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1991 (4) TMI 1 - SC - Income TaxHUF - income from property as well as hire rent and commission - Whether income from properties purported to have been transferred to the trust was not assessable in the hands of the assessee-family - Whether on a proper construction of the lease deeds the sum of 10, 000 is the income of the assessee and not that of Chhadami Lal Jain Degree College - Whether the income from properties purported to have been transferred to Trust was not assessable in the hands of the assessee-family
Issues Involved:
1. Whether the sum of Rs. 10,000 paid to Chhadami Lal Jain Degree College is the income of the assessee. 2. Whether the income from properties purported to have been transferred to Seth Chhadami Lal Jain Trust is assessable in the hands of the assessee-family. Issue-Wise Detailed Analysis: 1. Income from Rent (Rs. 10,000 to Chhadami Lal Jain Degree College): The assessee, a Hindu undivided family (HUF), leased properties to Jain Glass Works P. Ltd. for Rs. 21,000 annually. The lease agreement specified that Rs. 10,000 of this rent would be paid directly to Chhadami Lal Jain Degree College. The assessee claimed this amount was not its income but that of the college, arguing that the university affiliation condition required creating a charge of Rs. 10,000 in favor of the college, thus diverting the income at the source. The Income Tax Officer, Appellate Assistant Commissioner, and Income-tax Appellate Tribunal (ITAT) rejected this claim, treating the entire Rs. 21,000 as the assessee's income. The Tribunal, however, directed relief under section 88 for this amount. The High Court upheld this view, stating that the arrangement was merely a mode of applying the income by the family and did not constitute a diversion at the source. The Supreme Court agreed, stating, "The assessee is the owner of the properties in question and has leased out the properties... This is the income of the family." The court emphasized that the right given to the college to sue the company was only a mode of recourse and did not alter the nature of the income as belonging to the assessee. 2. Income from Properties Transferred to the Trust: The second issue involved the income from properties claimed to have been transferred to Seth Chhadami Lal Jain Trust. The trust deed of 1947, executed by the karta of the HUF, expressed an intention to create a charitable trust for educational, religious, and medical purposes. The deed stated that the income from specified properties would be used for these purposes and not for personal benefit. A subsequent document in 1960 reiterated this transfer and appointed trustees, including family members and outsiders. The Income Tax Officer initially assessed the income from these properties in the hands of the family, arguing that the trust deed did not transfer the corpus of the properties, only the income. The Tribunal later allowed the assessee's appeal, finding the trust valid. The High Court, however, ruled against the assessee, stating that the trust deeds did not effectively transfer the properties to the trust, thus the income remained assessable to the family. The Supreme Court disagreed with the High Court's narrow interpretation, stating, "We are of the opinion that the view of the High Court proceeds on an unduly narrow construction of the deeds of 1947 and 1960." The court noted that where the author of the trust is also the trustee, a registered conveyance is not necessary. The court found that the deeds showed a clear intention to divest the family of beneficial interest in the properties, thus creating a valid trust. Consequently, the income from these properties was held to be diverted at the source and not assessable to the family. Conclusion: The Supreme Court ruled in favor of the Department on the issue of rental income, holding that the entire Rs. 21,000 was the income of the assessee. On the issue of income from properties transferred to the trust, the court ruled in favor of the assessee, recognizing the validity of the trust and the diversion of income at the source. The appeals were allowed in part, with no order as to costs.
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