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4. On 15th January, 1946, the three Singhania brothers retired from a partnership firm called J. K. Hosiery Factory. On 5th February, 1946, the firm, J. K. Hosiery Factory, was reconstifuted. In the reconstituted firm the Kamla Town Trust became a partner. In the assessment proceedings for the year 1948-49 relating to the linn, J. K, Hosiery Factory, a question arose whether Kamla Town Trust was a public charitable trust so as to be exempt from tax under Section 4(3)(i) of the Indian I.T. Act, 1922. The Tribunal held that after rectification some of the objects were charitable but some were not of a charitable nature. The trust being for mixed objects was not a public charitable trust and was not exempt under Section 4(3)(i) of the Indian I.T. Act, 1922. The Tribunal gave its decision on 11th May, 1953.

6. Being of the view that the trust was public charitable and exempt from income-tax, the trust did not file any returns. The ITO issued a notice under Section 34(1) of the Indian I.T. Act, 1922, and, subsequently, under Section 148 of the I.T. Act, 1961. The'trust filed returns of income under protest. The ITO repelled the objections and held that the trust was not public charitable in nature and brought its income to tax. The assessee-trust appealed. The AAC elaborately dealt with the various submissions raised on behalf of the assessee, but upheld the view that the income of the trust was-liable to tax. The assessee took the matter to the Tribunal.

7. By the time this appeal came to be heard by the Tribunal, the Tribunal's order in regard to the case of J. K. Hosiery Factory was, on a reference decided by the High Court. That decision is reported as J. K. Hosiery Factory v. CIT [1971] 81 ITR 557. The Tribunal noticed that the High Court had held that it was for the civil court to go into the question as to the validity of the rectification and it was not possible for the ITO to question its validity. The High Court had also held that the original Clause 3(19) of the memorandum of association of the settlor-company empowered the company to establish a public charitable trust. The deed of trust was hence within the scope of the powers possessed by the company even prior to the amendment of its memorandum of association. The High Court further held that, after the first rectification of 1945, the objects of the trust were partly charitable but partly non-charitable. The objects being mixed, the trust was not purely charitable, so as to be exempt from tax.

10. The Tribunal then addressed itself to the question as to the effect of the second rectification, namely, whether it would operate retrospectively or only prospectively. The Tribunal observed that the contention that in law rectification relates back to the date of execution of the instrument was supported by decided cases as well as text books. It, however, held that since the High Court had interpreted the trust deed as rectified by the decree of 1945 as a mixture of charitable and non-charitable objects, any finding now recorded that the second rectification operates with retrospective effect from the date of execution of the trust deed on 27th October, 1941, will have the effect of overriding the finding of the High Court, which it was not open to the Tribunal to do. On this view, it held that it was not possible for it to hold that the second rectification operates with retrospective effect. The result was that the trust was held to be a pubic charitable trust only with effect from the date of the second rectification decree in 1955; that is, in respect of the assessment years 1956-57 onwards. The Tribunal repelled the revenue's contention that the trust was void for uncertainty. On these findings, the assessee's appeals for the assessment years 1949-50 to 1955-56, failed and were dismissed. Its appeals for the assessment years 1956-57 to 1964-65 were, however, allowed and it was held that the income derived by the trust in these years would be exempt, keeping in view the provisions of Section 11(1)(a) of the I.T. Act, 1961.