JUDGMENT

SHAH J.-Under a deed of trust dated April 4, 1936, certain properties described in schedules A, B and C were settled by one Jalakhabai for purposes mentioned therein, and trustees were appointed to administer ihe trust. Clauses 5, 12, 13(a) and 13(b) of the deed of trust provided :

"(5) Hereafter, all the properties comprised in the A, B, C schedules and future acquisitions of properties in the name of the said charity fund shall be administered and their income to be utilised by the trustees appointed hereunder as per the provisions contained in this deed.

(12) From the incomes realised from B and C schedule properties, the amount should be spent in the first instance, for ihe maintenance and improvements of such property, for payment of land revenue pattam, municipal tax, etc., for purchase of account-books, stationery, salary, printing charges, etc., and the remaining shall be divided into 4 equal parts and expended in the manner hereinafter described.

(13) (a) One share of the 4 parts referred to above should be utilised for effecting improvement to any of the existing buildings and for putting up new buildings for being let out on rent.

(13) (b) There are now 3 equal parts remaining to be dealt with. Half of one of these 3 parts should be utilised on the indigent members of the Kutchi Memon community and the widows of such indigent members for giving them food, clothing, etc., imparting religious instruction to poor children and also other general education, contributing for the marriage of poor girls, etc. The remaining half of the said one part should, be added on and utilised for acquisition of new properties as described in paragraph 13-A. But, if there are poor members among our descendants suffering on account of financial distress, the said half of the one part should be utilised for giving food, clothing, education, marriage, funeral expenses of the said members. And if any residue is left after incurring such expenses, such residue amount should be added and disposed of as described in paragraph 13(a) above."

In proceedings for assessment of tax. by the Income-tax Officer, Special Circle Ernakulam, the trustees claimed that the entire income of the properties in schedule A and 7/8th income of the properties in schedules B and C was exempt from tax under section 4(3)(i) of the Indian Income-tax Act 1922. The Income-tax Officer partially accepted the contention, and brought to tax the unspent balance of income of schedule A properties and a 3/8th share of the income from properties in schedules B and C. By the 3/8th share of the income from B and C properties the Income-tax Officer referred to the 2/8th share directed to be applied for repairs and improvement in clause 13(a) of the deed, and by the 1/8th share the share directed to be applied for the same purpose in clause 13(b).

The decision of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. The Tribunal reversed the order of the Appellate Assistant Commissioner. The Tribunal observed that section 4(3)(i) of the Income-tax Act, 1922, "does not set its face against accumulations of the income being invested and the income therefrom used for trust purposes" and that a trust does not cease to be a public charitable trust merely because the beneficiaries of the trust are poor descendants of the settlor.

The Income-tax Commissioner then applied to the Tribunal under section 66(1) of the Indian Income-tax Act to draw up a statement of case and refer the following question to the High Court :

"Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the unspent balance of the income for the year from schedule A properties, and three-eighth of the income from B and C schedule properties was exempt from income-tax under section 4(3) of the Income-tax Act, 1922 ? "

The Appellate Tribunal drew up a statement of case limited to 2/8th of the property in schedules B and C and decli