1990 (6) TMI 23 - HC - Income Tax

Donation By Trust, Questioning Assessee s Running Of His Business, Void, Voidable Transactions

Issues Involved:
1. Validity of the donation of shares by the trustees of the assessee-trust to the donee-trust.
2. Assessability of the income and accretions from the donated shares in the hands of the assessee-trust.
3. Interpretation of the deed of settlement and the necessity of minor beneficiaries' consent or civil court approval.
4. Whether the shares were given for "useful objects" and if there was a "trust within a trust".

Issue-wise Detailed Analysis:

1. Validity of the Donation of Shares:
The primary issue was whether the donation of shares by the trustees of the assessee-trust to the donee-trust was valid, void, or voidable. The Tribunal held that the donation was not void but voidable. The trustees were legal owners of the trust property and could transfer the shares. The donation was made with the consent of the major beneficiaries, and the minor beneficiaries did not dispute the donation upon attaining majority. Therefore, the donation was valid and binding. The Tribunal's finding that the donation was voidable, not void, was upheld.

2. Assessability of Income from Donated Shares:
The second issue was whether the income from the donated shares should be assessed in the hands of the assessee-trust. The Tribunal found that the income from the shares after the donation was received by the donee-trust and not by the assessee-trust. The donee-trust was the registered owner of the shares and received the dividends. Therefore, the income could not be assessed in the hands of the assessee-trust. The principle of "real income" was applied, and it was held that the income did not accrue to the assessee-trust.

3. Interpretation of the Deed of Settlement and Necessity of Consent:
The Tribunal examined whether the trustees of the assessee-trust had the authority to donate the shares under the deed of settlement dated May 20, 1943. It was determined that the deed did not authorize the trustees to make such donations. The Tribunal noted that the consent of the minor beneficiaries or a competent civil court was necessary for the donation. However, the absence of such consent did not render the donation void ab initio. The minor beneficiaries acquiesced in the donation upon attaining majority, making the donation valid.

4. Shares Given for "Useful Objects" and "Trust Within a Trust":
The assessee contended that the shares were given by Ujjain General Trading Society Ltd. for "useful objects" and constituted a separate trust. The Tribunal found no evidence to support this claim. The shares were treated as part of the corpus of the assessee-trust and were not kept separately. The Tribunal's finding that there was no "trust within a trust" was upheld.

Judgment Summary:
The High Court held that the donation of shares by the assessee-trust to the donee-trust was not void but voidable. The income from the donated shares could not be assessed in the hands of the assessee-trust as it was received by the donee-trust. The trustees did not have the authority under the deed of settlement to make the donation, but the consent of the major beneficiaries and the acquiescence of the minor beneficiaries validated the donation. The claim that the shares were given for "useful objects" and constituted a separate trust was rejected. The questions referred were answered accordingly, with no order as to costs.

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