COMMISSIONER OF INCOME TAX Vs. NOPANY EDUCATION TRUST

JUDGEMENT

(1.) THE assessee is a trust to which the provisions of s. 11 of the IT Act, 1961, applied. The assessee received Rs. 59,411 in the asst. yr. 1967-68 and Rs. 56,590 in the asst. yr. 1968-69 as voluntary contribution from two other trusts, namely, Rawatmull Nopany Family Trust and Shri Rameshwarlal Nopany Family Trust. The ITO held that these donations were hit by the provisions of s. 12(2) of the said Act and so he included them in the income of the property held by the assessee-trust and applying the provisions of s. 11 of the Act taxed the accumulation in excess of the permitted 25 per cent. On appeal, it was contended before the AAC that the two paying trusts were family trusts whose incomes were not exempt under s. 11 of the said Act and so their donations to the assessee did not come within the ambit of s. 12(2). Again, even assuming that they did, the accumulations were less than the permitted percentage. The AAC agreed with the assessee on both the counts and reversed the finding of the ITO. The Department went in appeal against the said order of the AAC. The Departmental Representative pointed out that the AAC was not correct in saying that the two paying trusts were subject to s. 11 and at the same time in holding that their donations did not come under the provisions of s. 12 of the Act. The learned advocate for the assessee, on the other hand, pointed out that the remark of the AAC was a clear mistake as was apparent from the reasoning and decision of the order of the AAC. He produced copies of the deeds of settlement relating to the two paying trusts and submitted that the finding of the AAC was quite in order.

(2.) THE Tribunal held that the two donor trusts were family trusts whose incomes were not exempt under s. 11 of the said Act and, hence, they are trusts to which the provisions of s. 11 do not apply. Consequently, they do not come under s. 12(2) of the Act. However, the Tribunal held that the observation of the AAC that "the family trusts were assessed on the entire income as s. 11 had been applied" is obviously a mistake. As the trusts were assessed, s. 11 did not apply to them. The Tribunal, therefore, held that the ITO was not correct in invoking s. 12(2) of the said Act.

(3.) ON the aforesaid facts, a reference application was filed by the Department suggesting the following three questions of law: