H.N.DEVANI, J. - (1.)THE Income -tax Appellate Tribunal, Ahmedabad Bench A', has referred the following question for the opinion of this Court under Section 256(1) of the Income -tax Act, 1961 (the Act), at the instance of the Revenue : Whether, the Appellate Tribunal is right in law and on facts in holding that the assessee is entitled to the benefit of section 11 in respect of the amount of Rs. 1,65,201/ - advanced as loan to certain section of the public, which according to the Income -tax Officer the assessee had written off since it found that the chances of recovery were remote
(2.)THE Assessment Year is 1985 -86 and the relevant accounting period is the year ended on 31st December, 1984. The assessee, a Public Charitable Trust, filed its return of income declaring deficit of Rs. 1,40,760/ - on 2nd March, 1987. On perusal of the statement of income and expenditure the Assessing Officer found that the assessee had deducted an amount of Rs. 1,65,201/ - against the current year's income and accordingly, had arrived at the said deficit. As per the assessee the said amount had been advanced as loan to members of the weaker sections of the public in the earlier years, under a self housing scheme formulated by the assessee Trust. In the year under consideration it was found that the chances of recovery of the said loan amount were remote, hence, the said amount was transferred to the expenditure account with the following narration: Loans under self housing Scheme of residence for poor and weaker section given as a transfer from Balance -Sheet.
2.1 The assessee claimed that the said amount had been applied towards the objects of the assessee Trust. The Assessing Officer held that the said amount had not been utilized for the purposes of the objects or against the current year's income. The Assessing Officer also found that the auditor's report indicated that the said amount had been written off; that, since the assessee was not carrying on any business, there was no question of setting off the said amount against the income of the current year. Accordingly, he disallowed the amount of Rs. 1,65,201/ - as an item of expenditure.

The assessee carried the matter in appeal before the Dy. Commissioner of Income -tax, who by his order dated 2nd March, 1989 dismissed the appeal and confirmed the order of the Assessing Officer.

(3.)THE assessee preferred a Second Appeal before the Tribunal. The Tribunal by its order dated 29th April, 1992 allowed the appeal in relation to the amount of Rs. 1,65,201/ - advanced as loans to members of the weaker sections of the public.
4.1 The Tribunal held that the loan had been given from the income of the assessee and that instead of making an outright gift, the assessee had first disbursed the amount as loan and in the subsequent years waived its right to recover the amount. That, the assessee must be said to have applied the income when it gave up its rights to recover the loan. The Tribunal placed reliance upon the decision of the Rajasthan High Court in the case of Commissioner of Income -tax v. Maharana of Mewar Charitable Foundation and held that the assessee was entitled to the benefit of Section 11 in respect of the amount of Rs. 1,65,201/ -.