1985 (8) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the transfer of shares by the trustees of Raja Baldeodas Birla Santati Kosh to Birla Jankalyan Trust.
2. Requirement of consent from minor beneficiaries or competent civil court for the transfer.
3. Assessment of income from the transferred shares.
4. Allowance of expenses claimed by the assessee, Santati Kosh.

Detailed Analysis:

1. Validity of the Transfer of Shares:
The primary issue was whether the trustees of Raja Baldeodas Birla Santati Kosh (Santati Kosh) could validly transfer 3,75,000 shares in Jiyajeerao Cotton Mills Ltd. to Birla Jankalyan Trust. The Income-tax Officer initially held that the transfer was void ab initio as it contravened Section 11 of the Indian Trusts Act, 1882, and the trust deed dated May 20, 1943. The Appellate Assistant Commissioner, however, found the transfer valid, but the Income-tax Appellate Tribunal (Tribunal) reversed this, declaring the transfer void for lack of consent from all major beneficiaries and the absence of civil court consent for minor beneficiaries. The High Court directed the Tribunal to provide an additional statement on whether the basis and directions for the transfer were ignored.

2. Requirement of Consent from Minor Beneficiaries or Competent Civil Court:
The Tribunal held that the transfer of shares required the consent of all major beneficiaries and civil court approval for minor beneficiaries. The High Court noted that no question was raised before the authorities or Tribunal about the lack of consent from major beneficiaries. The court directed the Tribunal to refer a question on whether the finding regarding the lack of consent was based on proper consideration of the evidence.

3. Assessment of Income from the Transferred Shares:
The Tribunal concluded that since the transfer was void, the shares and the income from them continued to belong to Santati Kosh and were taxable in its hands. The High Court upheld this view, noting that even if the transfer was void, the income received by Birla Jankalyan Trust was assessable to Santati Kosh.

4. Allowance of Expenses Claimed by the Assessee, Santati Kosh:
The Income-tax Officer and the Appellate Assistant Commissioner disallowed some expenses claimed by Santati Kosh, stating they were not incurred wholly and exclusively for earning income. The Tribunal affirmed this finding, and the High Court agreed, noting that the Tribunal's conclusion was based on evidence and constituted a finding of fact, not a question of law.

Conclusion:
The High Court allowed the application under Section 256(2) of the Income-tax Act, 1961, in part, directing the Tribunal to state the case and refer two additional questions regarding the basis and directions for the transfer of shares and the consent of major beneficiaries. The court left the parties to bear their own costs.