Commissioner of Income Tax vs K.T. Mathew

K.S. Paripoornan, J.—These are connected cases. The Revenue is the petitioner in all the original petitions. The respondent is an assessee to Income Tax. He was assessed in the status of an "individual". The matter relates to the assessment years 1980-81 and 1981-82. The assessee was carrying on a business in offset press under the label "Victory Offset Printers". By a deed dated April 2, 1979, the assessee and his wife declared a trust called Flemings Trust in respect of a sum of Rs. 5,001 held by them for the benefit of their minor son, K. M. Fleming. Even earlier, the minor son had been admitted to the benefits of a partnership called "Victory Paper Stores". The minor had to his credit a sum of Rs. 3,31,469 in the Victory Paper Stores. On the very day when the trust deed came into existence, the assessee had entered into an agreement as proprietor of the Victory Offset Printers with Mrs. Omana Mathew, representing Flemings Trust, for the sale of the printing business to the trust for a consideration of Rs. 3,79,810.66 being the book value of the business. The amount was adjusted in the account of the minor with the Victory Paper Stores and a corresponding credit in favour of the assessee was made in the account of that firm and the balance treated as a loan. The Income tax Officer as well as the Commissioner of Income tax (Appeals) held that no valid or genuine trust had come into existence which can legitimately claim ownership of the printing press. The income from the trust was included in the hands of the respondent/assessee. The objection to the contrary by the respondent/assessee was overruled. However, the Appellate Tribunal, in adjudicating the four appeals before it (income tax Applications Nos. 213 and 214/(Coch.) of 1985 --filed by the respondent/assessee and Income tax Applications Nos. 348 and 349/ (Coch.) of 1985--filed by the Revenue ), held that the trust-created by the document dated April 2, 1979, is a valid trust and the income from the business accrued only to the said trust and cannot be added to the total income of the respondent/assessee. In that perspective, the Tribunal declined to consider the question of determination of the income from the business which has already been done in the case of the trust. A direction was given to delete the income from the Victory Offset Printers from the total income of the respondent/assessee. The said appellate order of the Tribunal is dated October 9, 1987. Thereafter, the Revenue filed applications u/s 256(1) of the Income tax Act, 1961, praying to refer certain questions of law for the decision of this court. The Income Tax Appellate Tribunal, by a detailed order passed in R. A. Nos. 30, 31, 32 and 33/(Coch.) of 1988 dated October 6, 1989, dismissed the applications. It is thereafter that the Revenue has filed the four original petitions u/s 256(2) of the Income tax Act, 1961, praying that the three questions of law formulated in paragraph 7 of the original petitions (common in all cases) may be directed to be referred to this court by the Income Tax Appellate Tribunal. The questions are as follows :

" 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that there was a valid trust ?

If the answer to the above question is in the negative, whether the Appellate Tribunal was justified, on the facts and in the circumstances of the case, in deleting the income from the Victory Offset Printers from the assessment of the assessee ?

If the answer to the second question is in the negative, whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in dismissing the Revenue''s quantum appeal without going into the merits of the contentions ?"

We heard counsel. Admittedly, the trust was one created as per document dated April 2, 1979. The Income Tax Appellate Tribunal has referred to this document in paragraph 2 of its order dated October 9, 1987. For various reasons, the Income Tax Officer as well as the Commissioner of Income Tax (Appeals) took the view that no valid trust was created and that even otherwise the transaction entered into by the trust was a sham and not genuine. The fact that the respondent/assessee was in control of the business as a whole was very much stressed. It is after adverting to the deed of trust dated April 2, 1979, and the attendant circumstances of the various transactions that the Appellate Tribunal held that there is a valid trust and that it cannot be stated that the transaction was a device to reduce the tax liability. An interpretation of the aforesaid deed of trust dated April 2, 1979, falls for consideration. It is by the said deed that the trust was created. It is on the same day that an agreement was entered into by the respondent/assessee as proprietor of Victory Offset Printers with Mrs. Omana Mathew representing Flemings Trust for the sale of the printing business. The trust deed dated April 2, 1979, as also the agreement entered into by the respondent/assessee with Mrs. Omana Mathew took place on the same day. Both the transactions should be considered together. All these aspects require detailed consideration to find whether there was a valid creation of a trust and whether such trust is a genuine one. At this stage, this court is concerned to consider as to whether a question of law which may be supported by reasonable argument arises out of the order of the Tribunal.

We are satisfied that the three questions of law, formulated in paragraph 7 of all the original petitions, and extracted hereinabove, are questions of law which arise out of the order of the Appellate Tribunal. We, therefore, direct the Income Tax Appellate Tribunal to refer the above three questions of law for the decision of this court along with a statement of the case, the trust deed dated April 2, 1979, the agreement entered into by the assessee with Mrs. Omana Mathew dated April 2, 1979, and other relevant orders and documents. A direction will issue to that effect to the Income Tax Appellate Tribunal to refer the matter to this court at the earliest.

A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench, for compliance.