JUDGMENT

H.N. Seth, J. - This is a reference made by the Income Tax Appellate Tribunal, Allahabad Bench, in accordance with the direction issued by this court on 19th of July, 1961, in an application u/s 66(2) of the Income Tax Act, 1922, at the instance of the assessee.

2. The assessee is a firm known as J. K. Hosiery Factory, carrying on its hosiery business at Kanpur. The relevant assessment year is 1946-47. The previous year of the firm, for the purposes of assessment, is the calendar year 1946, and the chargeable accounting periods for assessment of excess profits tax and the business profits tax are January 1, 1946, to March 31 1946, and April 1, 1946, to December 31, 1946. The assessments for excess profits tax and business profits tax were consequential upon the Income Tax assessment.

3. Brief facts leading to the present reference are that up to the 31st December, 1945, Sarvasri Padampat Singhania, Lakshmipat Singhania and Kailashpat Singhania, the three brothers, who hereinafter will be referred to as " the Singhania brothers ", carried on partnership business in the name of Messrs. J. K. Hosiery Factory, Kanpur, along with one Sri J. P. Agarwal, The three Singhania brothers were entitled to annas 0-5-0 share each, and Sri J. P, Agarwal to annas 0-1-0 share in the profits of the firm.

4. There was a company incorporated under the Indian Companies Act, known as J. K. Cotton Spinning and Weaving Mills Co. Ltd,, in which the Singhania brothers held controlling interest This company purchased two plots of land from the Kanpur Improvement Trust, to be utilised for housing its workers and to set up a colony which was to be known as Kamla Town. On 27th of October, 1941. the directors of the company executed an indenture expressing a desire to settle the two plots upon the charitable trust declared by that indenture. Under this document, the three Singhania brothers were constituted the trustees, and the two plots of land were granted, conveyed and assured unto the trustees. It was also provided that the trustees were to hold and to stand possessed of the two plots of land and were to perform the duties mentioned therein.

5. Subsequently, the J. K. Cotton and Spinning and Weaving Mills Co. Ltd. instituted a suit, Suit No. 40 of 1949, u/s 31 of the Specific Relief Act for rectification of the deed of trust dated 27th of October, 1941, executed by the company and the Singhania brothers. In the plaint it was mentioned that under Clause 3(19) of the memorandum of association, the company was empowered, inter alia, to subscribe or contribute or otherwise assist or guarantee money to charitable, benevolent, religious, scientific, national or other institutions. Having regard to the aforesaid objects set forth in the memorandum of association, the company intended to settle the said properties and transfer them to the trustees for the purpose of creating a public charitable trust including within the benefits thereof the employees of the company and without intending to confine the said benefits merely to them. It was intended that the benefits thereof should extend to the whole of the public of Kanpur and its surrounding areas and extensions. Due to certain misunderstandings on the part of the draftsman and through mutual mistake, the deed of trust did not truly express this intention. It was, therefore, prayed that the trust deed should be so rectified as to express the real intention. In this suit, the company impleaded the three Singhania brothers, Hanuman Prasad and J. B. Singh as defendants. Hanuman Prasad was a workman and J. B. Singh was another employee of the company working on its staff. Hanuman Prasad and J. B. Singh were impleaded as defendants in representative capacity. Necessary proceedings under Order I, rule 8, Civil Procedure Code, were taken. The defendants, Singhania brothers, filed one written statement whereas the defendants, Hanuman Prasad and J. B. Singh, filed another written statement. They admitted the claim