1989 (11) TMI 78 - AT - Income Tax

Summary

Issues:
Taxation of income earned by a trust in the hands of the assessee as the sole beneficiary.

Analysis:
The appeal before the Appellate Tribunal concerned the taxation of income earned by a trust, where the sole beneficiary was the assessee's minor son. The Income Tax Officer had added a sum of Rs. 38,000 earned by the trust to the assessee's income. The Deputy Commissioner of Income Tax (Appeals) upheld this addition, resulting in the matter being brought before the Tribunal.

The authorized representative for the assessee argued that the income earned by the trust should not be taxed in the hands of the assessee, citing legal precedents such as K.T. Doctor v. CIT and CIT v. K.K. Birla. The representative provided the trust deed, dissolution deed, and trust account to support the claim that the income rightfully belonged to the minor beneficiary and not the assessee.

After considering the submissions, the Tribunal found that the trust was legally constituted, and the business was conducted by the trust for the benefit of the minor son. The Tribunal noted that for the subsequent assessment year, the trust itself had been taxed on the commission income. Certificates from the company confirmed the payment of commission to the trust, further supporting the assessee's position.

Referring to legal principles, the Tribunal highlighted the Gujarat High Court decision in K.T. Doctor's case, emphasizing that lifting the veil to determine the true nature of a trust's business is not permissible. The Tribunal also cited the Calcutta High Court decision in K.K. Birla's case, which supported the assessee's argument that the income belonged to the minor beneficiary and not the assessee.

Additionally, the Tribunal referenced the decision in the case of U.P. Tractors to establish that income from a business different from that conducted by the assessee should not be included in the assessee's income. The Tribunal concluded that the commission income should have been taxed in the hands of the trust, not the assessee, and reversed the decision of the Deputy Commissioner of Income Tax (Appeals), allowing the appeal of the assessee.