JUDGMENT

RANGANATH MISRA, C.J.I. :- Radhasoami Satsang, an assessee under the Income-tax Act in these appeals by special leave assails the decision of the Allahabad High Court on reference under Section 256 of the Income-tax Act, 1961. The following question had been referred by the Tribunal to the High Court:

"Whether on the facts and in the circumstances of the case the Tribunal is justified in holding that the income derived by the Radha Swami Satsang, a religious institution, is entitled to exemption under Sections 11 and 12 of the Income-tax Act, 1961?"

2. The ambit and purport of the question would not be properly appreciated unless the background is indicated. The assessee is the Radhasoami Satsang, Agra. This sect was founded by Swami Shiv Dayal Singh in 1861. The tenets of this faith, inter alia, accept the position that God is represented on earth by a human being who is called the Sant Satguru. The first of such gurus was the founder himself and he was popularly known as Soami Ji Maharaj. The second Satguru (1879-1898) was Rai Bahadur Salig Ram and he was known as Hazoor Maharaj. The third Sant Satguru was Pandit Brahma Shanker Misra (1898-1907) and was widely known as Maharaj Sahib. These three Satgurus have been regarded as the real exponents of the creed. Out of donations and offerings made to the Satgurus, large funds were built up and properties were acquired over the years. During the time of the third Satguru, in 1902, the members of -the creed at a largely attended convention established a Central Council and the right, title and interest of all the properties - movable and immovable -which had by then been collected were vested in the Council under the directions of Maharaj Sahib. In June 1904 the constitution and bye-laws of the Central Council of Radhasoami Satsang were drawn up in a formal way and a body by the name Radhasoami Satsang Trust was set up. A trust deed was executed by some members of the Central Council in October, 1904. A set of bye-laws were also framed.

3. On the death of third Satguru which took place in October 1907, the creed split into two and came to be known as Swami Bagh Sect and the Dayal Bagh Satsangis respectively. Disputes arose as to the management of the shrines and the administration of the properties which had vested in the trustees under the Trust Deed of 1904. The Dayal Bagh Satsangis claimed that all the properties were held in a trust for a public purpose of a charitable and religious nature and prayed for a decree by going to the civil Court. The litigation had started in the form of an application under Section 3 of the Charitable and Religious Trusts Act. 1920 but was converted into a regular suit and eventually ended with the decision of the Privv Council in the case of Patel Chhotabhai v. Jhan Chandra Basak, AIR 1935 PC 97. The Judicial Committee reversed the decision of the High Court and held that even if the trust came into existence it was difficult to hold that it was of a public, charitable or religious character as contemplated by the Charitable and Religious Trusts Act, 1920.

4. The question of assessing the income for the first time arose in the assessment year 1937-38. The Income-tax Officer relied upon the observations of the Privy Council and completed assessments for two years being 1937-38 and 1938-39 treating the then Satguru, Sri Madho Prasad Sinha as the assessee. He was a retired Assistant Accounts Officer and was earning a pension. His pension as also the income from the institution were tagged together for assessment. The Appellate Assistant Commissioner confirmed the Assessments. Assessee then filed applications under Section 66(2) of the Income-tax Act of 1922 for reference. The Commissioner took the view that the- offerings though made to the Satgurus were not used for their personal benefit and held that even though no formal trust had been created by the donors in respect of offerings, the guru impressed the offerings with trust character at th