1963 (1) TMI 48 - HC - Income Tax

Summary

Issues Involved:
1. Competence of appeals filed by the sole trustee before the Appellate Assistant Commissioner and subsequent appeals to the Tribunal.
2. Existence of a trust in respect of the sum of Rs. 1,75,000 for the relevant assessment years.
3. Applicability of the first proviso to section 41(1) of the Indian Income-tax Act in making assessments on the sole trustee for the R.K. Fund and Trust Fund No. I.

Issue-wise Detailed Analysis:

1. Competence of Appeals:
The Tribunal included the question of the competence of the appeals filed by the sole trustee before the Appellate Assistant Commissioner and subsequent appeals to the Tribunal in its reference to the High Court without deciding it. The High Court examined whether the reference was proper given the Tribunal's omission to decide this question. The Court concluded that the reference was not valid because the Tribunal had failed to decide on the competence of the appeals, which was a fundamental issue. The High Court emphasized that a Tribunal cannot seek advice on a question it deliberately chose not to decide, and thus, declined to answer the reference.

2. Existence of a Trust:
The applicant contended that a trust existed concerning the sum of Rs. 1,75,000 (Trust Fund No. II) during the relevant assessment years. The Income-tax Officer and the Appellate Assistant Commissioner found no trust was created by Maharana Bhupalsinghji for this fund. Consequently, the income from this fund was assessed as the personal property of the applicant. The Tribunal upheld this finding, rejecting the applicant's claim of a trust's existence prior to the declaration made on April 22, 1957. The High Court did not address this issue substantively due to its decision to decline the reference.

3. Applicability of Section 41(1) Proviso:
The applicant argued that the shares of the beneficiaries of the R.K. Fund and Trust Fund No. I were determinate and known, and thus, the income should be taxed in the hands of the beneficiaries rather than at the maximum rate under the first proviso to section 41(1). The Income-tax Officer and the Appellate Assistant Commissioner disagreed, holding that the beneficiaries' shares were indeterminate and unknown, thereby justifying the application of the proviso. The Tribunal concurred with this view, leading to the assessment of the income at the maximum rate. The High Court did not provide a detailed analysis of this issue due to its decision to decline the reference.

Conclusion:
The High Court declined to answer the reference, citing the Tribunal's failure to decide on the competence of the appeals, which was a critical issue. The Court emphasized that all questions raised before the Tribunal must be decided by it before seeking the High Court's advice. Consequently, the Tribunal was advised to make a proper reference after deciding all the questions raised before it. The parties were directed to bear their own costs for the hearing in the High Court.