1978 (12) TMI 94 - AT - Income Tax

Summary

Issues:
- Confirmation of assessments made on the assessee by the 2nd ITO under s. 143(3) of the IT Act, 1961 for the assessment years 1974-75 and 1975-76.
- Interpretation of the trust deed and determination of the author of the trust.
- Application of provisions of s. 13(C)(ii) of the I.T. Act, 1961 regarding investments made in firms involving relatives of the author of the trust.
- Disallowance of claim under s. 80G for donation made to Little Flower High School, Salem.

Analysis:

The appeals were filed against the order of the AAC of Income tax confirming the assessments made on the assessee by the 2nd ITO under s. 143(3) of the IT Act for the years 1974-75 and 1975-76. The assessee, a trust constituted for charitable purposes, had investments in firms involving relatives of the settlor. The ITO held that the investments attracted the provisions of s. 13(C)(ii) of the IT Act, disallowing the claim under s. 80G for a donation made to a school. The AAC upheld the assessments, leading to the appeals.

The main contention was whether the author of the trust was the individual settlor or the Hindu Undivided Family (HUF) of the settlor. The trust deed indicated that the settlor was the sole trustee during his lifetime, suggesting he was the author in his individual capacity. The trust provisions did not point to the HUF as the author, despite the trust funds originating from the HUF. The Tribunal rejected the argument that the HUF was the author based on the trust deed's provisions and the settlor's actions.

Regarding the application of s. 13(C)(ii) of the IT Act, the Tribunal found that the relatives of the settlor were involved in the firms where the trust funds were invested. The provision was attracted as the daughter-in-law and grandsons of the settlor were partners in the firms, falling under the definition of "relative" as per the Act. The department's argument that even if the settlor was considered as the HUF's karta, the result would be the same due to the relatives' involvement, was accepted by the Tribunal.

The Tribunal directed a fresh consideration of the claim for relief under s. 80G for the donation made to the school, as there was a discrepancy in the recipient mentioned. One appeal was treated as allowed in part, and the other was dismissed, upholding the lower authorities' decision. The Tribunal affirmed the assessments and the application of s. 13(C)(ii) of the IT Act, while granting an opportunity to establish the claim for relief under s. 80G for the donation.