1993 (4) TMI 91 - AT - Income Tax

Summary

Issues:
1. Clubbing of income of JNC Family Trust in the hands of the appellant-firm.
2. Disallowance of investment allowance under section 32A(5)(a).

Analysis:

1. Clubbing of Income of JNC Family Trust:
1.1. The Assessing Officer and CIT(A) held that the income of JNC Family Trust should be clubbed with the appellant-firm due to the creation of the trust to fragment income and reduce tax liability. The CIT(A) concluded that the trust income actually belonged to the original partners, making them the real owners.
1.2. The appellant argued that the trust was genuine, with defined beneficiaries and clear shares as per the trust deed. They contended that the trust had been legally created and assessed separately. The appellant emphasized that the income belonged to the trust and had been distributed to beneficiaries as per the trust deed. They cited legal precedents to support their argument.
1.3. The Departmental Representative supported the clubbing of income, alleging the trust was created to evade taxes. They argued that the trust income should be included in the appellant-firm's assessment, despite separate assessments of the trust and beneficiaries.
1.4. The ITAT held that the income of the trust should not be clubbed with the appellant-firm. They noted that the firm was validly constituted, and the trust had been assessed separately. Referring to legal precedents, the ITAT directed the Assessing Officer to exclude the trust income from the firm's assessment.

2. Disallowance of Investment Allowance:
The Assessing Officer disallowed investment allowance under section 32A(5)(a) as the plant and machinery were transferred to the trust. The CIT(A) upheld the disallowance.
The appellant relied on the Supreme Court judgment in Malabar Fisheries Co. case to support their claim for investment allowance. The Departmental Representative supported the disallowance based on departmental orders.
The ITAT accepted the appellant's contention, citing the Supreme Court judgment in the Malabar Fisheries Co. case and an ITAT decision. They directed the Assessing Officer to grant investment allowance to the appellant in accordance with the law.

In conclusion, the ITAT allowed the appeal, ruling in favor of the appellant on both issues.