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TMI Blog1996 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and in the circumstances of the case, the Appellate Tribunal was justified in dismissing the Revenue's quantum appeal without going into the merits of the contentions ?" They came before us in pursuance of the earlier order dated October 30, 1991, of this court in O. P. Nos. 5935, 6147, 6552 and 6604 of 1990. In fact, before the assessing authority---Income-tax Officer, CC-II, Ernakulam, proceedings were initiated against the assessee, Sri K. T. Mathew, as an individual, for the assessment years 1980-81 and 1981-82. Similar situation relates to the same assessee for the assessment year 1982-83 with regard to the same questions, being before us with the subject-matter of I. T. R. No. 94 of 1994. The view taken by the Income-tax Officer is confirmed by the first appellate authority---the Commissioner of Income-tax (Appeals), Ernakulam, as far as the questions are concerned with little modifications. The first appellate authority's order gave rise to four second appeals before the Income-tax Appellate Tribunal, two by the assessee and two by the Revenue, each covering the assessment years 1980-81 and 1981-82. However, for the assessment year 1982-83, in view of the similar answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifies exercise of powers of the trustees by the managing trustee by himself. The factual matrix further refers to a partnership firm in the name and style of "Victory Paper Stores" admitting the minor, K. M. Flemings, to the benefit of the said partnership firm. In that process, as far as the partnership firm is concerned, in its account there was a credit entry of Rs. 3,31,469, dated March 31, 1979. Obviously, this was a credit entry in the name of the minor son admitted to the benefits of the partnership firm. It is in this situation there comes into existence on April 2, 1979, a document entered into by the present assessee, Sri K. T. Mathew, in his capacity as the individual proprietor of the business concern in the name and style of "Victory Offset Printers" and the trust for the sale of the printing business to the trust in its entirety for a consideration of Rs. 3,79,810.66. This amount of consideration is shown in the document as the book value of the individual proprietary business of the present assessee. In the accounts submitted this amount of Rs. 3,79,810.66 is accounted by way of adjustment in the account of the minor, K. M. Flemings. It would be obvious that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x burden, the said arrangement cannot be a reason for negativing the effect of such agreement which is otherwise legally sound. In the context a pointer was brought to the notice of the authority that the assessment has already been made on the trust in respect of the income from the press and in such circumstances the same income should not have been taxed again in the hands of the appellant as an individual unless a conclusion gets established that the deed of trust and the agreement (annexures-E and F), are found sham and colourable in the state of the situation. Again we have to record that the first appellate authority has given only one paragraph of 30 lines for this question---paragraph 7. We find only one sentence and it is in agreement with the Income-tax Officer that the whole arrangement which is an exercise in tax reduction is a sham transaction. The authority further observes that the appellant who was the owner continued to run the press. His dual capacity cannot change the ownership of the income. It is not known from where exactly the initial contribution of Rs. 5,001 was received. It is then observed that if the entire funds of the trust were those of the minor, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated that the arrangement resulting into the transaction of sale entered into with the funds of the minor was only a device to reduce the tax liability because the assessee was virtually in control of the business, may be in the capacity of a trustee. It was in effect no change in reality in the manner of running of the business as a proprietor. The Tribunal considered the question in the process of reasoning commencing with paragraph 6 of its judgment, the Tribunal took up the question as to whether the trust is valid. The Tribunal found that it is not necessary that the trustee must be the owner of the subject-matter of the trust before declaring a trust. The Tribunal sought support from the statutory provisions of section 94 of the Indian Trusts Act that the trust could be understood as valid if a trust is declared by a person with reference to the property belonging to another, but for the benefit of that person. The Tribunal recorded a fact-finding that the trust was validly and legally created as per the provisions of the trust deed (annexure-E). The Tribunal also recorded that it was a genuine trust. Examining the factual situations, the Tribunal observed that the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to the instrument of the trust providing otherwise. The agreement (annexure-F) is a sale by K. T. Mathew who was undisputedly the proprietor of the proprietary concern in the name and style of "Victory Offset Printers" at Kunnamkulam. Therefore, K. T. Mathew could be considered as an individual selling his property under the agreement dated April 2, 1979 (annexure-F). The document is between him as an individual and the trust creating a vendor and vendee relationship. Reading the document further shows that this Fleming Trust is represented by Mrs. Omana Mathew. This was the inevitable factual situation in view of the peculiarities that one of the trustees was the vendor selling the property to the trust and under the peculiarities of the circumstances the trust was represented by the other trustee, Mrs. Omana Mathew, who happens to be none other than the wife of K. T. Mathew. It is also undisputed that there is no other trustee. The deed of trust creates a specific position satisfying the requirements of section 48 of the Indian Trusts Act, 1882. It is elementary that section 5 of the Transfer of Property Act, 1882, understands a transfer of property to be an act by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a man could not sue himself or contract with himself, or convey property to himself ; and it made no difference that he was acting on each side in a different capacity. So rigorous was the rule that, if the same party appeared on both sides of a contract, even though accompanied by different parties in each case, the whole contract was void. In many cases the rule worked hardship, and its consequences had to be mitigated." It is clear that acting in double capacity is not prohibited. What is prohibited is that a man cannot sue himself or contract with himself or convey property to himself. We must state that this court had an occasion to consider the above observations in I. T. R. No. 9 of 1992 (CGT v. K. R. Kumaran [1997] 223 ITR 683) where one of us---myself---dictated the judgment for the Bench. Factually, the question was whether the father could have acted in dual capacity as the party proposing advancement of loan and at the other end the party acting as the guardian accepting the amount for and on behalf of the minor son. In the context of the reasoning, this court had an occasion to consider the enforceability of such acts of law with reference to the provisions of the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above position it is not possible to accept the submission of learned tax counsel that the documents fail to make out transfer of property. In view of the foregoing discussion, we do not find that the Income-tax Appellate Tribunal, Cochin Bench, has gone astray in any way either on facts or in regard to the position of law. Left to ourselves, we would also have reached the same conclusion. Therefore, once we hold that there was a valid trust, in view of our above discussion it is needless to state that transfer is the consequence flowing therefrom. For all the above reasons in I. T. R. Nos. 40 to 43 of 1992, we answer question No. 1 in the affirmative---in favour of the assessee and against the Revenue. We answer question No. 2 also in the affirmative---in favour of the assessee and against the Revenue. In view of our answers to questions Nos. 1 and 2, answering question No. 3 does not arise and we decline to do so. In I. T. R. No. 94 of 1994, both the questions are answered in the affirmative---in favour of the assessee and against the Revenue. A copy of this judgment under the seal of the court and the signature of the Registrar shall be forwarded to the Income-tax Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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