The expenditure incurred by a trust should be deemed to have been met out of the income derived from property held under trust, even if the trust received voluntary contributions from non-charitable institutions.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the following question has been referred to this court:"whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that even though the assessee received voluntary contributions from non-charitable institutions, the expenditure incurred should be deemed to have been met out of the income derived from property held under trust ? "this question has to be decided in the background of the fact that the assessee is a charitable trust. The assessment year involved is 1972-73, and the relevant accounting year is the financial year which ended on 31st March, 1972. During the accounting year relevant to the assessment year under reference the assessee received voluntary contributions amounting to Rs. 2,20,000 firm two individuals and one company. The income of the trust derived from property held wholly for charitable or religious purposes has been set off against the entire expenditure. In order to obviate any controversy, it may be appropriate to refer to the relevant portion of the order of the ITO to understand the basis upon which the ITO proceeded. The ITO observed in his order as follows : "from the income and "expenditure a/c. it is seen that the assessee received voluntary contributions amounting to Rs. 2,20,000. From the details filed it is noted that the contributions were received from two individuals and one company. While computing the aggregate income for the purpose of Section 11, the said voluntary contributions have not been taken into account. The rest of the income has been set off against the entire expenditure. This has been done relying on the provisions of sec. 12 (1 ). The method followed by the assessee is not acceptable for the reasons discussed below: every voluntary contribution received by a trust is its income. This is clear from the opening words, 'any income of a trust derived from voluntary contributions', used in Section 12 (1 ). For the purpose of the statute such contribution has been divided into two categories, viz. : (i) contribution received from non-charitable institution, and (ii) contribution received from charitable institution. The first category is not to be included in the total income of the trust or institution without requiring it to fulfil the conditions laid down in Section 11. The second category also can avail of the exemption like the first category. But for the second category the conditions laid down in Section 11 have been made applicable. The provisions of Section 12 (1) do not say that voluntary contributions received from non-charitable institutions are not 'income' of the trust. The trustees also have treated the same as income by showing the contributions in the income and expenditure a/c. Therefore, the voluntary contributions in question form part of the composite income fund of the trust out of which all its outgoings have been met in the normal course. Since the conditions laid down in Section 11 are not to be fulfilled in respect of the contributions in question, the said contributions are not to be included in the 'income derived from property ' for the purposes of Section 11. But since the contributions have formed part of the composite income fund of the trust and since the total amount applied for charitable or religious purposes has been met out of the said composite income fund, the amount of expenditure for the purpose of Section II, in the facts and circumstances of the case, has to be arrived at by reducing the total amount of expenditure by an amount which bears to the total amount of expenditure the same proportion as the said contributions bear to the aggregate income of the trust including the said contributions. In the instant case, the trustees had a common pool into which both income from property held under trust and other income flowed and out of which the trustees in reality met all their expenses without making any d