9911796707
TMI Blog1991 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... tes to the assessment year 1973-74. The facts relevant for the assessment year 1962-63 may now be set out : For the assessment year in question, the previous year for which ended on July 12, 1961, the assessee-Hindu undivided family derived income from property as well as hire rent and commission from Jain Glass Works P. Ltd. (hereinafter referred to as "the company"). On May 3, 1960, the assessee family had granted a perpetual lease of certain buildings furnaces and lands owned by it to the company. It appears that a firm known as Jain Glass Works had taken on lease the above assets of the Hindu undivided family at an annual rent of Rs. 62,000 for running its business in the manufacture of glassware. The lease deed recited that the company which had taken over the running business of the firm was to continue to have its factory for manufacture of glassware on the land belonging to the joint family and continue to use and enjoy all the facilities for the manufacture of glassware on the bhatties belonging to the family. In consideration of the use of all the above premises, the company was to pay the Hindu undivided family an annual rent of Rs. 21,000 for the period during which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property of the joint family. The contention was that the sum of Rs. 10,000 out of the rent payable by the lessee for the property got diverted by an overriding title to the college and ceased to be the income of the assessee. This contention was negatived by the Income tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal (the Tribunal). The Tribunal, however, directed the Income-tax Officer to give appropriate relief under section 88 in respect of this amount. Another bone of contention between the parties related to the income from certain properties claimed to have been transferred by the assessee family to the trust on November 14, 1947. On that date, the assessee executed a trust deed which was also registered at Firozabad. By this deed, Chhadami Lal, the karta of the assessee family, expressed his desire to create a charitable trust which would fulfil the needs of education, religion and medical facilities in the town of Firozabad. He, therefore, proceeded to create a trust which would run a boarding house, a dharamshala with temple, a commercial and industrial institute, a Jain Dharam School, a Jain Aushadhalaya, a students' scholarship f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust on July 1, 1957, the following property the value of which was Rs. 25,000 [by] cancelling mutation thereof in respect thereof in our name and giving up possession of the below-mentioned property, at the same time, had transferred it to the trust. Since July 1, 1957, we have had no connection with the property mentioned below nor shall we have any concern with it in the future." The deed then proceeded to mention the details of the property " which has been in the use of the trust above-mentioned since 1957 and will continue likewise to be in the use of the trust always". It then proceeded to appoint eleven persons who were to be trustees to continue to run the trust and the institutions. Chhadami Lal, Bimal Kumar and his wife were three of the trustees, the others being outsiders. Then followed several clauses. Clause (3) referred to "the properties which have been given to the trust before and now" and empowered the trustees to sell or lease out the land to construct a building for the trust if it was found necessary. Clause (5), however, prohibited the trustees from "putting the property of the trust to personal use, wasting it or from mortgaging and selling it except in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned with that here. In Income-tax Reference No. 168 of 1979 which relates to the assessment year 1973-74, three questions were referred to the High Court, of which we are concerned with only two here. These are : "(2) Whether, on the facts and in the circumstances of the case, income of Rs. 6,329 from properties purported to have been transferred to the trust was not assessable in the hands of the assessee-family ? (3) Whether, on a proper construction of the lease deeds dated May 3, 1960, and May 5, 1962, and accompanying facts and circumstances of the case, the sum of Rs. 10,000 is the income of the assessee and not that of Chhadami Lal Jain Degree College ?" The questions referred were answered by the High Court against the assessee and in favour of the Department. The judgment of the High Court in Income-tax Reference No. 456 of 1968 is reported in Moti Lal Chhadami Lal Jain v. CIT [1977] 106 ITR 909 (All). This judgment contains the reasons for the conclusion on the question relating to the rental income. But so far as the other question is concerned, the High Court answered it following its earlier decision in Income-tax Reference No. 72 of 1969 arising out of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided to the college for the enforcement of the promise made to it by the assessee. The payment to, or recovery of, Rs. 10,000 by the college will only discharge in part the liability of the company to pay a rent of Rs. 21,000 to the assessee under the lease deed. It is contended on behalf of the assessee that it would not be correct to treat this as a case of a mere application by the assessee of a part of the rental income due to and receivable by it. The right given to the college to sue the company directly coupled with the creation of a charge in its favour on the property yielding the rent for such payment has the result of diverting that part of the rental income at the very source or inception. Under the second agreement, it is urged, not merely an amount of Rs. 10,000 per annum but the very right to receive, and enforce the payment of, that part of the rent is assigned to the college by the assessee. Its effect is that the income from the property thereafter accrues partly to the assessee and partly to the college with the result that the assessee is left only with the right to receive Rs. 11,000 from the company every year. Reliance is placed, in this context, on the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the corpus of the right of the latter to receive the entire income and so it would be a case of diversion. On the other hand, where the obligation is self-imposed or gratuitous (as here), it is only a case of an application of income. The case of a sub-partnership, referred to on behalf of the assessee, is really a case on the borderline. It is possible to take a view that it is nothing more than a case of one partner agreeing to divide his share of profits from a firm with others and, indeed, this was the view taken earlier : ( Mahaliram Santhalia v. CIT [1958] 33 ITR 261 (Cal)). But, apparently in view of the commercial necessities which compel the formation of sub-partnerships, a series of judicial decisions, approved in Murlidhar Himatsingka v. CIT [1966] 62 ITR 323 (SC) have held that they represent cases of diversion. That analogy cannot be extended to cases such as the present. We would also like, in this context, to refer to section 24(1)(iv) of the Income-tax Act, 1961. It provides for a deduction, in the computation of income from house property, in respect of the amount of an annual charge on the property. The statutory provision was initially wide enough to ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any further. So, it is said, no valid trust has been created by the assessee to merit the claim for exemption. We are of the opinion that the view of the High Court proceeds on an unduly narrow construction of the deeds of 1947 and 1960. We have pointed out that, under the deed of 1947, the karta of the assessee-family is the sole trustee to execute the objects of the trust. It appears to have been overlooked that, while a registered conveyance to the trustees by the owner of immovable property is necessary where the trustees are persons other than the author, this requirement does not arise where the author of the trust is to be the sole trustee. While a trust is not complete until the trust property is vested in trustees for the benefit of the cestui que trust, this can be done by the settlor where he is himself the trustee, by a declaration of trust, using language which, taken in connection with his acts, shows clear intention on his part to divest himself of all beneficial interest in it and to exercise dominion and control over it exclusively in the character of a trustee. Section 6 of the Indian Trusts Act, 1882, makes this clear beyond all doubt. In the present case, the ..... 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