1989 (1) TMI 115 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the Trusts.
2. Assessment of Share Income in the Hands of the Assessees.
3. Application of Section 83 of the Indian Trusts Act, 1882.

Detailed Analysis:

1. Validity of the Trusts:
The court examined whether the trusts created by Lalchand Sowar and his wife, Smt. Madan Bai, were valid. The trusts were for the benefit of the prospective wives of their minor sons, Suresh and Ashok. The Income-tax Officer initially deemed the trusts invalid due to uncertainty regarding the beneficiaries. However, the Appellate Assistant Commissioner and the Tribunal had differing views. The Appellate Assistant Commissioner, referencing CIT v. P. Bhandari [1984] 147 ITR 500 (Mad), upheld the validity of the trusts. The Tribunal, however, questioned the validity due to the absence of provisions for certain contingencies, potentially invoking Section 83 of the Indian Trusts Act, 1882.

2. Assessment of Share Income in the Hands of the Assessees:
The primary question was whether the share income from the trusts should be assessed in the hands of the assessees. The Income-tax Officer had assessed the share income in the hands of the assessees, arguing that the trusts were dependent on uncertain events (the marriages of Suresh and Ashok) and thus, the beneficiaries were uncertain. The Appellate Assistant Commissioner disagreed, stating that the trusts were valid and the income should not be assessed in the hands of the assessees. The Tribunal, however, supported the Income-tax Officer's view, leading to further appeals.

3. Application of Section 83 of the Indian Trusts Act, 1882:
The Tribunal applied Section 83 of the Indian Trusts Act, 1882, which deals with resulting trusts when a trust is incapable of being executed. The Tribunal argued that since the trust deeds did not account for the possibility of both Suresh and Ashok not being in existence, the trusts would fail, leading to a resulting trust in favor of the authors of the trusts. The court, however, found that during the relevant assessment years, Suresh and Ashok were alive and married, negating the possibility of a resulting trust.

Conclusion:
The court concluded that the trusts were valid, and the beneficiaries were certain as per the trust deeds. The court found that the Tribunal erred in applying Section 83 of the Indian Trusts Act, as the trusts were capable of being executed and the contingencies provided in the trust deeds did not arise. Consequently, the share income from the trusts should not be assessed in the hands of the assessees. The court answered the question in favor of the assessees, stating that the Tribunal was wrong in its judgment.

Final Judgment:
The court answered the referred question in the negative and in favor of the assessees, with no order as to costs in these references.