1983 (1) TMI 105 - AT - Income Tax

Summary

Issues Involved:
1. Status of the Hindu Undivided Family (HUF) and the effectiveness of blending individual property into HUF.
2. Validity and impact of the trust created by the assessee for the benefit of his family.
3. Applicability of Section 64 of the Income-tax Act, 1961.

Detailed Analysis:

1. Status of the Hindu Undivided Family (HUF) and the Effectiveness of Blending Individual Property into HUF:
The Tribunal initially addressed the claim of the assessee regarding the status of HUF for the assessment years 1972-73, 1973-74, and 1974-75. The assessee inherited Rs. 4,000 from his father and claimed to have thrown Rs. 1,000 into the common hotchpotch of his HUF. The Tribunal, referencing the Supreme Court decision in Surjit Lal Chhabda v. CIT [1975] 101 ITR 776, held that the exercise of throwing personal properties into the family hotchpotch was futile and did not impact the incidence of taxation for individual assessment. The Tribunal concluded that the income from the properties allegedly thrown into the common hotchpotch should be assessed in the hands of the individual, not the HUF.

2. Validity and Impact of the Trust Created by the Assessee for the Benefit of His Family:
For the assessment years 1973-74 and 1974-75, the Tribunal noted a change in circumstances due to the transfer of shares and cash to a trust for the benefit of the family members. The Commissioner (Appeals) examined the trust deed dated 22-3-1972 and held that the trust was created by the assessee for his own benefit, hence the income was assessable in his hands. Alternatively, the Commissioner (Appeals) held that one-third of the income belonged to the assessee and the remaining two-thirds were also assessable in his hands under sections 64(1)(iv) and 64(1)(v).

The Tribunal analyzed the trust deed, which stated that the trust was created for the benefit of the HUF consisting of the assessee, his wife, and his minor daughter. The Tribunal recognized the existence of a joint family, as per the principles laid down in Surjit Lal Chhabda's case, and concluded that the trust created for the benefit of the family was a legal fact of importance. The Tribunal held that the family, as the legal owner of the property, divested itself of ownership in favor of the trust, and the transfer was effective in law.

3. Applicability of Section 64 of the Income-tax Act, 1961:
The Tribunal examined whether section 64 would apply to the case. It was noted that section 64 applies to income arising from assets transferred directly or indirectly by an individual to their spouse or minor child without adequate consideration. The Tribunal found that the trust deed provided for the income to be used for the maintenance, residence, education, and benefit of the HUF, and not for the benefit of any particular member. Thus, the income from the trust could not be attributed to the assessee or any specific family member under section 64.

The Tribunal also considered the provision for distribution of the trust fund after 22 years. By that time, any minor children would have become majors, and section 64 would not apply to them. The Tribunal concluded that section 64 could not be applied to a future and uncertain state of affairs, and no tax liability under section 64 could arise from the trust deed.

Conclusion:
The Tribunal held that the income from the trust could not be assessed in the hands of the assessee either during the 22-year accumulation period or thereafter. The assessee's appeal was allowed, and the income from the trust was excluded from his individual assessment.