Shah J. - (1.) Under a deed of trust dated April 4, 1936, certain properties described in schedules A, B, and C were settled by one Jalakhabai for purposes mentioned therein, and trustees were appointed to administer the trust. Clauses 5, 12, 13(a) and 13(b) of the deed of trust provided :"(5) Hereafter, all the properties comprised in the A, B, C schedules and future acquisitions of properties in the name of the said charity fund shall be administered and their income to be utilised by the trustees appointed hereunder as per the provisions contained in this deed. (12) From the income realised from B and C schedule properties, the amount should be spent in the first instance, for the maintenance and improvements of such property, for payment of land revenue pattam, municipal tax, etc., and the remaining shall be divided into 4 equal parts and expended in the manner hereinafter described. (13) (a) One share of the 4 parts referred to above should be utilised for effecting improvement to any of the existing buildings and for putting up new buildings for being let out on rent. (13) (b) There are now 3 equal parts remaining to be dealt with. Half of one of these 3 parts should be utilised on the indigent members of the Kutchi Memon community and the widows of such indigent members for giving them food, clothing, etc., imparting religious instruction to poor children and also other general education, contributing for the marriage of poor girls, etc. The remaining half of said one part should be added on and utilised for equation of new properties as described in paragraph 13-A. But, if there are poor members among our descendants suffering on account of financial distress, the said half of the one part should be utilised for giving food, clothing, education, marriage, funeral expenses of such members. And if any residue is left after incurring such expenses, such residue amount should be added and disposed of as described in paragraph 13(a) above."
(2.) In proceedings for assessment of tax by the Income-tax Officer, Special Circle, Ernakulam, the trustees claimed that the entire income of the properties in schedule A and 7/8th income of the properties in schedule B and C was exempt from tax under section 4(3)(i) if the Income Tax Act 1922. The Income-tax Officer partially accepted the contention, and brought to tax the unspent balance of income of schedule. A properties and a 3/8th share of the income from properties in schedules B and C. By the 3/8th share of the income from B and C properties the Income-tax Officer referred to the 2/8th share directed to be applied for repairs and improvement in clause 13(a) of the deed, and by the 1/8th share the share directed to be applied for the same purposes in clause 13(b).
(3.) The decision of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. The Tribunal reversed the order from the Appellate Assistant Commissioner. The Tribunal observed that section 4(3) (i) of the Income Tax Act, 1922, "does not set its face against accumulations of the income being invested and the income therefrom used for trust purposes" and that a trust does not cease to be a public charitable trust merely because the beneficiaries of the trust are poor descendants of the settlor.;