TMI Blog1993 (4) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... to the profit and loss appropriation account and thereafter it was transferred to general reserve. The Assessing Officer brought the said amount to tax as capital gain by allowing a cost of acquisition of Rs. 100, i.e., the amount proportionate to its beneficial interest in the trust. After noticing certain facts leading to the formation of the trust, examining the balance-sheets, the relation between the settlor, beneficiaries and the trustees, the Assessing Officer concluded that it was a well planned and stage managed affairs by the family group of Lokhandwala to avoid possible tax on capital gain and for this, he placed reliance on the decision of the Supreme Court in the case of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 ; that of the Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 and that of the Kerala High Court in the case of Neroth Oil Mills Co. Ltd. v. CIT [1987] 166 ITR 418. He also levied a penalty for concealment for not declaring this income from capital gains. 3. In appeals the CIT(A) upheld that assessment as well as the penalty imposed by the assessing officer for concealment, after considering the submissions advanced by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of income. The explanation was also not false. But the same cannot be said about the bona fide. The manner in which the appellant has gone about the transaction clearly shows that the explanation is not bonafide. The whole exercise was an exercise in evasion of tax. The device of beneficiary trust and the transactions entered through the medium of trust was to hoodwink the department from getting to the reality of the transaction. The transactions were stage-managed with the sole purpose of reducing the tax liability. Therefore, clause (B) of Explanation 1 would be clearly applicable." 4. The learned counsel for th e assessee, Sri Gautam Doshi, submitted that there was no cost of acquisition for the interest in the trust in the hands of the assessee. He further submitted that the previous owner had no such interest in the trust. He has only donated a sum of Rs. 1,000 for the creation of the trust. Section 49(1)(iii)(d) could apply to the trustees and not to the beneficiaries. He referred to section 3, section 58, and sections 63 to 67 of the Trust Act. Relying upon the decision of the Tribunal in the case of Gopaldas T. Aggarwal v. ITO [1983] 6 ITD 451 (Bom.) the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ah and distinguished in its order in [IT Appeal No. 4874 (Bom.) of 1986 dated 29-10-1990. This decision, he submitted, covers the case of the assessee wherein it was held that capital gain has been rightly charged. Referring to the decision of the Supreme Court in the case of McDowell Co. Ltd., the learned Departmental Representative submitted that it was a clear case of planning and stage-management of the affairs of a family group of Lokhandwala to avoid capital gains and, therefore, the assessee was guilty of concealment for not disclosing the capital gain and paying the tax thereon. 7. We have heard the parties and considered their rival submissions. Section 45 of the Act provides for the chargeability of profits and gains arising to an assessee on transfer of capital asset. It is called as income under the head " capital gains ". Section 48 of the Act provides for the mode of computation and deductions. It states that income chargeable under the head " capital gain " shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset,--- (i) expenditure incurred wholly and exclusively in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the settled amount of Rs. 1,000) for granting the beneficial interest to the assessee and, therefore, this was the cost of acquisition of the property assigned/sold by the assessee for a sum of Rs. 15 lac. In our opinion, the revenue is right in its approach. 9. When a trust is created, the ownership over the property is split into two : (i) the legal ownership which is acquired by and rests with the trustee ; and (ii) the beneficial ownership which is acquired by the beneficiary by virtue of transfer under the trust and which is enjoyed by him. It is very important and curious instance of dual ownership which allows the separation of power of management and the rights of enjoyment. The former is owned by the trustee and is a matter of form and nominal and the latter is owned by the beneficiary and is a matter of substance and reality. It is by fiction of law that the trustee is treated as the full owner of the property against third person but as between the trustees and beneficiaries, the property belong to the latter and not to the former. The trust ownership and beneficial ownership are separate and independent of each other in their destination and disposition both. Eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquiring the freehold rights. The ratio of B.C. Srinivasa Setty's case [1981] 128 ITR 294 (SC) is thus not attracted to the question involved in the present case." 11. In the case of A.R. Krishnamurthy, the assessee purchased two pieces of land in the year 1966 for a price of Rs. 27,260. By a lease-cumlicence deed, a mining lease was granted in favour of the lessee for a period of ten years on the payment of a sum of Rs. 5 lac as premium or salami and a royalty of Rs. 12 per 100 cubic feet of clay extracted subject to a minimum of Rs. 60,000 per year. The assessee's contention that there was no cost of acquisition for the rights of limited enjoyment transferred by the grant of the lease and that the same was not determinable and the computation provision would not apply in view of the decision of the Supreme Court in the case of B.C. Srinivasa Setty was not accepted by the Supreme Court. The Court held as under : " If a transfer of a capital asset in section 45 of the Act includes grant of a mining lease for any period, then, obviously, the ' cost of acquisition ' of the land would include the ' cost of acquisition ' of the mining right under the lease. Undisputely, the grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject-matter in that case was life interest of the person who was selling or releasing, though that life interest devolved on the successive deaths of two erstwhile life tenants." 13. In the light of the above discussion, we do not find any force in the contention of the assessee that there was no cost of acquisition of beneficial interest acquired by the assessee in the trust and assigned/sold by him ; or that the settlor, as the previous owner, had no interest in the property settled on trust granting beneficial rights to the assessee. We also do not find any force in the alternate contention of the assessee that the proportionate amount equivalent to the value of the asset of the trust be allowed as ' cost of improvement ' as, in our opinion, no such cost was either incurred or borne by the assessee or the previous owner. In this view of the matter, we hold that the capital gain was rightly assessed in this case. 14. As regards the penalty, we find that it was a bona fide claim made by the assessee and all the facts relating thereto and material to the computation of the assessee's total income have been disclosed by the assessee. Therefore, it was neither a case of concea ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
