Commissioner of Income Tax vs Ganga Charity Trust Fund

G.T. Nanavati, J.—The Tribunal, Ahmedabad, has referred the following two questions to this Court for its opinion under s. 256(1) of the IT Act, 1961 :

"(1) Whether, on the facts and in the circumstances of the case, the assessee trust was entitled to a deduction of the Income Tax paid in computing its income ?

(2) Whether, on the facts and in the circumstances of the case, the income of the assessee by way of interest could be estimated on the accrual basis and brought to tax ?"

We need not state the facts and other details except that relevant assessment years are 1973-74 and 1974-75, in view of the fact that in respect of the very assessee for the asst. yrs. 1971-72 and 1972-73, identical points were answered in favour of the assessee by this Court in the judgment reported in Commissioner of Income Tax Vs. Ganga Charity Trust Fund, . In that case, it has been held that there was no finding of fact that the switch over to the cash system of accounting in the previous year relevant to the asst. yr. 1972-73 was not bona fide. Besides, it was not shown by the Revenue that this change lacked durability or regularity and was merely a stop gap arrangement to avoid payment of tax. The assessee trust was entitled to switch over to the cash method of accounting in view of the peculiar circumstances in which the trust was placed. This Court has also held that the income derived from trust property must be determined on commercial principles and, in doing so, all outgoings, including outgoings by way of Income Tax paid by the assessee trust, must be deducted and it is only from the surplus income in the hands of the trustees that the question of application or setting apart of income can arise.

Following the said judgment, we answer question No. 1 in the affirmative and question No. 2 in the negative, that is, against the Revenue and in favour of the assessee. Reference is disposed of accordingly with no order as to costs.