1983 (11) TMI 107 - AT - Income Tax

Summary

Issues:
1. Whether the settlement of property on trust by the assessee to his HUF amounts to an indirect transfer without consideration.
2. Interpretation of provisions of s. 64(2) and s. 64(1)(vii) of the IT Act.
3. Applicability of s. 64(1)(vii) to the transfer made by the assessee to the trustees for the benefit of the HUF members.
4. Validity of the trust deed and determination of beneficiaries under the trust.
5. Comparison with the Gujarat High Court decision in Ratilal Kaushaldas Patel vs. CIT (1964) 55 ITR 517 (Guj).

Analysis:
1. The judgment deals with the settlement of property on trust by an individual to his HUF through a deed of settlement. The Income Tax Officer (ITO) held that such settlement amounted to an indirect transfer without consideration, invoking the provisions of s. 64(2) of the IT Act, resulting in the income being clubbed in the hands of the assessee.
2. The Appellate Authority Commissioner (AAC) agreed with the assessee's counsel that s. 64(2) was not applicable but held that s. 64(1)(vii) applied, leading to the inclusion of trust income in the assessee's hands.
3. The Tribunal analyzed the provisions of s. 64(1)(vii) in detail, focusing on the transfer to the trustees for the benefit of the HUF members. It was argued that the transfer was not for the settlor's spouse or minor children but for the HUF members, as specified in the trust deed, thereby not falling under s. 64(1)(vii).
4. The Tribunal examined the validity of the trust deed, noting that the beneficiaries were clearly identified as the members of the HUF, including the assessee, his wife, and two major children. It emphasized that the transfer was for the benefit of the settlor's family, which did not trigger the application of s. 64(1)(vii) as per the Gujarat High Court decision cited.
5. Ultimately, the Tribunal reversed the lower authorities' decision, ruling in favor of the assessee. It held that the income from the trust funds should not be included in the assessee's total income, as the transfer to the family members did not fall under the purview of s. 64(1)(vii) of the IT Act. The appeal filed by the assessee was allowed based on this analysis.