9911796707
TMI Blog1990 (11) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and insofar as they were prejudicial to the interest of the revenue inasmuch as the ITO had made the assessments on substantive basis without considering the effect of the provisions of section 64(1)(vii) which could have been invoked on the facts of the present case which can be gathered from the order of the CIT are as follows : 2.1 It is seen that one Sri Pararam Karamchand, in terms of deed of indenture dated 18-12-1980 settled a sum of Rs. 10,500 for the benefit of 4 minor children of his brother Sri Gurdasmal Karamchand. Likewise, Shri Gurdasmal Karamchand by a deed of indenture dated 29-5-1980 settled a sum of Rs. 15,000 on a trust for the benefit of 2 minor children as stated by CIT of his brother Shri Pararam Karamchand. The two trust deeds were similarly worded. The nature of business carried on by the two trusts was also the same. Therefore, it appeared that two brothers had created two trusts for the benefits of each other's minor children and the provisions of section 64(1)(vii) could be invoked inasmuch as the two brothers have transferred indirectly and otherwise than for adequate consideration amounts to the AOP as a result of which income from such asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and that the time lag was of one year. Therefore, the provisions of section 64(1)(iv) could not be invoked. Alternatively and without prejudice Sri Lal argued that even under section 64(1)(vii) only income from property transferred could be included. In the present case the amounts were settled in trusts which carried on business as commission agents in cloth and the income that arose from such business could not be said to have been arisen directly out of the investment of the amounts settled but the income arose out of the management of the business and, therefore, such income could not be said to be income arising from assets transferred. In support of this proposition Sri Lal relied on the decision of the Supreme Court in CIT v. Prem Bhai Parekh [1970] 77 ITR 27. Sri Lal then argued that the decision of the Calcutta High Court in the case of Sital Choudhury relied upon by the CIT was clearly distinguishable on facts inasmuch as in that case the assets transferred were identical and of the same value and they were transferred on the same dates. Further, in that case the Tribunal had given a finding on facts that the income arose from the assets which were transferred. Sri Lal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al's argument that the assumption of revisional jurisdiction by the CIT was wrong is clearly not acceptable. Apparently, the ITO had not looked into the facts and circumstances under which these two trusts came to be formed and the CIT was justified in proceeding under section 263. Having said this we have to consider whether on merits the CIT's order can be said to be correct. 7. It is clear that both these trusts were formed on different dates and with different amounts. The first trust viz. Haresh Kishan Beneficiary Trust was formed on 29-5-80 by Gurdasmal Karamchand who settled an amount of Rs. 15,000 for the benefits of 6 minors who were the children of his brother Sri Pararam Karamchand. Whereas in the second trusts viz. Rakhee Beneficiary Trust, one Sri Pararam Karamchand settled an amount of Rs. 10,500 for the benefits of 4 minor children all of whom were the children of his brother Gurdasmal Karamchand. This trust was created on 18-12-1980. Thus the amounts settled were different and they were settled on different dates. The number of beneficiaries in one trust were 6 and those in another were 4. In the cases decided by the Tribunal in Jayantilal S. Porwal's case the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the minor arose as a result of their admission to the benefits of the partnership. They were no doubt admitted to the benefits of partnership because of the contribution made by them. The Supreme Court observed that there was no nexus between the transfer of the assets and the income in question. It cannot be said that the income arose directly or indirectly from the transfer of the assets. As laid down by the Supreme Court, the connection between the transfer of assets and the income must be proximate. The income in question must arise as a result of the transfer and not in any other manner. In the present case, the income which is substantial viz. Rs. 84,000 and Rs. 75,000 and odd in the case of one trust and above Rs. 57,000 in each of the two years in the case of other trust is very much more than the amount transferred and it cannot be said that the connection between the income earned by the trusts in the business carried on by them and the amounts settled by the settlors in favour of the beneficiaries is a proximate connection. Therefore, although this is a case of a trust having regard to the fact that the income has arisen as a result of business carried on by the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tman Trust's case the issue was the applicability of section 164 in a discretionary trust. Here again, the trust had as its beneficiaries 21 discretionary trusts and the CIT(A) has confirmed the order of the ITO treating the trust as a discretionary trust on the ground that the income of the assessee-trust was to reach the ultimate beneficiaries, viz., the members of the AOP but their shares were not determinate. The question of applicability of section 64 was not before the Tribunal and on that count this decision is also distinguishable. 9. We are, therefore, satisfied that the decision of the Tribunal in Jayantilal S. Porwal's case and the two decisions of the Supreme Court in Prem Bhai Parekh's case and Prahladrai Agarwala's case support the stand of the assessee. We would, therefore, hold that this is not a case of cross-gifts. We cannot, on the facts and evidence, say that this was an inter-connected transaction. Alternatively and without prejudice we would hold that the income that has arisen to the trusts which is the income from business carried on by the respective trusts cannot be said to have any proximate connection to the amounts settled and therefore such income ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
