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TMI Blog1987 (9) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiaries were minors. The document provided that the beneficiaries will have beneficial interest not any in the corpus or capital invested in the firm but also in the profits arising therefrom less any loss incurred by the use of those funds in the business carried on by the firm. It further provided that the net profits or losses shall be duly credited or debited to the account of the beneficiaries and the beneficiaries shall be entitled to the net amount as and when they desire payment. Later on 22-3-1980, a deed of rectification was executed by the assessee clarifying that the losses debited to the beneficiaries' account shall be adjusted against the income credited for the earlier years and unadjusted losses shall be adjusted against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue is in appeal to contend that there cannot be a retrospective amendment of the instrument in writing and, therefore, the principal deed should be read without reference to the rectification deed. Secondly, it was argued that in terms of the principal deed that beneficiaries especially the minors were burdened with losses of the firm without limit and hence there was no valid creation of a trust which divested the assessee of the income from the share in the firm. On the other hand, it was contended on behalf of the assessee that the rectification was only clarificatory of the real intention and, therefore, operative along with the terms of the principal deed. It was submitted that even otherwise there was only a gift of an asset s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principal deed. This situation is recognised by the provision of the Specific Relief Act by section 26 which states that if any instrument in writing does not express the real intention, then, either party may institute a suit to have the instrument rectified and then specifically enforced. In the present case, if the author had not rectified the principal deed it is quite apparent that the beneficiaries could have gone to court u/s. 26 of the Specific Relief Act for having the principal deed rectified so that the real intention namely that the losses shall not exceed the corpus given to the minors be incorporated in the principal deed. When such a plea is taken and the court finds that the principal deed does not reflect the true intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the principal deed has to be read along with the rectification deed. 6. The second question that arises is reading the principal deed along with the rectification deed, was there valid trust of the property ? The objection of the Revenue is that the property conveyed being an interest in the firm which is subject to losses the subject matter itself was a liability and, therefore, an onerous gift to the minors who could repudiate it on becoming majors, was not a validly constituted trust. As we have seen before what was conveyed to the trust was only a share in the firm. In other words, the assessee continued to be a partner in the firm and instead of holding the capital and receiving the income on her won behalf she held the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is unlimited. But under the terms of the deed as amended, the liability or loss which the beneficiaries have to bear has been limited to the corpus held in trust. Thus, the effect of the document is that minor beneficiaries are not burdened with any liability other than the possibility of losing the corpus. As observed by the Gujarat High Court in CIT v. Keshavlal Prabhudas Shah [1981] 131 ITR 229 "a mere risk or possibility of the firm suffering losses in future will not and cannot convert the share in the firm from an asset to a liability". It follows that the property was not burdened by any obligation and hence, the acceptance of the minor beneficiaries was not a condition precedent for the validity of the trust. In the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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