TMI Blog1942 (7) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ers as insolvents. Later, these applications were withdrawn as a result of an agreement dated 14th December 1935 entered into between the debtors and the creditors. According to the terms of this agreement all the properties of the debtors, movable and immovable, stock-in-trade, goodwill etc., were conveyed in trust to three persons, viz., (1) Seth Verumal Vallabhaaas, (2) P. K. Kunhishankara Menon and (3) S. Chellam Ayyar, as trustees with power to realise the same into money and to pay the creditors rateably and the trustees were conferred with all powers necessary for the proper fulfilment of the above said purpose. Thereupon on 26th December 1935 Messrs. U. B. Dutt Co. executed a trust deed in terms of the agreement. The trust deed provided inter alia:- Clause (2). That the trustees shall have absolute powers of disposing of all the stock-in-trade, movable and immovable properties, goodwill, etc., in such manner as they deem beneficial and they may take such steps as they deem necessary and beneficial for the early realisation of all the assets. Clause (3). That the trustees have the power to run all the businesses or any one or more of them in case they deem it necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant thereto, and ₹ 84 from ground rent. A copy of the Income-tax Officer's order is filed, marked Exhibit B. 5. The petitioners appealed to the Appellate Assistant Commissioner, Coimbatore (now Madras) contending that nobody could be assessed on the income in question, that the income did not belong to the trustees as they had to distribute the income among the creditors who were the beneficiaries, that it did not belong to the firm of U. B. Dutt Co., either, as the income that came into their hands was for payment to the creditors and that the creditors were nob liable to be taxed on the sum received by them as such a receipt represented only a part of the principal amount advanced by them. The petitioners further urged that even if the income were liable to assessment, the Income-tax Officer should have carried forward the unabsorbed depreciation of the assets of the discontinued cinema and the general business and set it off against the income from the saw mill business now in question. A copy of the grounds of appeal filed before the Appellate Assistant Commissioner is filed, marked Exhibit C. The Appellate Assistant Commissioner rejected both the contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight perhaps have been applied for paying to the creditors. In the case of Armitage v. Moore* an insolvent firm of worsted spinners who executed a deed of assignment for the benefit of their creditors and the trustee under the deed continued to carry on the business of the insolvents and paid the profits to the creditors of the estate, it was held that the profits were liable to assessment and that the application of the profits did not concern the Income-tax authorities. The following is an excerpt from the judgment: A man who is making a profit this year should not be heard to say: I am not making a profit this year because when I have got the money, which you call a profit, I am going to pay some debts which I made many years ago , Though the issue in that case was different, the ratio decidendi of that decision is that the creditors cannot be regarded as beneficiaries and as entitled to the profits of the business of the insolvents and that only the insolvents will be the real beneficiaries and that payment of the profits to the creditors will amount only to an application of the profits with which the Income-tax authorities are not concerned. The assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a rice mill at Ernakulam. In 1935 certain creditors applied for the adjudication of the partners as insolvents under the Provincial Insolvency Act. This petition was not proceeded with because on the 14th December, 1935, an agreement was arrived at under which the debtors' properties were to be conveyed to trustees for the benefit of their creditors. Accordingly the debtors' assets were conveyed to three trustees with power to realize what was necessary and to pay the creditors proportionately out of the moneys they received. The trustees sold the cinema in the firm's financial year which ended on the 30th June 1937. The general business was also sold, but they carried on the saw mill business which proved to be a profitable concern. The profits made from the saw mill were sufficient to pay in full all the creditors. This case deals with the assessment of the trustees for the year 1939-40. The trustees claimed that the creditors were the beneficiaries of the trust, but the Income-tax authorities held that the partners were. The trustees also claimed to be entitled under the provisions of Section 10(2)(vi) to an allowance for depreciation of the assets which had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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