1971 (3) TMI 32 - HC - Income Tax

Trust- trust created by crediting to trust account and by debiting the partner s account - validity of trust allowability of interest paid by the assessee on trust amount

Summary

Issues:
Validity of charitable trust created by settlor and disallowance of interest payment by assessee.
Completion of transfer and delivery of possession by settlor to trustees of the trust.

Analysis:
The judgment pertains to a reference arising from the assessment of a Hindu undivided family for the year 1961-62, involving the creation of a charitable trust by the settlor, Hari Bux Rai, and the disallowance of interest payment by the assessee. The Tribunal focused on the three certainties required for a charitable trust: declaration of trust binding on settlor, setting apart definite property, and statement of trust objects. It was found that while the trust deed was executed and registered, the property was not clearly specified, leading to doubts on divestment of beneficial interest by the settlor. The Tribunal emphasized the insufficiency of cash balance in the firm to cover the trust amount, citing precedent cases like Hanmantram Ramnath v. CIT.

The judgment highlighted the trust deed's specifics, indicating the settlor's intention to create a trust for educational or hospital purposes. Despite the Tribunal's concern over cash availability in the firm, the court referenced various cases affirming valid gifts through book entries, even when cash delivery was not immediate. Notably, the court distinguished the present case from Hanmaniram v. Ramxath, emphasizing the settlor's clear intention to create a valid trust, leading to the conclusion that a valid charitable trust was indeed created by Hari Bux Rai. Consequently, the disallowance of interest payment by the assessee was deemed incorrect.

Regarding the second issue on completion of transfer and delivery of possession to trustees, the court did not provide a specific answer as the assessee did not press for it. The judgment concluded with the assessee being awarded costs and counsel fees, signifying the resolution of the primary issue concerning the validity of the charitable trust and interest disallowance.