1991 (5) TMI 83 - AT - Income Tax

Summary

Issues:
1. Whether the trust should be considered a specific trust or a discretionary trust based on the provisions of the deed of settlement.
2. Appealability of the orders passed by the ITO under section 143(1) regarding the status of the trust.

Analysis:

Issue 1: Trust Classification
The appeals revolve around the classification of the trust created by Mulchand Chunilal as either a specific trust or a discretionary trust. The Department contended that the trust should be treated as a discretionary trust, while the assessee argued for its classification as a specific trust. The key contention was whether the beneficiaries were known, and their shares determinate, or if discretion was given to the trustees to distribute income. The Tribunal analyzed the trust deed clauses and found that no discretion was given to the trustees. It was established that until a child was born to Popatlal, Manisha was the sole beneficiary. In cases where a child was born, the income was to be shared equally. The Tribunal held that the trust was a specific trust as the beneficiaries were known, and their shares were determinate, in line with the provisions of section 161(1) of the Income Tax Act, 1961.

Issue 2: Appealability of ITO Orders
The second set of appeals questioned the appealability of the orders passed by the ITO under section 143(1) regarding the status of the trust. The ITO had treated the trust as a discretionary trust without issuing a notice under section 143(2). The AAC held that the assessee's only remedy was to file an application under section 143(2) and not appeal against the assessment orders. However, the Tribunal disagreed, stating that the orders were appealable as they effectively changed the trust's status from specific to discretionary without following the proper procedure under section 143(3). Citing precedent, the Tribunal held that the orders were appealable, and the AAC erred in refusing to entertain the appeals. Consequently, the Tribunal directed the ITO to make assessments in accordance with the provisions of section 161(1) for the trust.

In conclusion, the Tribunal dismissed the Department's appeals while allowing the appeals filed by the assessee, affirming the specific trust classification and the appealability of the ITO's orders in changing the trust's status.