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Issues Involved:
1. Whether the Tribunal was justified in holding that the trust is a revocable trust under the I.T. Act, 1961. Issue-wise Detailed Analysis: Issue 1: Whether the Tribunal was justified in holding that the trust is a revocable trust under the I.T. Act, 1961. Background and Facts: The assessment year involved is 1970-71. The assessee executed a deed of trust on 25th September 1958, naming herself, her husband, and another individual as trustees. The trust was created for the benefit of her three minor children. The Income Tax Officer (ITO) included the income of the trust in the hands of the assessee for the year 1970-71, stating that the provisions of s. 62(1) applied because the assessee derived indirect benefit by drawing a sum of Rs. 53,336 from the trust for the construction of a house, free of interest. Arguments and Tribunal Findings: The assessee contended that the trust was not revocable as per ss. 61, 62, and 63 of the I.T. Act, 1961. The Appellate Assistant Commissioner (AAC) and the Tribunal, however, held that the trust was revocable, citing that the trust deed provided the power to reassume the property or income of the trust. The Tribunal emphasized that clauses 8 and 19 of the trust deed gave uncontrolled power to the trustees, including the settlor, to invest the trust property in any manner, which could indirectly benefit the settlor. Relevant Legal Provisions: - Section 61: All income arising from a revocable transfer of assets is chargeable to income-tax as the income of the transferor. - Section 62: Provides exceptions to s. 61, stating that transfers irrevocable for a specified period or during the lifetime of the beneficiary are not considered revocable, provided the transferor derives no direct or indirect benefit. - Section 63: Defines a transfer as revocable if it contains provisions for retransfer of income or assets to the transferor or gives the transferor a right to reassume power over the income or assets. Court's Analysis: The court examined whether the trust deed contained provisions that made the trust revocable under s. 63. The court noted that the power to invest the property did not include the power to give an interest-free loan, and the trustees acted in breach of the trust deed by doing so. Even if the power to invest included giving an interest-free loan, it did not amount to a provision for retransfer or reassumption of power over the income or assets by the settlor. Precedents and Judicial Interpretations: - CIT v. Raghbir Singh (1965): The Supreme Court held that a provision for the application of income for the payment of a debt did not amount to a provision for retransfer of income or assets to the settlor. - CIT v. Sir S. M. Bose (1952): The Division Bench held that provisions preventing frivolous litigation did not give the settlor control over the income or assets. - CIT v. Jayantilal Amratlal (1968): The Supreme Court held that the power to direct the application of income for charitable purposes did not confer a right to reassume control over the assets or income of the trust. - Hrishikesh Ganguly v. CIT (1971): The Supreme Court held that only the part of the income that accrued to or was received by the settlor could be assessed as his income. Conclusion: The court concluded that the trust deed did not contain any provision for retransfer or reassumption of power over the income or assets by the settlor. The trustees acted in breach of the trust deed by giving an interest-free loan, which did not make the trust revocable. The question was answered in the negative, in favor of the assessee, indicating that the trust was not revocable under the I.T. Act, 1961. Final Judgment: The court ruled that the Tribunal was not justified in holding that the trust was a revocable trust. The question was answered in the negative, favoring the assessee, and each party was ordered to bear its own costs.
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