1989 (10) TMI 35

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..... rst be considered as having been made out of the assessable income of the assessee and only the balance should be treated as having been made out of the income from subscriptions ?" The reference relates to the assessment years 1967-68 to 1970-71. The assessee is a, company incorporated under the Indian Companies Act and it is now established by a judgment of this court that it is a charitable institution entitled to exemption under section 11 of the Act. This judgment was delivered in a reference relating to the assessment year 1967-68 for which year the Tribunal had so held. The Income-tax Officer was then called upon to compute the assessee's taxable income in accordance with the provisions of section 11 for the assessment year 1967-68 .....

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..... essee's appeal, reversed the Income-tax Officer's order and the Income-tax Appellate Tribunal agreed with the Appellate Assistant Commissioner. The Tribunal held that the expenditure for the purposes of the trust as well as the investments should be deemed to have come from the taxable income of the trust. Mr. Jetley, learned counsel for the Revenue, pointed out that the income from property of the trust and subscriptions had been credited into a common account. The expenditure on the objects of the trust and the investments in Government securities were met out of that account. In his submission, the expenditure and investment should, therefore, be regarded as having come pro rata from the income from property held under trust and subscr .....

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..... was deemed to take place in the same proportion in which the capital and accumulated profits stood in the accounts of the company immediately before the winding up. This judgment, again, has no bearing upon the question before us. We think that the question must be considered from the point of view of a prudent assessee with common sense. That this may be done is clear from the apposite observations of the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, which read thus (at page 586) : "It is also true that on transfer of a portion of current year's profits to the general reserve, the augmented general reserve becomes a conglomerate fund but having regard to the natural course of human conduct of hard .....

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