,52,565. The cost of the said, shares sold during the previous year was Rs. 23,25,466 and the capital gain arising on the sale of the said shares amounted to Rs. 40,27,099. Within the said previous year itself, the assessee-trust made a fixed deposit of Rs. 31,75,000 with the scheduled banks for a period of 60 days. During the next previous year ending on March 31, 1982, the assessee-trust gave loans to private parties after encashment of the said fixed deposit of Rs. 31,75,000 made during the previous year under reference. The assessee-trust did not receive the entire sale proceeds of the said shares during the previous year involved herein and a sum of Rs. 16,19,700 was received in the next previous year. The assessee-trust exercised the option of applying a part of the capital gains in the following previous year as provided in Explanation 2 to Section 11(1).

(3.) In the course of the assessment proceedings, the assessee-trust submitted before the Income-tax Officer that no tax could be charged on the capital gains arising on the sale of the said shares, since it had acquired another capital asset, viz., the fixed deposit for Rs. 31,75,000 during the relevant previous year and for the balance sum it had exercised its option to utilise the same in the following previous year. The Income-tax Officer rejected the contention of the trust and levied tax on the entire amount of the capital gains. He held that the fixed deposit with banks did not constitute a capital asset and the benefit under Section 11(1A) could not be claimed by the trust. He further rejected its claim of having exercised the option to invest the remaining sum in the next succeeding previous year.