Gujarat H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the protective assessment made by the ITO on the assessee-trust was liable to be cancelled?

Counsel Appeared

B.B. Naik for Manish R. Bhatt, for the Petitioner : Manish Shah for J.P. Shah, for the Respondent

JUDGMENT

R.K. ABICHANDANI, J. :

Both these matters involve similar questions and have been argued together by the learned counsel for both the sides.

2. In IT Ref. No. 412 of 1983, the Tribunal has referred the following questions for the opinion of this Court under s. 256(1) of the IT Act, 1961.

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the protective assessment made by the ITO on the assessee-trust was liable to be cancelled?”

3. In IT Ref. No. 408 of 1983, the questions referred by the Tribunal are as follows :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the income from the partnership firm M/s Jayshankar B. Upadhyay was the income of the assessee?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the income from the firms M/s Jayshankar B. Upadhyay in the name of the assessee was not the income of Shri Jayshankar B. Upadhyay?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the protective assessment made by the ITO was liable to be set aside?” Both the references-pertain to the asst. yrs. 1976-77 and 1977-78. IT Ref. No. 412 of 1983 is argued as a lead matter by both the sides with a request to treat their contentions to be the same in IT Ref. No. 408 of 1983.

4. In both the references, the assessees are discretionary trust. These trusts were partners in the firm of M/s Jayshankar B. Upadhyay. Admittedly, under the trust deeds, the trust could join as partner in a partnership firm. The trustees were authorised specifically to carry on business as proprietor or as a partner in a firm.

5. The ITO rejected the claim of the assessee that the partner who had joined the firm, had joined it in a representative-capacity for the trust and not in his individual capacity. The CIT(A) disagreed with the ITO and held that the share of the income from the firm of M/s Jayshankar B. Upadhyay was assessable in the hands of the assessee-trust for both the assessment years. The Tribunal found that the view which was taken by the ITO was contrary to the settled legal position, because a trustee can join a partnership firm in a representative capacity.

6. The factual position which was not in dispute was summarised by the Tribunal and it was held that M/s Jayshankar B. Upadhyay was a genuine firm which was duly registered. It was also found that the partnership deed of the firm clearly mentioned the fact that the said partner had joined the firm in his capacity as a trustee of the assessee-trust and was representing the Trust in the firm. It was therefore, held that the assessee-trust was entitled to the share of income from the firm of M/s Jayshankar B. Upadhyay in which Mr. S.T. Joshi was representing the trust in both the assessment years. On these findings, it was held that the ITO was wrong in making the assessments on protective basis and holding that the income belonged to these partners who were the trustees, (S.T. Joshi and J.B. Upadhyay), in their individual capacity.

7. There is no dispute about the proposition of law that a trustee can join a partnership firm in a representative capacity. It is also an admitted fact that in the partnership deed, it was clearly mentioned that these two partners had joined as partners in their representative capacity for and on behalf of these two trusts. It is also an admitted fact that the Trust Deed did authorise trustees to do business either as proprietors or as partners. In this background, we are of the view that the Tribunal was fully justified in holding that there was no case for making any assessment on protective basis against these persons in their individual capacity. The questions referred to us are, therefore, answered in the affirmative against the Revenue and in favour of the assessees. Both the references stand disposed of accordingly with no order as to costs.

[Citation: 236 ITR 574]