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TMI Blog1996 (7) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... Thomas Daughters Trust ; (8) Francis Paul Heirs Trust ; (9) Francis Paul Daughters Trust ; (10) John Paul Heirs Trust ; (11) Francis and John Family Trust ; and (12) Saju Thomas Heirs Trust. These family trusts were constituted under separate deeds executed on May 1, 1975. These family trusts own extensive properties, both agricultural and non-agricultural. For the effective management of these properties, the terms in the trust deed specifically empowers the respective trusts to enter into partnership or joint ventures or any other arrangement. In terms of the trust deed, two partnerships were constituted, namely, " Popular Plantations " and " Popular Estates ". The trust deed provides that the trust could nominate one of its trustees as partner in the firm for and on behalf of the trust. For the sake of convenience, the facts involved in T. R. C. No. 16 of 1992 are adopted as common for all these cases. The Agricultural Income-tax Officer, Trichur, within whose jurisdiction the aforesaid properties are situate assessed the trustees of the trusts for their share of income from trust properties showing the status as " individual ". Annexure " III " is the copy of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership in their individual capacity and not in the capacity as trustees of the respective trusts. The Deputy Commissioner formed such an opinion for the following reasons : (1) It has not been specifically mentioned in the partnership deed that each partner represented the trust of which he/she is the trustee. (2) No provision has been made in the partnership deed for the continued functioning of the firm with new trustees in case of change in partnership. (3) Though clause 6(f) of the trust deed empowers the respective trusts to enter into partnership or joint venture or any other arrangements with any other person, firm, etc., clause 3 of the partnership deed of the firm clearly indicates that the capital of the two firms was not made out of the amounts settled on the twelve trustees. (4) Sri T. I. Mathew, the authorised representative of the firms, in his letter dated February 16, 1982, had stated that all the partners in the two firms are individuals and not trusts and that by mistake the partners have been misnamed as trusts. Further, it is seen that the revised returns and applications for registration and renewal of registration for the years 1976-77 to 1979 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esires and is permitted to participate in a partnership business, the strategem usually employed is for such trusts to depute any one of its trustees to join the partnership for and on behalf of the trust. That is why individuals joining a partnership for and on behalf of the trusts are invariably described in the partnership deed as being trustees of the trust which they represent. A natural person joining the partnership in his personal capacity does not have to be described as being the trustee of any trust. (IV) The relationship between the partnership and its partners in the abovesaid arrangement will obviously remain the same whether the partner is a partner in his personal capacity or in a representative capacity. Where the partner happens to represent a trust or a firm, such act of representation would strictly be an arrangement between the trust or the firm which is so represented and the person or persons representing them. (V) In the event of any change in the partnership, which could be caused by an existing partner leaving the partnership or a new partner joining it, the trustees who represent trusts in the continuing partnership do not have to be necessarily chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the fact of their representing the trusts is strictly a matter of arrangement between the individuals and the trusts. (XI) The share income of each of the partners in the partnership is assessed to income-tax in the hands of the trusts which they represented and not in the hands of the persons who represented them. Nor has the share income of the husband been clubbed with the income of the wife. (XII) The accounts and other materials will establish that the investments the petitioner and his wife have made in Popular Plantations and Popular Estates were provided to them by the respective trusts which they represented. (XIII) The petitioner and his wife represent different trusts in the partnerships and the share income which they earn from the partnerships belong and is invariably made over to the trusts which they represent. Thus the petitioner and his wife are only conduits through whom investment is made by the trusts in the partnerships and the share income is passed on by the partnership to the trusts. That being the position, the provision of section 9(2)(a)(i) is not applicable and hence the proposal to revise the assessment under section 34 of the Act may be dropped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby one or more person is enabled to deal with the property for the benefit of another person or persons. A juridical body by itself will not become a partnership firm capable of managing the trust properties. In such a situation, where a trust permits to form partnership, such trust will depute any of its trustees to join the partnership for and on behalf of the trust. What section 67 of the Indian Trusts Act, 1882, reveals is the liability of a partner being a trustee who wrongfully employs the trust property in business. That would indicate the function of a partner, being a trustee in a partnership firm. Basically the properties involved in these cases are the properties belonging to the twelve family trusts. The question is whether by execution of the partnership deeds this basic feature of the property had undergone any transformation or change. The aforesaid twelve family trusts were created on May 1, 1975 ; seven of them are shown in the partnership deed dated May 1, 1975, as existing partners. There were two reconstitutions of the firms on May 1, 1975. On the first occasion seven of the present 12 trusts joined the partnership through the medium of their trustees and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hereinbefore. When all the partners signed the partnership deed in their representative capacity describing themselves as trustees of different trusts how could a different intention be gathered from the recitals in the deed ? Of course, clause 3 of the partnership deed stipulates that whatever capital required for the business of the partnership shall be brought by the partners as and when required and in such proportion as may be agreed upon by and between the parties. This does not mean that the partners will contribute capital individually. It only means that they will bring the capital as trustees of the different trusts because all functions under the partnership are as representatives of the trusts. After clearly noticing the intention of the parties, we feel it imperative that wherever the word " partner " is found in the partnership deeds it shall be understood as partner being the trustee of a family trust. Once it is so understood there is no room for interpreting that the partners have joined the partnership in their individual capacity. What we could gather from annexure " VI " is that the Deputy Commissioner has failed to examine the partnership deeds taking note o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners have joined the partnership in their individual capacity and not in the representative capacity of the respective trusts. In fact, the contention urged by the petitioners in their objection in this regard has not been properly appreciated by the officer. The circumstances under which the authorised representative, Mr. Mathew, mentioned the names of the petitioners as individuals in the application for registration of the firm have been explained in the letter dated February 16, 1982, addressed to the officer. What is stated therein is that as per the partnership deed dated May 1, 1975, all the partners of the firm are individuals and not trusts. Since the status has been mistakenly stated as trusts it was found necessary to correct the same. This correction has also to be understood in the background of column 3 of the assessment order which is discussed hereinbefore. Whatever that be, the capacity of the petitioners as representatives of the different family trusts will not in any way be affected by the abovesaid circumstances. The petitioners continued to be the trustees of the property held by the different family trusts. The Department has no case that the petitioners ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural income of any individual for the purpose of assessment, there shall be included so much of the agricultural income of a wife of such individual as arises directly or indirectly from the membership of the wife in a firm of which her husband is a partner. This provision will apparently apply in the case of husband and wife who are the partners of a partnership-firm. In the present case, the husband and wife are trustees of different family trusts and the property involved is the trust property. There is no change in the character of property even after the constitution of partnership as discussed hereinbefore. Therefore, the above provision will not apply in the facts of this case. The issue in hand can be looked at from a different angle. This court while dealing with the question of double taxation with reference to the provisions of the Agricultural Income-tax Act, in the case of a husband and wife who are the partners of a firm, observed in Achamma George v. IAC [1989] 180 ITR 57 (Ker) : " Wading through the various provisions of the Act, it is difficult to locate a conscious intention on the part of the Legislature to bring in the agricultural income of an assessee to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to be a reasonable construction. Ordinarily, when a statute does not provide any time-limit for exercising a specified power affecting the interest of persons, the authority on whom such power is conferred shall exercise it within a reasonable period. A Division Bench of this court in Deputy Commr of Agrl. I. T. and S. T v. P. S. B. Paul Pandian [1981] 128 ITR 809, while interpreting section, 34 of the Act, observed : " .... it appears to be a sound principle that even though section 34 of the Act in terms does not prescribe a time-limit within which the power under that section has to be exercised, in order to avoid prejudice and hardship to the assessee it should be exercised within a reasonable time once the assessment becomes final, lest it be a Damocles' sword hanging over the head of the assessee for all time. We have not been shown anything to justify the inordinate delay between the completion of assessment for the years 1967-68 and 1968-69 on November 2, 1967, and November 20, 1968, respectively, on the one hand and its reopening on August 31, 1978, on the other, the delay being about 11 years in one case and about 10 years in the other. " Recently, another Divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o that of the husband invoking the provisions contained in section 9(2)(a)(i) of the Act. The appellate orders passed at the instance of the petitioners have no relevance to the revision sought to be made. That being so, what is sought to be revised by annexure " IV " notice dated November 8, 1990, is the assessment orders completed on March 30, 1984. That would mean the power under section 34 has been invoked by the Deputy Commissioner after a period of six years and seven months from the date of completion of the assessments for the years 1978-79 and 1979-80. But the fact remains that the proceedings had been initiated by the Deputy Commissioner suo motu. He is fully aware that the action has been taken by him under section 34 after a period of more than six years. When no time-limit is prescribed for exercising the power suo motu affecting the interests of the partners, the authority conferred with such power is bound to show cause for such delay. At least the notice proposing such action must reveal the circumstances leading to such delay. Annexure " IV " notice does not disclose any circumstance whatsoever justifying the delay in taking suo motu action. Annexure " V " order al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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