2002 (3) TMI 201 - AT - Income Tax

Summary

Issues Involved
1. Inclusion of income from UK trusts for assessment years 1984-85 to 1989-90.
2. Inclusion of income from USA trusts for assessment year 1987-88.

Detailed Analysis

1. Inclusion of Income from UK Trusts for Assessment Years 1984-85 to 1989-90

Background and Facts:
The case involves the inclusion of income from two UK trusts created by the ex-ruler of a princely state for the benefit of his family. The Settlement Commission had previously determined that these trusts were specific trusts, and their income was taxable in the hands of the settlor and subsequently his son, the assessee. The Supreme Court upheld this decision.

Arguments by the Assessee:
The assessee argued that the interpretation of clauses 3 and 4 of the settlement deeds by the Settlement Commission was incorrect. According to the assessee, the UK trusts were discretionary, not specific, and no income was received by the settlor or the assessee. The assessee also contended that the Supreme Court's decision was not binding for the assessment years under appeal, as the income was not included in the returns for these years.

Arguments by the Revenue:
The Revenue argued that the facts and circumstances of the case were identical to those in the previous years, and the Supreme Court's decision should apply. The Revenue emphasized that the income from the UK trusts was assessable in the hands of the assessee based on the findings of the Settlement Commission and the Supreme Court.

Tribunal's Analysis and Decision:
The Tribunal found that the facts for the assessment years 1984-85 to 1989-90 were substantially similar to those in the earlier years. The Tribunal noted that the assessee had not appointed discretion exercisers, as required by clause 3 of the settlement deeds, and therefore, clause 4 came into operation, making the trusts specific. The Tribunal also held that the Supreme Court's decision regarding the applicability of section 166 of the Income-tax Act, which allows the Revenue to assess income from discretionary trusts in the hands of the beneficiaries, applied to the present case. Therefore, the income from the UK trusts was rightly assessed in the hands of the assessee.

2. Inclusion of Income from USA Trusts for Assessment Year 1987-88

Background and Facts:
The case also involved the inclusion of income from three USA trusts created by the settlor. The Settlement Commission and the Supreme Court had previously determined that these trusts were discretionary, and their income was assessable in the hands of the settlor and subsequently his son, the assessee.

Arguments by the Assessee:
The assessee contended that no distribution of income had been made by the US trustees, and therefore, no income was liable to be assessed in his hands for the assessment year 1987-88.

Arguments by the Revenue:
The Revenue argued that the assessee had included the income from the USA trusts in his return for the assessment year 1987-88, subject to the Supreme Court's decision. The Revenue emphasized that the facts and circumstances were identical to those in the earlier years, and the Supreme Court's decision should apply.

Tribunal's Analysis and Decision:
The Tribunal found that the assessee had included the income from the USA trusts in his return for the assessment year 1987-88, subject to the Supreme Court's decision. The Tribunal noted that the Supreme Court had upheld the assessment of income from the USA trusts in the hands of the assessee for the earlier years. Therefore, the Tribunal upheld the addition of Rs. 10,43,321 as income from the three USA trusts in the hands of the assessee for the assessment year 1987-88.

Conclusion
The Tribunal dismissed the appeals of the assessee and upheld the orders of the CIT(A) for the assessment years 1984-85 to 1989-90, confirming the inclusion of income from the UK and USA trusts in the hands of the assessee.