TMI Blog1981 (10) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ch discussions is evidenced by the agreement dated March 30, 1972, which is annex. B to the reference. It recites an agreement for the transfer of the business of M/s. V. S. Kumaraswamy Reddiar to Sri V. S. Kumaraswamy Reddiar and Sri K. Nagaraja Reddiar " who have agreed to constitute a trust effective from the 1st day of April, 1972 " for the benefit of the 9 persons referred to therein. After providing that Kumaraswamy Reddiar and Nagaraja Reddiar shall be the trustees, the agreement further provides that Sri V. S. Kumaraswamy Reddiar shall be possessed of all the assets as on March 31, 1972. Clause 5 of the agreement states that " a trust deed shall be made out and registered constituting the trust on April 1, 1972 ". The agreement further provides for the execution of an agreement of sale in respect of the assignment of the business to the trust. In accordance with the terms of annex. B agreement, entries were made in the books of the firm, which evidence the transfer of various amounts to the trust fund. As envisaged under the agreement, trust deed was executed on April 1, 1972. This is annex. D to the reference. Paragraph 2 of the trust deed deals with the appointment of Nag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was considered by the AAC. After referring to the decisions on the point and sketching the statutory history leading to the enactment of the provisions of s. 161(2) of 1961 Act, the AAC observed that it was not permissible for the ITO to tax income received by a representative assessee as defined in s. 160, under the general charging section, s. 4. The assessment for the year 1974-75 made on similar lines by the ITO was also set aside in appeal by the AAC by his order dated February 24, 1977, adopting the reasoning of his earlier order dated March 1, l976. The Revenue took up the matter before the Tribunal in two appeals, in, respect of the two years. The Tribunal affirmed the view of the AAC and dismissed the appeals. The Tribunal found as a fact that the four partners of the firm had decided to transfer the properties in, the firm as well as some funds to the trust by their agreement dated March 30, 1972, and that the agreement showed that the founders of the trust were the four partners themselves. In para. 10 of its order the Tribunal observed : " There is only one transaction, a transfer from the capital account to the trust fund. So the settlor in respect of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ITO erred in observing that para. 2 indicated a transfer of the funds by the minors. His conclusion that the trust deed mentioned the minors as the authors of the trust is not supported by the provisions of the agreement dated March 30, 1972, or of the trust deed of April 1, 1972. We are thus in agreement with the findings of the AAC and of the Tribunal, that the minors were not the authors of the trust and consequently the invalidating provision of s. 7(b) of the Indian Trusts Act, 1882 (arising out of an omission to obtain permission of civil court for creating a trust by or on behalf of the minors) is not attracted to the facts of the case. Counsel for the Department sought to rely on the recitals as contained in the " journal entries " in the books of account (annex. C) as given in the paper book furnished to the Tribunal at the time of hearing, to contend that there had been " gifts " of cash to the minors. We are of the view that these entries cannot prevail over the provisions in the documents already referred to. The Tribunal has in para. 10 of its order observed as follows: " It would be seen from that as a matter of fact that no funds were transferred to the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing with the legal situation in England are apposite to the Indian situation, as we have already concurred with the finding of the Tribunal that the trust involved in this case is not one created by or on behalf of the minors. The further contention that even if a valid trust is posited the assessee was liable to be assessed as an association of persons was also pressed before us. Passages from p. 949 of the 7th Edn. of Kanga and Palkhivala on income Tax, were relied on by counsel for the Department. These passages are based on the decisions in Hotz Trust of Simla v. CIT [1930] 5 ITC 8 (Lah) and J. V. Saldhana v. CIT [1932] 6 ITC 114 (Mad) [FB]. The two decisions themselves had been referred to and considered both by the AAC and the Tribunal. The subsequent development in the case law as also statutory developments, which ultimately led to the enactment of the new provision, s. 161(2), had been referred to by these taxing authorities. The decisions in Hotz Trust of Simla v. CIT [1930] 5 ITC 8 (Lah) and J. V. Saldhana v. CIT[1932] 6 ITC 114 (Mad) [FB], do not have any direct bearing on the question referred in this case. The correct principles to be applied in the case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities of the trust and, therefore, in any event, the assessment under s. 161(1) of the Act would not be applicable to such income received from the business which had been only transferred under annex. E. These contentions, in that form, are not seen urged at any time and so naturally have not been even shadowed in the order of the Tribunal. It is, therefore, not open to the Department to urge those contentions before this court. Apart from that, the contentions are devoid of force. The requirements for the creation of trust as defined in s. 3 are fully satisfied in the case. The authors of the trust and the beneficiaries are not identical as contended by counsel. The trust deed did contemplate: acquisition of business by the trustees. The acquisition of the business under annex. E agreement was one which was clearly contemplated at the time of the agreement dated March 30, 1972, and had been fully authorised by the second paragraph of cl. 5 of the trust deed. As observed by the Tribunal in para. 11 of its order, the business is as much a part of the trust as the sum of Rs. 40,000 ". The income arising out of the business activities was, therefore, one to which section 161 d ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
