TMI Blog1997 (3) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of Trust Deed and directing the Assessing Officer to take further action accordingly? 2. The assessee is a private family trust formed under Trust Deed dated 9-1-1984. Copy of the Trust Deed is filed before the Tribunal in paper compilation. Shri Haji Yunus, Abdul Sattar and Shri Haji Sikandar Abdul Sattar are the settlors of the Trust. Shri Haji Razak A. Sattar, Smt, Momina H. Razzak, Shri Haji Ahmed Haji Razak and Smt. Bilkishbai Haji Ahmed of Bombay are the Trustees. There are 24 beneficiaries, out of whom Trustees 1 and 2 above also figure. Different ratios at which they are entitled to share the profit arising out of the trust property were defined against each of their names as can be seen from page 12 of the paper compilation. Copy of the Trust Deed itself is provided at pages 6 to 35 of the paper compilation. Clause 8(f) of the Deed gives power to the Trustees to do business either on their own or in partnership with any firm or firms. We are concerned with the sub-letting of Flat No. 4 (admeasuring 1472.47 sq. ft.), 2nd Floor, Rabro House, 57-59, Shahid Bhagatsingh Road, Colaba, Bombay-5. Originally, this flat belonged to Shri Maganlal Jadavji and Shri Mansukhla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 14-12-1988 also clearly points out the business activities of the assessee-trust. Further the assessee came forth with the contention that the interest earned by the trust is not accounted for on the ground that 9 beneficiaries belonging to Kudia family are not interested in the said interest income as per the resolution dated 'nil' passed by the Mg. Trustee and the trustee decided to utilise the interest of the above deposit solely in the interests of the family members of Gajiani Family only. This action was not in consonance with the recitals of the Trust Deed. It throws to winds the directions contained in the original Trust Deed with regard to the names and shares of the beneficiaries. It would show that the Trustees and beneficiaries are following their own rules and regulations disregarding the clauses of the Trust Deed. The names of the beneficia- ries and the determined ratios of each of the beneficiaries' interest appear to have been followed more in breach rather than in compliance. In the circumstances, the Assessing Officer held that the names of the beneficiaries and their shares in the income of the trust are not ascertainable with reference to the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those in 1985-86, the assessment was completed on a total taxable income of ₹ 5,22,488 and the maximum marginal rate was applied to it. Thus, the assessment for 1986-87 was completed by the Assessing Officer on 25-1-1989 under section 143(3). 5. Against the assessments dated 6-1-1989 for assessment year 1985-86 and 25-1-1989 for assessment year 1986-87, the assessee went in appeal before the CIT(Appeals). The CIT(Appeals) consolidated both the appeals and disposed them of by his common order dated 14-3-1990 whereby he partly allowed the appeals. Firstly, the ld. CIT(Appeals), accepting the contention of the assessee, held that though the assessee was taking up diverse positions with regard to the head of income under which the rental income is assessable in its hands, the assessee was not precluded from claiming that income from letting out of the premises constituted its income from other sources even though it had shown the same as business income in the return of income during the course of assessment proceedings. He relied upon the following decisions : (1) United Commercial Bank Ltd. v. CIT (1957) 32 ITR 688(SC) (2) Bihar State Co-operative Bank v. CIT (1960 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the shares of beneficiaries of the trust as shown in the Trust Deed could not be accepted. He found that the deposit amount of ₹ 7,42,124 was distributed amongst 15 beneficiaries and not amongst 24 beneficiaries and depending upon that fact the Assessing Officer held the view that the shares of the beneficiaries were not determinate and their shares as shown in the Trust Deed could not also be accepted. It was contended before the ld. CIT(Appeals) on behalf of the assessee-trust that the deposit was made as an advance from the tenant and it could not be the income of the assessee-trust and, therefore, the amount of deposit was not required to be distributed amongst the beneficiaries and, in fact, the deposit was not distributed amongst the beneficiaries. Since the assessee-trust was required to pay interest on the deposit to MTNL or Bombay Telephones, as a measure or recouping the interest, the assessee offered the amount as loan to the beneficiaries at the same rate of interest which was payable by the assessee-trust to the tenant. However, only 15 beneficiaries out of 24 were willing to take the amount as loan from the assessee- trust and, therefore, it was advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount as well as balance-sheet along with the return for assessment year 1985-86. The assessee also appended capital account of the partners to the balance-sheet. The share of profit arising from the income has also been shown. In the assessee's letter dated 24-5-1985 as well as its letter dated 14-12-1988 addressed to the Assessing Officer, the assessee clearly admitted that the assessee-trust was doing business. It was argued by the learned Departmental Representative that the sole motive in taking lease of the tenanted premises and subletting the same to MTNL or Bombay Telephones was to earn profits and, therefore, the rental income should be correctly taxed as income from business . When once the nature of the income was determined as business, the provisions of section 161 (1A) automatically would apply and the said income as a whole should be liable for tax at maximum marginal rate. 10. On the other hand, the learned counsel for the assessee contended that the order of the CIT (Appeals) to treat the income as one from other sources was perfectly justified and did not warrant any interference. He submitted the following in support of his contention. 10.1 MadanlaI J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the settlors of the trustees as well as the beneficiaries. The settlors are stated to be the sons of Abdul Sattar. The first of the Trustees also appears to be one of the sons of Abdul Sattar. The second of the Trustees is the wife of the first Trustee. The 4th Trustee is the wife of the 3rd Trustee. All the 4 Trustees are also beneficiaries under the Trust Deed. Out of them, Trustees 1, 3 and 4 hold 296 interest, whereas 2nd Trustee holds 396 interest. The inter se relationship was better explained in the letter dated 4-12-1986 addressed to the ITO. The 4th Trustee, i.e., Smt. Bilkishbai, is the sister of settlors 1 and 2 and the 3rd Trustee is the brother-in-law of settlors 1 and 2. The relationship amongst the beneficiaries also is clearly given and we are satisfied that they are related to one another and, therefore, it is quite unnecessary to describe the particulars of their relationship since nothing material turns upon it in these appeals. It is strongly contended that the Trustees were not at all carrying on any business and subletting the premises is definitely not a business undertaken by the Trustees. It is contended that a single transaction of taking a premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y income thereon but not others. Now, the question would be : what would be the nature of the rental income derived by a sub-tenant ? In this connection, the Madras High Court decision in Lakshmi Co.'s case (supra) would be instructive. In the head-note of the decision, the following is what is held at page 905 of the report : Held, (1) that the assessee's activity of taking premises on lease, putting up constructions as annexe thereto and letting them out to various tenants was in the nature of a business activity and not what an ordinary property owner would do. Consequently, the firm was entitled to registration. (2) That sub-letting a property could not be considered to be a trade in its popular or commercial sense. The assessee's activity was not also like that of a property owner as the assessee was not the owner of the property. Mere sub-letting could not be taken to be a business and, hence, the income was assessable under the head 'Other sources'. The following Bombay High Court decision also supports the case of the assessee : Baijnath Brijmohan Sons (P.) Ltd.'s case (supra). The following is what is held in the head-note at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osing the contention, the Id. counsel for the assessee contended that it is impermissible to lift the veil to ascertain whether a business in reality and substance is the business of the trust or not and, in support of this contention, the Gujarat High Court's decision in K.T. Doctor v. CIT (1980) 124 ITR 501 was cited, wherein it was clearly held as follows as per a portion of the head-note : Lifting the veil to ascertain whether a business in reality and substance is the business of the trust is not permissible in law so far as trusts are concerned. Therefore, the very argument advanced by the ld. Departmental Representative cannot be entertained. 12. It was next by the ld. Departmental Representative that the deposit must be distributed amongst all the 24 beneficiaries but, even according to the assessee-trust, it was not so distributed but was utilised only by the 15 members of Gajiani Family and Kudia Family members never enjoyed at all the said deposit. This would only show that the directions in the original Trust Deed were clearly disregarded adversely affecting the condition relating to ascertainment of the beneficiaries and also the determined ratio of be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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