1985 (6) TMI 50 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the beneficiary of a trust can transfer and dispose of his interest in the trust property without the consent of the trustee, and if 'yes', whether it amounts to tax evasion.
2. Whether Shashikant B. Garware, as the karta, could have made a valid gift of the interest of the HUF in the corpus of the trust fund.

Detailed Analysis:

Issue 1: Transfer of Beneficial Interest Without Trustee Consent and Tax Evasion

Facts and Arguments:
The trust deeds dated 30-3-1970 created by Balchandra D. Garware and Smt. Vimlabai B. Garware allowed the trustees to distribute the net income equally among the four beneficiaries for 25 years, after which the corpus would be divided equally. Shashikant B. Garware, as the karta of his HUF, made an assignment on 26-3-1975 transferring his beneficial interest to Romesh B. Garware Investment Co. (P.) Ltd. The trustees affirmed this assignment in 1981.

The revenue argued that the legal ownership in the trust fund lies with the trustees, and the beneficiary could not transfer his interest without trustee consent, suggesting the assignments were an attempt at tax evasion. They cited the McDowell & Co. Ltd. v. CTO case, emphasizing the distinction between tax planning and tax evasion.

Judgment:
The tribunal found no prohibition in the trust deeds against the transfer of beneficial interest by the beneficiary. Section 58 of the Indian Trusts Act recognizes the competence of the beneficiary to transfer his beneficial interest, subject to the law for the time being in force. The tribunal held that the assignments did not violate the terms of the trust, as the trustees were still bound to distribute the net income and deliver the corpus as directed by the beneficiary.

The tribunal distinguished the present case from the McDowell & Co. Ltd. case, noting that the transfer by Shashikant B. Garware was not an evasion of an incurred tax liability but a lawful transaction to prevent future tax liabilities. The tribunal concluded that the transfer was valid and did not amount to tax evasion.

Issue 2: Validity of Gift by Karta of HUF

Facts and Arguments:
Shashikant B. Garware, as the karta of his HUF, transferred the beneficial interest in the trust fund to Romesh B. Garware Investment Co. (P.) Ltd. The revenue argued that such a transfer was invalid as it involved the joint family property without legal necessity or family benefit.

The assessee contended that as the sole surviving coparcener, Shashikant B. Garware had the authority to dispose of the family property without legal necessity or family benefit. They cited Mulla's Commentary on Principles of Hindu Law and the case of CIT v. Anil J. Chinai to support their argument.

Judgment:
The tribunal held that as the sole surviving coparcener, Shashikant B. Garware had the authority to dispose of the joint family property as if it were his own property. The transfer was valid under Hindu law, and even a son born after the transfer could not challenge it. The tribunal also noted that the revenue, being a stranger to the family, could not challenge the validity of the gift.

The tribunal affirmed the first appellate authority's conclusion that the gifts made by Shashikant B. Garware were valid and that the revenue had no right to challenge them in the wealth-tax assessments.

Conclusion:
The tribunal dismissed the revenue's appeals, holding that the beneficiary could transfer his beneficial interest without trustee consent and that such a transfer did not amount to tax evasion. Additionally, the tribunal upheld the validity of the gift made by Shashikant B. Garware as the karta of his HUF, affirming the first appellate authority's decision.