High Court Of Gujarat
CIT vs. Ambalal Sarabhai D. Trust
Sections 164
Asst. Year 1975-76
A.R. Dave & K.A. Puj, JJ.
IT Ref. No. 100 of 1991
3rd December, 2003
Counsel Appeared
Manish R. Bhatt, for the Petitioner : B.D. Karia for R.K. Patel, for the Respondents
JUDGMENT
A.R. Dave, J. :
In view of the orders passed by the Hon’ble Supreme Court in Civil Appeals Nos. 3576 and 3577 of 1989, dt. 26th Sept., 1989, at the instance of the Revenue, the following questions have been referred to this Court for its opinion under the provisions of the IT Act, 1961 (hereinafter referred to as ‘the Act’), which arise out of an order dt. 27th Aug., 1983, passed by the Tribunal, Ahmedabad Bench ‘C’:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion and the resolution dt. 31st March, 1974, and the letter dt. 1st April, 1974, changed the provisions of law, cl. (1)(i)(a) of the deed of trust, when the deed of trust did not confer authority on the trustees to amend the deed of trust?
Whether, on the facts and in the circumstances of the case, the provisions of s. 164 of the Act did not apply to the assessee by reason of the resolution passed by the trustees on 31st March, 1974, even though according to the Tribunal the said s. 164 did apply to the deed of trust alone ?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the character of the discretionary trust was changed by the resolution dt. 31st March, 1974, passed by the trustees of the trust ?
Whether the Tribunal has not erred in law and on facts in dismissing the miscellaneous application filed by the Revenue contending that the Tribunal had not dealt with one ground, raised in the ground of appeal, while deciding the appeal ?
Whether, the ground, the learned AAC erred in law and on the facts of the case in holding that the resolution containing the date of 31st March, 1974, was legal, proper, valid and effective and hence application of the rate of 65 per cent under s. 164 on the income was not justified, is not wide enough to cover the controversy regarding existence or the non-existence of the resolution and the Tribunal was justified in rejecting the reference application of the Revenue arising out of Miscellaneous Application filed by it ?”
Senior standing counsel Shri M.R. Bhatt has appeared for the applicant Revenue, whereas learned advocate Shri B.D. Karia has appeared for the respondent-assessee.
The facts giving rise to the present reference, in a nutshell, are as under : 3.1 The respondent-assessee is a discretionary trust. We are concerned with asst. yr. 1975-76, the previous year thereof being the year commencing from 1st April, 1974 to 31st March, 1975. The respondent-trust, though a discretionary trust, passed a resolution on 31st March, 1974, to the effect that the income of the trust arising for the previous year ending on 31st March, 1975, be paid to Smt. Mrinalini V. Sarabhai, one of the beneficiaries of the trust, by debiting the said amount to the Income & Expenditure Account in the books of the trust. Necessary intimation of the above fact had been given to the concerned beneficiary. 3.2 In pursuance of the said resolution, the income for the said year had been given to the beneficiary. The respondent-trust, in view of the fact that the entire income had been given to the beneficiary, had filed an income-tax return showing the total income as ‘nil’. The ITO was of the view that the trust was a discretionary trust and the income, which had arisen, was liable to be taxed in the hands of the trust in view of the provisions of s. 164 of the Act. The plea of the assessee that a resolution was passed by the assessee- trust to the effect that the entire income should be given to the concerned beneficiary and, therefore, the income should not be taxed in the hands of the trust, was rejected by the ITO. 3.3 Being aggrieved by the assessment order, the assessee had filed an appeal before the AAC, who allowed the appeal. Being aggrieved by the order passed by the AAC, the Revenue had filed an appeal before the Tribunal. The Tribunal confirmed the order passed by the AAC. A reference application filed before this Court had been rejected and, therefore, the Revenue had filed an SLP before the Hon’ble Supreme Court. The Hon’ble Supreme Court ultimately directed the Tribunal, by an order dt. 26th Sept., 1989, to refer the questions referred to hereinabove, to this Court for its opinion.
4. Learned senior standing counsel Shri M.R. Bhatt appearing for the applicant-Revenue has submitted that looking to the fact that the respondent-assessee was a discretionary trust, the ITO had rightly assessed the income of the assessee-trust for the asst. yr. 1975-76 in the hands of the assessee. According to him, once the trust was a discretionary trust, it was not open to the trust to pass any resolution or to adopt any course so as to make it a specific trust. It has been, therefore, submitted by him that looking to the law laid down by this Court in the case of CIT vs. Ambalal Sarabhai D. Trust No. 5 (1998) 147 CTR (Guj) 450 : (1998) 231 ITR 540 (Guj), the course adopted by the ITO was just and proper. It has been, therefore, submitted by him that the Tribunal erred in upholding the order passed by the AAC, whereby the appeal filed against the order of the ITO had been set aside.
5. Shri Bhatt, learned senior standing counsel, has also submitted that there is nothing on record to show that the income, which has been taxed in the hands of the assessee-trust, had also been taxed in the hands of the beneficiary. According to him, in this reference this Court has to look at the questions referred to it by the Hon’ble Supreme Court and answer the same. As there is nothing on record to show that the said income had already been taxed in the hands of the beneficiary, according to him, this Court need not look into the said argument of the respondentassessee.
6. On the other hand, learned advocate Shri B.D. Karia appearing for the respondent-assessee has vehemently submitted that it was not open to the Revenue to assess the income of the trust, which had already been diverted to one of the beneficiaries and had been taxed in the hands of the beneficiary. It has been submitted by him that a resolution had already been passed on 31st March, 1974, whereby the assessee-trust had decided to disburse the income of the assessee-trust for the previous year 1974-75 to the beneficiary named hereinabove. As the said income had already been taxed in the hands of the beneficiary, according to him, it was not open to the Revenue to tax the income in the hands of the assessee-trust also. He has relied upon the judgment delivered by the Hon’ble Supreme Court in the case of Jyotendrasinhji vs. S.I. Tripathi & Ors. (1993) 111 CTR (SC) 370 : (1993) 201 ITR 611 (SC), to substantiate his argument that the Revenue had an option to tax income in the hands of the beneficiary or the trust. We have heard the learned advocates and have also perused the record and the judgments referred to by the learned advocates. Looking to the fact that the respondent-trust is a discretionary trust, which had passed a resolution dt. 31st March, 1974, whereby it decided to disburse the income for the asst. yr. 197576 to the above named beneficiary and looking to the law laid down by this Court in the case of CIT vs. Ambalal Sarabhai D. Trust No. 5 (supra), it is clear that by virtue of the said resolution, an effort was made to convert the nature of the trust from discretionary to specific. According to the law laid down by this Court in the case of CIT vs. Ambalal Sarabhai D. Trust No. 5 (supra), it was not open to it to do so and the Revenue had rightly taxed the amount of income, which the respondent-assessee had earned for the asst. yr. 1975-76, in the hands of the trust. So far as the argument of learned advocate Shri Karia with regard to taxing the same income of the trust twice, it may be noted here that there is nothing on record to show that the income of the assessee-trust for the asst. yr. 1975-76 had already been taxed in the hands of the beneficiary. Jurisdiction of this Court is very limited in this case and, in our opinion, it would not be proper for us to look at the record, which is not before this Court or which was not before the Tribunal.
In view of the aforestated clear legal position, we answer the questions as under: So far as the 1st, 2nd and 3rd questions are concerned, we answer the same in the negative, i.e., against the assessee and in favour of the Revenue. So far as questions Nos. 4 and 5 are concerned, in our opinion, it is not necessary to answer the same in view our answer to the first three questions, and more particularly when the said questions had arisen in pursuance of a Miscellaneous Application filed by the Revenue for rectification of the order passed by the Tribunal. We, therefore, decline to answer questions Nos. 4 and 5. The reference stands disposed of accordingly with no order as to costs.
[Citation : 269 ITR 119]
