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TMI Blog1978 (9) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits. The three minors were entitled 12 1/2 per cent of profits each. The business was formerly a proprietary concern of one T.A. Varghese. All the partners, including the minors are his children. T.A. Varghese died and his children were continuing the business in partnership. 3. One of the minors, Omana, became a major on 10th Dec., 1970. She signed a declaration for changing herself as a partner of the firm. No fresh partnership deed was however drawn up. The same partnership deed continued till the end of the accounting year which was 16th Aug., 1971. We may mention here that the accounts were being maintained according to the Malayalam era. The firm had been treated as a registered firm for all these years upto and including the asst. yr. 1972-73. 4. On 16th Aug., 1971 an unregistered document was made up between the major partners and Mary Varghese, who was the wife of the late T.A. Varghese, the father of the partners. It was recorded in that document that she expressed a desire to have some long standing arrangement in respect of her daughters who were not made beneficiaries of the partnership and for the maintenance, marriage etc., of all her children. Some of the clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey have referred to are to be made by debiting their accounts in the books only i.e. there is no cash contribution as such but only adjustments by book entries. 7. Similar transfers were directed to be made by all the partners. However, the ostensible beneficiary was different for different donors. For instance, the two partners Scaria and Abraham had written to Mary Varghese the mother of the minors that pursuant to the discussions they had transferred Rs. 33,000 each to Mary Varghese's account to be utilised as corpus donations for the benefit of the minors Lizamma and Roselyn in the family trust to be formed from 17th Aug., 1971. The donation by Ammini amounting to Rs. 54,000 was earmarked as corpus in the trust fund for the benefit of minor T.S. Lall and minor Daisy. In all there were nine minors who would be the beneficiaries of the trust for whose benefit moneys have been transferred to the trust to be formed. We may mention here that all these letters directing the firm to debit their accounts are dt. 14th Aug., 1971. The transfers were effected by book entries on the last day of the accounting year i.e. on 16th Aug., 1971. 8. On the last day of the accounting year a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Omana, who will execute an agreement of sale with the founder-trustee (cl. 7 of the agreement). Acting on this part of the agreement, on 17th Aug., 1971 Omana, for a consideration of Rs. 3 lakhs agreed to be paid by the trustees, transferred the business as a going concern in succession to the partnership including the benefits of contracts and engagements etc. The trustees would discharge all liabilities in respect of the same and would continue the business absolutely as their own from 18th Aug., 1971. 12. On the next day i.e. 18th Aug., 1971 the firm stood dissolved by a deed of dissolution. In the balance sheet of the firm were shown two immovable properties. The ostensible owners of these immovable properties were T.V. Scaria and T.V. Abraham. On behalf of them T.V. Scaria made an agreement with T.V. Abraham, trustee representing the trust to transfer the immovable property and hand over the possession of the same. The agreement recorded that the title deeds of these properties had been deposited with the trust as security for an amount of Rs. 3,30,949 received by them from the trustees as consideration. However, this agreement was not registered but it was agreed that re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a subsequent and a secondary transfer of that gifted amount to the trust. There was only one transfer and that was from the donor to the trust. There was no gift to the minors directly. We have quoted one of those letters by which the firm was directed to transfer certain amounts to the trust. It will be very clear from that that the recipient of the amount i.e. the donee would be the trustees and not minors. That money would be utilised for the benefit of a particular minor. The minor mentioned in that letter would get a beneficiary's share because certain amounts had been transferred by the donors to the trust with the intention that after the trust is formed the minor should be a beneficiary in respect of the income of the trust. It is true that the transfers were effected one day prior to the actual formation of the trust. But for that one day the moneys were kept by the firm to be handed over to the trust. It was never part of a direct donation to the minors. 18. We also clear the that interest of the minors in the firm had not been transferred to the trust or made the subject-matter of the trust. A close reading of the trust deed would show that the business carried on by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the trust. Referring to the document containing the agreement for the formation of the trust he pointed out that the assets of the business would stand transferred to Mary Varghese. He also pointed out to the narration to the same effect in the trust deed. He also referred to the nothing in the list of the stock as well as the sundry debtors wherein Mary Varghese had acknowledged receipt of the same. If a trust is to be declared in respect of these properties it could he only Mary Varghese and not the founder-trustee. To this extent the trust deed had not validly acquired the business. We do not find any merit in this submission. As we have stated earlier the business was not a property on which the trust was declared. If the business was the property on which such declaration was made, the objection raised by Mr. Menon would be very strong indeed. But since it was not the subject matter of the trust but a later acquisition, this argument has no force. It is true that the assets of the business were first transferred to Mary Varghese and later transferred through Omana to trust. But this is an arrangement by which the business came to be acquired by the trust. Mary Varghese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant to the issue before us. They are authorities for very different propositions. It would therefore, appear from the authority of the Supreme Court decision that the Department has no case for refusing to apply the provisions of s. 161. 23. In the result we find that the order of the AAC upholding the validity of the trust is correct. The departmental appeals would stand dismissed. 24. We come to the assessee's appeal against the addition to Rs. 10,000 to the trading account. It is not denied that the proviso to s. 145 would apply but the submission made is that the trading account results are fair and no addition should have been made. We are of opinion that the matter has to be seen from an overall point of the gross profit returned. For the prior years a gross profit rate of 14.4 per cent and 14.9 per cent has been returned. For the asst. yr. 1971-72 the ITO adopted 15 per cent and for the asst. yr. the gross is 13.22 per cent. We find that in an earlier year also there has been lower gross profit. For instance in 1970-71 a gross profit of 13.8 per cent had been shown. The assessee has an explanation for a slightly lower gross profit shown this year. The explanation is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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