Judgement

S. B. MAJMUDAR, J.:- This appeal by special leave is directed against the decision of the Division Bench of the Karnataka High Court in Writ Appeal No.864 of 1974 decided on 4th September 1975. The said writ appeal, moved on behalf of the Revenue by Additional Commissioner of Income-tax, Mysore and First Income Tax Officer, Mangalore Circle, Mangalore against the order of learned Single Judge Venkataramiah, J., as he then was, in the Writ Petition No. 597 of 1973 came to be dismissed by the Appellate Bench of the High Court. In order to highlight the grievance of the Revenue in this appeal a few relevant introductory facts are required to be noted.

Background Facts.

2. Respondent A.L.N. Rao Charitable Trust, Mangalore, is a charitable trust. For the assessment year 1969-70, the respondent, hereinafter referred to as "the assessee" submitted its Return to the First Income-tax Officer, Mangalore Circle. In the said Return, the assessee claimed that a sum of Rs. 85,262/- which was the surplus income of the previous year, was exempt from tax under Section 11(1)(a) and sub-section (2) of the said Section. On the Assessing Authority holding that the assessee is not a genuine Trust and therefore not entitled to claim the benefit of Section 11 the assessee preferred an appeal before the Appellate Assistant Commissioner, which was dismissed. In the second appeal preferred by the assessee before the Income-tax Appellate Tribunal, it was held that the assessee was a charitable trust and therefore was entitled to claim exemption from tax under Section 11 of the Income-tax Act, 1961 (hereinafter referred to as the Act). In I.T.R.C. No. 31 of 1973 which was a reference made at the instance of the Department, the High Court by its judgment dated 4-8-1975 answered the question referred in favour of the assessee and against the Department. That judgment became final. Consequently there remained no dispute about the eligibility of the assessee to claim benefit of Section 11.

3. The Assessing Authority took up the assessment to pass an order in accordance with the judgment of the Tribunal and made an order on 21-1-1972 by which it held that the assessee, after complying with the requirement of giving notice under Section 11 (2)(a) had invested 75% of the accumulated income intended to be applied for charitable purposes in future years as required by clause (b) of Section 11(2) and therefore, the entire surplus income was exempt from tax.

4. The Commissioner of Income-tax, on looking into the order dated 21-1-1972 passed by the Assessing Authority, was of the view that the order of the Assessing Authority was erroneous as had not applied 346 his mind to the question whether the assessee had complied with the provisions of Section 11(2) and that if he had applied his mind to the said provisions, he would have noticed that the assessee had not invested the entire surplus income, viz., Rs. 85,265/- (but only Rs. 70,975/-) and therefore the assessee was not entitled to the exemption provided under Section 11 of the Act. Thus, in the opinion of the Commissioner, the order of the Income-tax Officer was erroneous inasmuch as it was prejudicial to the interests of the Revenue. He issued a show-cause notice under Section 263 of the Act on 18-1-1973 to the assessee to show cause as to why the entire surplus income of Rs. 85,262/- should not be brought to tax. The assessee, on receipt of the said notice, approached the High Court for relief under Articles 226 and 227 of the Constitution and prayed for the issue of a Writ in the nature of Certiorari to quash the Notice dated 18-1-1973 issued by the Commissioner. In that writ petition (W.P. No. 597 of 1973), Venkataramiah, J. made an order directing the Commissioner to dispose of the proceedings initiated under Section 263 in the light of his order as to the interpretation of Section 11(1)(a) and Section 11(2) of the Act.

5. Before the learned Single Judge, the contention of the Department was that in ord