TMI Blog1991 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals by this common judgment. The assessee-appellant in all these cases is a Hindu undivided family known as M/s. Moti Lal Chhadami Lal Jain carrying on business at Firozabad. The Hindu undivided family consisted of the karta, Chhadami Lal Jain, and his son, Bimal Kumar Jain. Civil Appeal No. 1426 of 1975 relates to the assessment year 1962-63, Civil Appeals Nos. 1427 and 1428 relate to the assessment years 1968-69 and 1969-70 and the other remaining civil appeal relates to the assessment year 1973-74. The facts relevant for the assessment year 1962-63 may now be set out : For the assessment year in question, the previous year for which ended on July 12, 1961, the assessee-Hindu undivided family derived income from property as well as hire rent and commission from Jain Glass Works P. Ltd. (hereinafter referred to as "the company"). On May 3, 1960, the assessee family had granted a perpetual lease of certain buildings furnaces and lands owned by it to the company. It appears that a firm known as Jain Glass Works had taken on lease the above assets of the Hindu undivided family at an annual rent of Rs. 62,000 for running its business in the manufacture of glassware. The leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee family returned Rs. 11,000 as lease rent received from the company. It was claimed that the balance of Rs. 10,000 was the income of the trust and hence not part of the income of the assessee. It was explained that the university, while granting affiliation to the college, had imposed a condition that security should be given for the running expenses of the college and as such security was given by creating a charge of Rs. 10,000 in favour of the college on the immovable property of the joint family. The contention was that the sum of Rs. 10,000 out of the rent payable by the lessee for the property got diverted by an overriding title to the college and ceased to be the income of the assessee. This contention was negatived by the Income tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal (the Tribunal). The Tribunal, however, directed the Income-tax Officer to give appropriate relief under section 88 in respect of this amount. Another bone of contention between the parties related to the income from certain properties claimed to have been transferred by the assessee family to the trust on November 14, 1947. On that date, the assessee ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insufficient in the year 1957 ; therefore, both of us thought it proper that, in order to run the trust successfully, the properties mentioned below should also be invested in the trust and to be under the same so that Shri Chhadami Lal Jain Trust should always run property and the public good that has been done up to now, as stated above, should continue to be so done in the same rather better way. Public good should continue to be done. Therefore, we, the executants had given to the trust on July 1, 1957, the following property the value of which was Rs. 25,000 [by] cancelling mutation thereof in respect thereof in our name and giving up possession of the below-mentioned property, at the same time, had transferred it to the trust. Since July 1, 1957, we have had no connection with the property mentioned below nor shall we have any concern with it in the future." The deed then proceeded to mention the details of the property " which has been in the use of the trust above-mentioned since 1957 and will continue likewise to be in the use of the trust always". It then proceeded to appoint eleven persons who were to be trustees to continue to run the trust and the institutions. Chhad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "Whether, on the facts and in the circumstances of the case, income of Rs. 13,920 from properties purported to have been transferred to the trust was not assessable in the hands of the assessee-family ?" It may be mentioned that though a reference was also made by the Tribunal on the other question regarding income from the property (in R. A. Nos. 90 and 91 of 1972-73 dated March 7, 1972), that was not the subject-matter of Income-tax Reference No. 47 of 1973 and hence we are not concerned with that here. In Income-tax Reference No. 168 of 1979 which relates to the assessment year 1973-74, three questions were referred to the High Court, of which we are concerned with only two here. These are : "(2) Whether, on the facts and in the circumstances of the case, income of Rs. 6,329 from properties purported to have been transferred to the trust was not assessable in the hands of the assessee-family ? (3) Whether, on a proper construction of the lease deeds dated May 3, 1960, and May 5, 1962, and accompanying facts and circumstances of the case, the sum of Rs. 10,000 is the income of the assessee and not that of Chhadami Lal Jain Degree College ?" The questions referred w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent with the company is only that Rs. 10,000, out of the rent due to it, should be paid directly to the college. This is only a mode of application of the income by the family which will make no difference to its liability to pay tax on the entire rent of Rs. 21,000. Nor does the fact that the college has been given a right, by the four party agreement, to sue for and recover the sum of Rs. 10,000 directly from the company in case of default alter this position. That is only a mode of recourse provided to the college for the enforcement of the promise made to it by the assessee. The payment to, or recovery of, Rs. 10,000 by the college will only discharge in part the liability of the company to pay a rent of Rs. 21,000 to the assessee under the lease deed. It is contended on behalf of the assessee that it would not be correct to treat this as a case of a mere application by the assessee of a part of the rental income due to and receivable by it. The right given to the college to sue the company directly coupled with the creation of a charge in its favour on the property yielding the rent for such payment has the result of diverting that part of the rental income at the very sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome being received in cash by one person or another. What the passage emphasises is the nature of the obligation by reason of which the income becomes payable to a person other than the one entitled to it. Where the obligation flows out of an antecedent and independent tide in the former (such as, for example, the rights of dependants to maintenance or of coparceners on partition, or rights under a statutory provision or an obligation imposed by a third party and the like), it effectively slices away part of the corpus of the right of the latter to receive the entire income and so it would be a case of diversion. On the other hand, where the obligation is self-imposed or gratuitous (as here), it is only a case of an application of income. The case of a sub-partnership, referred to on behalf of the assessee, is really a case on the borderline. It is possible to take a view that it is nothing more than a case of one partner agreeing to divide his share of profits from a firm with others and, indeed, this was the view taken earlier : ( Mahaliram Santhalia v. CIT [1958] 33 ITR 261 (Cal)). But, apparently in view of the commercial necessities which compel the formation of sub-partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not speak of the corpus of the properties being held in trust. Clause (3) of the 1947 deed only stipulates that the income from the properties will be the income of the trust. A little later also the deed proceeds to set out the " properties the income from which will be used for the purposes of the trust". In other words, the deed only records the assessee's desire to utilise the income for the objects mentioned in the deed and not for his personal benefit. The document of 1960 does not improve matters any further. So, it is said, no valid trust has been created by the assessee to merit the claim for exemption. We are of the opinion that the view of the High Court proceeds on an unduly narrow construction of the deeds of 1947 and 1960. We have pointed out that, under the deed of 1947, the karta of the assessee-family is the sole trustee to execute the objects of the trust. It appears to have been overlooked that, while a registered conveyance to the trustees by the owner of immovable property is necessary where the trustees are persons other than the author, this requirement does not arise where the author of the trust is to be the sole trustee. While a trust is not complete ..... X X X X Extracts X X X X X X X X Extracts X X X X
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