Per Dr. B.P. Saraf, Chief Justice

By this reference under section 256(1) of the Income-tax Act, 1961 ("Act"), at the instance of the revenue, the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar ("Tribunal") has referred the following common question of law, arising out of its consolidated order of the Tribunal dated 4th May, 1988 in appeals of two different Trusts, to this Court for opinion:

"Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that assessee-Trusts, which failed to exercise the option under clause (2) of section 11(2) within the stipulated period, is entitled to the benefit u/s 11 (1) in respect of unutilised portion of income?"

The two trusts are Ziarat Mir Syed Ali Hamadani, Srinagar and Ziarat Syed Hassan Mantaqi, Srinagar. Both these trusts are Muslim religious trusts formed prior to 1947.

2. The material facts of the case of Ziarat Mir Syed Ali Hamdani Trust are as follows. This Trust filed its return of income for the assessment year 1979-80 along with returns for the assessment years 1978-79,1980-81 and 1981-82 on 17.3.1983. In the income and expenditure account for the previous year relevant to the assessment year 1979-80, with which we are concerned in this reference, the assessee - trust claimed deduction of Rs.23,100/- in respect of unutilised portion of its income under sub-clause (ii) of clause 2 of the Explanation to section 11(1) of the Act. The option contemplated by the Explanation to section 11(1) was exercised by the assessee in writing along with the return on 17th March, 1983. The Income-tax Officer held the option under clause (2) of the Explanation to section 11(1), which was required to be exercised in writing before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension, having not been exercised within that period, it was not a valid exercise of option. He observed that the last date of submission of the return for the assessment year 1979-80 under section 139(1) of the Act was 1st July, 1979. He further observed that neither any notice under section 139(2) had been issued nor any extension of time for submission of the return had been granted. He held that the option exercised on 17th March, 1983 after the expiry of the specified date i.e., 1st July 1979 was of no avail. He, therefore, rejected the claim of the assessee for benefit of clause (2) of the Explanation to section 11(1) of the Act. The appeal of the assessee-trust against the above order of the Income-tax Officer was dismissed by the Appellate Assistant Commissioner. The assessee appealed to the Tribunal. The Tribunal allowed the appeal of the assessee. The Tribunal relied upon the Circular of the Central Board of Direct Taxes (Board) No 273 dated 3rd June, 1980 whereby the Board had authorised the Commissioners to admit belated applications under section 11 (2) read with rule 17 of the Income-tax Rules, 1962 (Rules). Aggrieved by the order of the Tribunal, revenue is before us with this reference.

3. The material facts of the case of the next trust, namely, Ziarat Syed Hassan Mantaqi, are also more or less identical. This assessee-trust did not file any return for the assessment year 1978-79 under section 139(1) of the Act. The department also did not issue any notice under section 139(2). However, on the basis of information received by the Assessing Officer that the assessee had income above the taxable limit, a notice under section 148 of the Act was issued to the assessee on 28.3.1982. In response to that notice, the assessee filed its return on 28.6.1982 declaring nil income. In the abstract of taxable income filed along with the return, the assessee claimed deduction of Rs.78,088/- in respect of unutilised portion of income under clause( 2 )of the Explanation to section 11(1) .The option to utilise the income in the immediate following previous year was exercised by giving notice to that effect in wr

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