AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961 ("the Act"), the following question of law has been referred to this court at the instance of the Revenue for the assessment year 1981-82 :"whether, on the facts and in the circumstances of the case, the Tribunal was right in law is holding that investment in fixed deposit made in the previous year relevant to the assessment year 1981-82 out of sale proceeds of shares of companies, amounted to acquiring of 'another capital asset' in terms of Section 11 (1a) of the Income-tax Act, 1961 ?"

( 2 ) THE brief facts giving rise to this reference are that the assessee-trust is a public charitable trust whose income is entitled to exemption under Section 11 of the Act. During the previous year ending March 31, 1981, corresponding to the assessment year 1981-82, the assessee-trust held shares in 14 limited companies and it sold the same during the said previous year for a total sum of Rs. 63,52,565. The cost of the said, shares sold during the previous year was Rs. 23,25,466 and the capital gain arising on the sale of the said shares amounted to Rs. 40,27,099. Within the said previous year itself, the assessee-trust made a fixed deposit of Rs. 31,75,000 with the scheduled banks for a period of 60 days. During the next previous year ending on March 31, 1982, the assessee-trust gave loans to private parties after encashment of the said fixed deposit of Rs. 31,75,000 made during the previous year under reference. The assessee-trust did not receive the entire sale proceeds of the said shares during the previous year involved herein and a sum of Rs. 16,19,700 was received in the next previous year. The assessee-trust exercised the option of applying a part of the capital gains in the following previous year as provided in Explanation 2 to Section 11 (1 ).

( 3 ) IN the course of the assessment proceedings, the assessee-trust submitted before the Income-tax Officer that no tax could be charged on the capital gains arising on the sale of the said shares, since it had acquired another capital asset, viz. , the fixed deposit for Rs. 31,75,000 during the relevant previous year and for the balance sum it had exercised its option to utilise the same in the following previous year. The Income-tax Officer rejected the contention of the trust and levied tax on the entire amount of the capital gains. He held that the fixed deposit with banks did not constitute a capital asset and the benefit under Section 11 (1a) could not be claimed by the trust. He further rejected its claim of having exercised the option to invest the remaining sum in the next succeeding previous year.

( 4 ) ON the assessee's appeal, the Commissioner (Appeals) upheld the order of the Income-tax Officer and observed that the investment in the said fixed deposit did not amount to acquisition of capital assets and, therefore, the benefit of Section 11 (1a) could not be availed of by the assessee-trust. He further held that no option could be said to have been exercised by the assessee for investing the balance sale proceeds in the previous year next succeeding.

( 5 ) AGAINST the said order of the Commissioner (Appeals), both the Income-tax Officer and the assessee-trust preferred appeals before the Tribunal. A Special Bench of the Tribunal heard the said appeals. The Tribunal held that the investment in the said fixed deposit amounted to acquisition of a capital asset within the meaning of Section 11 (1a) and that the trust had also exercised the option to invest the balance capital gains in the next succeeding previous year. It, accordingly, held that capital gains could not be assessed in the hands of the trust. The two issues decided by the Tribunal were : (1) that the making of the fixed deposits with banks for 60 days amounted to acquisition of capital assets within the meaning of Section 11 (1a) ; and (2) that a valid option was exercised by the trust for investing the balance of cap

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