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Issues:
Validity of trusts created by partners in an assessee-firm for income tax assessment years 1978-79 to 1980-81. Analysis: The case involved a firm named "Messrs. Ajit Traders" with five partners, three of whom represented trusts with minor beneficiaries. The Income-tax Officer contended that the trusts were formed to evade taxes on minors' income. The Appellate Assistant Commissioner ruled the trusts were not validly created. The Tribunal found that the settlors gifted amounts to minors before creating trusts, making the trusts invalid as per section 7 of the Indian Trusts Act. Consequently, the Tribunal held the partnership invalid due to the invalid trusts. The Tribunal's finding that the amounts were initially gifted to minors and later formed into trusts was considered a fact. The High Court, based on section 7 of the Indian Trusts Act, determined that settlors can only create trusts for property under their control, not property already belonging to minors. As the settlors were incompetent to create trusts over minors' property, the trusts were deemed invalid, rendering the partnership invalid as well. The Court upheld the Tribunal's decision, ruling in favor of the Revenue and against the assessee. In conclusion, the High Court affirmed that the trusts created by partners in the assessee-firm were invalid due to being constituted over property belonging to minors, making the partnership and subsequent registration under the Income-tax Act not permissible. The Court's decision favored the Revenue, upholding the Tribunal's findings and denying the assessee's claim for registration.
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