Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the order passed by the CIT under s. 263 of the IT Act ?

High Court Of Madras

CIT vs. Manilal Bapalal Family Benefit Trust

Section 164, 263

R. Jayasimha Babu & K. Raviraja Pandian, JJ.

Tax Case Nos. 320 to 322 of 1997

18th September, 2002

Counsel Appeared :

J. Nareshkumar, for the Appellant : P.P.S. Janardhanaraja, for the Respondent

JUDGMENT

R. Jayasimha Babu, J. :

The questions referred to us for our consideration are : “1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the order passed by the CIT under s. 263 of the IT Act ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the order of the AO passed in consequence of the CIT’s order under s. 263 of the IT Act ?” The Tribunal, after construing the trust deed being the one executed by Smt. Joiti Bai, on 2nd Oct., 1981, constituting the Manilal Bapalal Family Benefit Trust, held that the beneficiaries are known and that the shares are determinate and, therefore, the question of assessing the trust as an AOP under s. 164 did not arise. The order was made to the contrary by the CIT, who exercised his power under s. 263 to revise the original assessment order, which had not levied tax on the trust but had imposed tax on the beneficiaries directly, was set aside. The CIT had invoked s. 263 on the ground that the original assessment was faulty and prejudicial to the Revenue as the trust had not been treated as an AOP and taxed on that basis, as in his view the trust deed did not identify all the beneficiaries and the shares were also not determinate. That view of the CIT has been found to be erroneous by the Tribunal. Having perused the order of the Tribunal, we do not find any error therein. The beneficiaries of the trust included the prospective spouses of some of the beneficiaries. The trust deed also provided that in the event of a beneficiary dying before marriage or not marrying before the trust came to an end, that part of the benefit which was to be given to the spouse would be given to the heir of the beneficiary or to the beneficiary himself or herself.

This Court in the case of CIT vs. P. Bhandari (1984) 147 ITR 500 (Mad) has held that the provision made in the trust deed for a prospective wife with the other clauses indicating as to when the benefit should go in the event of the person not marrying did not render the trust deed void for vagueness and that it also did not offend the rule against perpetuity. The share to be allotted to the beneficiaries being determinate under the trust deed here and the beneficiaries also being known, the Tribunal has rightly held that the CIT was in error in revising the order of the AO on the ground that the shares were indeterminate and that the trust deed is void or vagueness. The setting aside of the order of assessment that had been made pursuant to the revisional order was a necessary consequence of setting aside the revisional order. The questions are answered against the Revenue and in favour of the assessee.

[Citation : 321 ITR 322]

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