Commissioner of Income Tax vs Sharad Narandas Patel

R.K. Abichandani, J.—The original Income Tax Reference No. 73 of 1987, which related to five assessment years, namely, 1978-79 to 1982-83 arising out of five appeals (I. T.A. Nos. 1842 to 1846) decided by the Tribunal is ordered to be split up into five references. They are numbered as Income Tax References Nos. 73, 73A, 73B, 73C and 73D of 1987 for the respective years 1978-79 to 1982-83.

The Tribunal has referred the following question in these references for the opinion of this court :

"Whether, in law and on facts, the income of the Sharad Family Trust was taxable in the hands of the assessee ?"

Reference No. 100 of 1987 (arising from two Appeals Nos. 122 and 123 of 1985) is directed to be split up into two references, namely, Nos. 100 and 100A of 1987, in respect of the two assessment years 1978-79 and 1979-80, respectively. The Tribunal has referred the following question for the opinion of the High Court in those references :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of the assessee-trust was not liable to be included in the individual income of Shri Sharad Narandas u/s 60 of the Income Tax Act, 1961 ?"

In References Nos. 73, 73A, 73B, 73C and 73D of 1987, the assessee is the individual who was the managing trustee of Sharad Family Trust, the beneficiaries of which are the sons of the assessee. According to the Income Tax Officer, the entire business and administration of the trust was being handled by the assessee and the other trustees had no knowledge of the affairs of the trust whatsoever. It was held that the entire income of the trust belonged to the assessee and was brought to tax accordingly. The Commissioner of Income Tax (Appeals), however deleted the addition following his decision in the case of Sharad Family Trust (income tax Appeals Nos. 178 to 180), decided on June 6, 1983. The Tribunal held that the income of the trust was to be assessed in the hands of the trust and not the managing trustee who was the assessee in that case and confirmed the order of the Commissioner of Income Tax (Appeals).

In the order from which the Income Tax References Nos. 100 and 100A of 1987 arise, in the case of the assessee-trust, the Tribunal confirmed the order of the Appellate Assistant Commissioner by which he had directed the protective assessment made by the Income Tax Officer in the hands of the trust to be made substantive on the finding that the business genuinely belonged to the trust.

It is pointed out to us that in respect of the earlier assessment years 1975-76 to 1977-78, in the case of the assessee-trust, the Tribunal had referred to the High Court for its opinion in Income Tax Reference No. 63 of 1984 (arising out of Income Tax Appeals Nos. 178 to 180), the question as to whether the income of the assessee-trust was not liable to be included in the individual income of the assessee who was the managing trustee u/s 60 of the Income Tax Act. The Division Bench of this court (Coram : P.R. Gokulakrishnan C.J. and G.T. Nanavati J.) by their order dated March 27, 1987, upheld the findings of the Tribunal following the earlier decision of the High Court in K.T. Doctor Vs. Commissioner of Income Tax, Gujarat IV, and answered the question in favour of the assessee and against the Revenue.

In K.T. Doctor Vs. Commissioner of Income Tax, Gujarat IV, , this court held that the provisions of Section 60 of the Income Tax Act, 1961, could not be invoked at all in that case since the trust was created not by the assessee but by his mother. In the present case, the trust was created by Ramanbhai Narandas on June 18, 1974, who was related to the beneficiaries. The trust was admittedly not created by the managing trustee. In this view of the matter, applying the decision of this court in I. T. R. No. 63 of 1984, decided on March 27, 1987, in the case of the assessee-trust, we answer the question referred to the High Court in the above references as under :

(i) In Income Tax References Nos. 73, 73A, 73B, 73C and 73D of 1987, we hold that the income of Sharad Family Trust was not taxable in the hands of the assessee, Sharad Narandas, who was its managing trustee and answer the question referred in the negative in favour of the assessee and against the Revenue.

(ii) In Income Tax References Nos. 100 and 100A of 1987, we hold that the Tribunal was right in holding that the income of the assessee-Sharad Family Trust was not liable to be included in the individual income of the managing trustee Sharad Narandas u/s 60 of the Income Tax Act, 1961, and the question referred is, therefore, answered in the affirmative in favour of the assessee-trust and against the Revenue.

All these references stand disposed of accordingly with no order as to costs.