1985 (6) TMI 54 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the beneficiary trust can transfer and dispose of his interest in the trust property without consent of the trustee, and, if yes, whether it amounts to tax evasion.
2. Whether Shashikant B. Garware, as 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 and Disposal of Beneficial Interest
Legal Ownership and Beneficiary Rights:
The primary argument presented by the Revenue was that legal ownership of the Trust Fund lies with the trustees, and the beneficiary cannot transfer the right to receive a share of the corpus without the trustees' consent. However, the court found that Section 58 of the Indian Trust Act recognizes the competence of the beneficiary to transfer his beneficial interest, subject to the law for the time being in force. The court noted, "Sec. 11 of the Trusts Act, in our judgment, is not attracted at all," as there was no modification of the trust terms or violation of the trustees' obligations.

Validity of the Transfer:
The court emphasized that the assignment made by Shashikant B. Garware, as Karta of the HUF, is a gift within the meaning of the Gift-tax Act and has been accepted as such by the Revenue. The court stated, "We have gone through the documents and satisfied that a valid gift of the property has been made."

Tax Evasion Argument:
The Revenue argued that the assignment was an attempt at tax evasion, referencing the Supreme Court's decision in McDowell & Co. Ltd. vs. CTO. However, the court differentiated between tax avoidance and tax evasion, stating, "There is a silver line of distinction between tax prevention in a legal manner and evasion which, of course, is illegal." The court concluded that the transfer was a legal transaction aimed at securing tax relief in future wealth-tax assessments.

Issue 2: Validity of the Gift by Karta
Hindu Law and Karta's Powers:
The court examined whether Shashikant B. Garware, as Karta of the joint family, could validly gift the interest in the Trust Fund. It was noted that Shashikant B. Garware was the sole surviving coparcener, and under Hindu Law, a sole surviving coparcener has the same power to alienate joint family property as if it were his own property. The court cited the Bombay High Court's decision in CIT vs. Anil J. Chinai, which supports this principle.

Voidable vs. Void Transactions:
The court further clarified that the transfer made by Shashikant B. Garware was not void ab initio but only voidable at the instance of other family members whose interests were affected. The court referenced the decisions of the Rajasthan High Court in CIT vs. Brahm Dutt Bhargava and the Allahabad High Court in Juggal Kishore Jaiprakash vs. CIT, which indicate that the validity of the gift cannot be challenged by the Revenue, being strangers to the family.

Conclusion:
The court concluded that the beneficiary was competent to transfer/gift the beneficial interest in the corpus of the Trust Fund and that such a transfer made by Shashikant B. Garware, as Karta of the HUF, was valid. The court affirmed the decision of the first appellate authority, stating, "The conclusion reached by the first appellate authority is unassailable and the same is affirmed by us."

Final Judgment:
The appeals by the Revenue were dismissed, and the court upheld the validity of the transfers and the valuation declared by the assessee.