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TMI Blog1991 (8) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... were accordingly dismissed. The CIT(A), however, set aside the assessments with the direction to tax the income in the hands of the person/persons to whom the income actually belongs. 4. The assessee is now in appeal before us and in the various grounds set up in the memorandum of appeal the only plea raised is that the assessee is a genuine trust and, therefore, the order of the CIT(A) be vacated. 5. Before dealing with the arguments raised on either side we may mention the basic facts of the case. The trust in question purports to have been created by one Bimal Kumar Jain who settled a sum of Rs. 1,000 on trust for the benefit of his sister, Smt. Prem Lata Agarwal and her children Km. Purnima Agarwal, Km. Pritty Agarwal and Master Sanjay Agarwal then aged 16, 15 and 14 years. He appointed Smt. Prem Lata Agarwal as the sole trustee and gave the trustee wide powers to accept donations or gifts and carry on business and dispose of trust property. Clause 4 of the Trust Deed which, inter alia, prescribes the shares of the beneficiaries reads as under: "4. It is hereby declared and agreed between the parties to these presents that the Trustees shall stand and be possessed of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiary or his or her guardian on behalf of the beneficiary as a loan for any business of the Trust, interest shall be allowed on such money at such rate as may be agreed upon before determining the residue of annual or other income to be divided between the beneficiaries and such interest shall be payable to such beneficiary in addition to his or her share in the residue of the annual or other income. Subject to the above provisions and other conditions of this deed, the share of each beneficiary in the annual or other income and the assets of the Trust at any time is as follows: (1) Smt. Prem Lata Agarwal 25 (twenty five)% (2) Km. Purnima Agarwal 25 (twenty five)% (3) Km. Pritty Agarwal 25 (twenty five)% (4) Master Sanjay Agarwal 25 (twenty five)% . 100 (one hundred)%" Then cl. 13 of the Trust Deed reads as under: "13. The Trustees may dissolve the trust, at any time by an unanimous decision in writing after transferring the assets of the Trust Fund to the beneficiaries (or to their legal representatives) according to the ratio given in paragraph 4 above, provided that if any beneficiaries had d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as herself a beneficiary under the Trust. For all these reasons he held the trust to be a bogus one created for the sole purpose of avoiding tax and, therefore, made only a protective assessment. For similar reasons the CIT(A) has upheld the finding recorded by the Assessing Officer. 8. The learned counsel for the assessee contended that in this case the Trust has been accepted as a genuine trust for asst. yrs. 1978-79 to 1981-82 and, therefore, it was not possible for the Revenue to take up a different stand in asst. yr. 1982-83. He also relied upon a judgment of the Hon'ble Gujarat High Court in K.T. Doctor vs. CIT (1980) 15 CTR (Guj) 43 : (1980) 124 ITR 501 (Guj) in which it has been observed that the doctrine of lifting the veil applicable to companies is not applicable to trust. 9. It is true that in this case assessments have been made in the name of Prem Family Trust from asst. yrs. 1978-79 to 1981-82. The learned counsel for the assessee has placed copies of the relevant assessment orders in the paper book, but they show that the assessments were made in a routine manner accepting the returned incomes and the question of the genuineness of the trust or the question whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that case the veil of the trust was never intended to be lifted. 12. In the case before us this attempt has been made and the real finding of the authorities below has been that no business was carried on by the trustee Smt. Prem Lata Agarwal. We do not find any legal bar for arriving at such a finding if the material on record and the circumstances of the case justify it. 13. Similarly the ruling in CIT vs. Ganeshi Lal Sham Lal (1966) 61 ITR 408 (P H) relied upon by the learned counsel for the assessee for the proposition that once the existence of a thing has been accepted earlier, such existence cannot be challenged later does not support the assessee. In that case complete partition of an HUF was accepted by passing an order under s. 25A of the 1922 Act and it was held that proceedings for reassessment of the erstwhile HUF under s. 34 of the Act could not be taken as long as that order under s. 25A was in existence. 14. In the case before us there is no such order that concludes that situation for all times to come. So far as assessment orders are concerned they are effective only for the particular years for which they have been made. As regards the genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficiaries, better results were shown. These better results cannot be the achievement of the trustee, Smt. Prem Lata Agarwal. Then from1st April, 1984the IT Act was amended and trusts, which derived income from business, became taxable at the maximum marginal rate. To avoid being taxed at the maximum marginal rate in respect of the whole income of the Trust, immediately another plan was devised and the business purported to be leased out to Smt. Prem Lata Agarwal on a monthly rent of Rs. 6,000. A copy of the agreement purporting to have been executed between the trustee and beneficiaries on the one hand and Smt. Prem Lata Agarwal on the other is at page 61 of the paper book. As already stated the trust is said to have taken the business on lease from Ramesh Chand Agarwal on a monthly rent of Rs. 1,000. A copy of that lease deed has not been filed before us and there seems to be no permission from the landlord for sub-letting the premises. Then the agreed rent for the same property was much higher than what was being paid to the original landlord, namely, Ramesh Chand Agarwal, Prem Lata Agarwal, according to agreement, is a lessor as well as a lessee, which is not permissible. She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the corpus of the trust is not lost. In this case, however, the trustee has been provided negligible funds and could become indebted in the course of business unless of course it was intended, as appears to be the intention before us, that the whole exercise is just an eye-wash and nothing of the sort is going to happen. Then very elaborate provisions have been made in the Trust Deed about how the trust funds would be dealt with. Although ultimately at the end of cl. 4 the share of each beneficiary has been fixed at 25 per cent, but in result and in fact Smt. Prem Lata Agarwal, the sole trustee, has the absolute discretion how the trust fund would be distributed and utilised and, therefore, it cannot be said that the shares of the beneficiaries in the trust property are known and determinate. The first proviso in cl. 4 says that if a beneficiary dies, his share shall be payable to the surviving beneficiaries in equal parts. Clause 13 says if any beneficiary dies without attaining the age of 18 years, the assets of his or her share shall be divided equally among the surviving beneficiaries. The second proviso to cl. 4 says that in case the two girls are married before the determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that order holding that the assessment order was not erroneous or prejudicial to the interests of Revenue. Application under s. 256(1) was rejected by the Tribunal and the Hon'ble High Court rejected an application under s. 256(2) holding that no question of law arises from the order of the Tribunal. This judgment of the High Court, therefore, of is no help to the assessee and if the assessee wants to seek any help from this, then there are contrary orders as well of the same High Court. In CIT vs. Smt. Usha Agarwal Family Trust (1989) 176 ITR 392 (All), the Hon'ble Allahabad High Court has called for a reference. Then in IT Appeal No.225 of 1989 CIT vs. R.S. Goyal Family Trust arising out of R.A.No. 1337/88 of this Tribunal also the Hon'ble High Court called for a reference. 18. For the reasons discussed above, we uphold the finding of the authorities below that the assessee was not a genuine trust and it carried on no business whatsoever. We hold that it was a colourable device simply to return the income earned by Ramesh Chand Agarwal from his business under the name of Britannia Engg.Co., and Precision Engg. Industries through this purported trust and avoid the incidence o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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