2013 (7) TMI 621 - HC - Income Tax

Genuineness of the Trust - Assessment of trust - Tribunal held that as per the terms of the trust deed, would be spouse and would be children would also become beneficiaries of trust therefore declined to declare Assessee as trust - Held that - Without giving a finding on the genuineness of the Trust, the relief claimed in the Tax Case Appeal could not be granted to the assessee - Following decision of Commissioner of Income Tax, Coimbatore Versus M/s. P. Sekar Trust and M/s. Peegee Trust 2009 (4) TMI 38 - MADRAS HIGH COURT and Commissioner Of Income-Tax Versus M. K. Chandrakanth 1996 (4) TMI 66 - MADRAS High Court , matter remanded back.

Summary

Issues:
1. Assessment of trust income under Section 164(1) of the Income Tax Act, 1961.
2. Applicability of judgments from Calcutta High Court and jurisdictional High Court in determining trust income.

Analysis:
1. The assessee contested the assessment of trust income under Section 164(1) of the Income Tax Act, 1961, for the assessment years 1998-99, 1999-2000, and 2000-2001. The Tribunal held that the beneficiaries under the trust were unknown or their shares were indeterminate, leading to the taxation of trust income. The Tribunal concluded that the Trust was assessed under Section 167B due to the beneficiaries' lack of awareness of their shares and some not even being aware of the Trust's existence.

2. The assessee further argued the applicability of judgments from Calcutta High Court and the jurisdictional High Court in determining the trust income. The Commissioner of Income Tax (Appeals) dismissed the appeal, confirming the Assessing Officer's findings that treated the trust as a sham and a colorable device. The Income Tax Appellate Tribunal did not consider the genuineness of the Trust but focused on the potential changes in beneficiaries' shares based on marriage and childbirth. Citing precedents, the Tribunal rejected the assessee's appeal, emphasizing that the determination of beneficiaries' shares at the Trust's creation did not warrant relief.

3. Upon review, the High Court found that the Income Tax Appellate Tribunal failed to address the specific issue raised in Ground No.7 regarding the genuineness of the Trust. Relying on prior decisions, the Court concluded that without a determination on the Trust's genuineness, granting relief to the assessee was not feasible. Consequently, the High Court set aside the Tribunal's order and remanded the case for reconsideration of Ground No.7 concerning the Trust's genuineness.

4. In the final disposition, the High Court directed the remand of the Tax Case Appeals to the Income Tax Appellate Tribunal for fresh consideration, emphasizing the importance of evaluating the genuineness of the Trust in determining the tax liability. The Court's decision highlighted the necessity of addressing specific issues raised by the assessee to ensure a fair and comprehensive assessment of trust income.