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TMI Blog1982 (6) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... right in holding that the transfer of the properties belonging to the Hindu undivided family made in favour of the trust by the major member of the family and also by the karta on behalf of himself and the minor members before, there was any partition of the properties among the members of the family inter se was not void and not forbidden by Hindu law? (3) Whether, on the facts and in the circumstances of the case, and having regard to the provisions of sections 161 and 164 of the Income-tax Act, 1961, the Tribunal is right in holding that the income from the trust properties has to be allocated among the beneficiaries according to their respective shares and inclusion of the same in the total income of the Hindu undivided family is not justified ? " As the facts in all the four cases are identical, although the parties are different, we may refer only to the facts of the Income-tax Reference No. 3 of 1977. From the statement of the Income-tax Reference No. 3 of 1977, the following material facts emerge : A Hindu undivided family consisting of Shri Gangadhar Sikaria (karta), his wife, Smt. Devi, his major son, Bhagawati Prasad Sikaria, and his minor sons, Santosh Kumar, R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing in the books of account. Clause 5 of the trust deed provides that the net income of the trust shall be divided equally among the beneficiaries, viz., Smt. Sita Devi Sikaria, Bhagawati Prasad Sikaria and the minor sons of Gangadhar Sikaria, and that any son to be born to him after the commencement of the trust shall also be entitled to an equal share of the income of the trust but in case of loss the same shall be borne equally by the major beneficiaries and the minor beneficiaries shall not be liable for the losses. For the assessment year under reference the trust filed the return in respect of the income from the trust properties. The ITO held the trust to be not valid for two reasons. One was that, so long as the joint family was not divided and the properties remained joint, it was not open to the karta and other members of the family to alienate the family properties by creating a trust or otherwise. Another was that cl. 5 of the trust deed which provided for the minor beneficiaries not being liable for the losses, if any, and the losses being borne only by the major beneficiaries was inconsistent with the concept of a valid trust and violated the principles of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of cl. 5 of the trust deed, which provides for the minor beneficiaries not being liable for the losses, if any, and the losses being borne only by the major beneficiaries, therefore, such provision is inconsistent with the concept of a valid trust and violates the principles of the trust deed. Both these contentions have been repelled by the Tribunal. Regarding the first contention the Tribunal held " We are also not impressed with the argument of the learned counsel for the Department that the transfer of the joint family properties to the trust is forbidden by Hindu law. An alienation of property belonging to a Hindu joint family otherwise than for a legal necessity or for the benefit of the estate is only voidable but not void. Such an alienation can be attacked only by the other members of the family who were not parties to the transfer as not binding upon them. It is not open to outsiders including the Revenue to impugn the transfer as void or non est. That apart, we fail to see how it can be said that the transfer of properties in the present case is not for the benefit of the estate. The transfer in the present case is merely in favour of the trustees, who are no other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RD PART: WHEREAS, Shri Gangadhar Sikaria as karta of the Hindu joint family consisting of self, his wife, Sita Devi and his sons, Bhagawati Prasad Sikaria, Santosh Kumar, Ramautar and Ashok Kumar, was the owner and otherwise fully seized and possessed of the rice mill known as Shri Shankar Rice Mill situated at Udalguri in the district of Darrang (Assam) with all its lands, buildings, structures, godowns, chattels, compounds, plants, machinery and a T.M.B., truck etc. AND WHEREAS Gangadhar Sikaria as karta of the Hindu joint family was carrying on business in partnership along with Sita Devi and Bhagawati Prasad Sikaria under the name and style of Shri Shankar Rice Mill at Udalguri as per deed of partnership registered on the 30th October, 1959, with the Sub-Registrar, Gauhati, with its head office at Gauhati and the said partnership owns a ridging machine under the name and style of Shri Ganga Industries at Murlidhar Sharma Road, Gauhati and the joint family was also the owner of a building on Dr. B. Barua Road, Sarania, Ulubari in Gauhati. NOW THIS DEED WITNESSETH that the settlors hereof, being members of the said joint family and partners, hereby transfer and assign the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by set apart the rice mill known as Shri Shankar Rice Mill situated at Udalguri in the district of Darrang, with all its lands, buildings, structures, godowns, compounds, chattels, plant, machinery and a T.M.B. truck etc., more particularly described in schedule A and the ridging machinery in the name of Shri Ganga Industries at Gauhati, more particularly described in schedule B hereunder and the building let out at Ulubari in the town of Gauhati, more particularly described in schedule C hereunder in trust for the personal benefit of Sita Devi Sikaria and Bhagawati Prasad Sikaria and the minor sons of Gangadhar Sikaria already born or to be born hereafter equally in their individual capacity. The individual capital of Sita Devi Sikaria and Bhagawati Prasad Sikaria and other members of the family in their individual capacity appearing in the books of the partnership business carried on under the name and style of Shri Shankar Rice Mill shall not belong to the trust but shall remain their individual property. Only the joint family capital invested in the business of Shri Shankar Rice Mill be likewise set apart in trust by this deed. The residential house at Murlidhar Sharma Road, Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the trust deed. The reasons for the above contention are based on ss. 3 and 7 of the Act. The interpretation clause of the trust found in s. 3 reads as follows : " A `trust' is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him, for the benefit of another, or of another and the owner; ........" The learned counsel submits that on a perusal of the trust deed it appears that the settlors, including the minors, are the owners of the HUF property. They are the owners of the HUF. family property as well as the partnership property. Therefore, as they are all owners of the property, there is none to take the benefit except the owners themselves. The trust deed shows that Gangadhar Sikaria, Sita Devi Sikaria and Bhagawati Prasad Sikaria are all authors of the trust, the trustees and also the beneficiaries in their individual capacity except Gangadhar Sikaria. The opening part of the trust deed shows that Gangadhar Sikaria on his own behalf and as natural guardian of the minor sons are the settlors. Therefore, according to the learned counsel, the minors are also the settlors. But th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct-matter of the trust, therefore, it was necessary for Sita Devi and B. P. Sikaria to become the settlors, they being the partners in the earlier partnership. We find that Mr. Talukdar has got some force in the contention. Here, in the trust deed, not only the HUF property but also the partnership property, namely, the ridging machine being the subject-matter of the trust, the inclusion of Sita Devi and B. P. Sikaria along with Gangadhar Sikaria was essential to create the trust. Reading the trust deed, we find that the minors in existence at the time of creation of the trust and also the minors to be born are made beneficiaries and none of the minors are trustees. Therefore, they do not own the trust property but they are only beneficiaries with Sita Devi and B.P. Sikaria, who are trustees along with Gangadhar Sikaria. The presence of the minors in the trust deed as beneficiaries, in our opinion, is sufficient to bring the trust in conformity with the provision of s. 3 of the Act. The minors answer the description of "another" found in s. 3 of the Act. The precise contention of the learned counsel for the department is that the deed of trust violates s. 3, inasmuch as, accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l.(b) of s. 7, an exception has been engrafted to the aforesaid barring provision, namely, that the creation of the trust is subject to the law for the time being in force. Here in this case the parties are governed by the Mitakshara school of Hindu law. Here Gangadhar Sikaria, the karta of the family, has settled in trust the HUF property in which the minors have interest. Under the pure Hindu law, the natural guardian as the karta of the family had the unfettered right to alienate the joint family property for legal necessity and for the benefit of the estate or the family. Now the pure Hindu law has, in this context, been somewhat amended by the enactment of the Hindu Minority and Guardianship Act, 1956. Sub-section (2) of s. 8 of this Act provides that the natural guardian shall not, without the previous permission of the court, mortgage or charge, or transfer by sale, gift, exchange or otherwise, any part of the immovable property of the minor... Sub-section (3) of s. 8 provides that any disposal of immovable property by a natural guardian in contravention of sub-s. (1) or sub-s. (2), be voidable at the instance of the minor or any person claiming under him. This provision sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the family whose interests are affected thereby and not by strangers. In the above view of the legal position, we hold that the Tribunal correctly decided the questions as posed in questions Nos. 1 and 2 that the trust was a valid one and also that the settlement of the trust property was legally made. With regard to the question No. 3 it has been contended by the learned counsel for the Department that having regard to the provisions of ss. 161 and 164 of the I.T. Act, the Tribunal was not right in holding that the income from the trust has to be allocated among the beneficiaries according to the respective shares and inclusion of the same in the total income of the HUF was not justified. We have given our anxious consideration to the argument advanced by the learned counsel. The assessment in the instant case in respect of the very same income was made by the ITO in the hands of the two persons, namely, the trust, which is the petitioner before us " on protective basis " and the HUF " on regular basis ". This double assessment in respect of the very same income was made as a protective measure. It was done because the trust had submitted a return showing the income, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their respective shares and the inclusion of the same in the total income of the HUF is not justified." The aforesaid finding is in no way contrary or inconsistent with the provisions of s. 161 or s. 164 of the I.T. Act, 1961. Section 160 of the I.T. Act which enumerates the categories of the representative assessees who are assessable in respect of the income of the beneficiaries which belong to other persons, specifically includes a trustee appointed under a trust declared by a duly executed instrument in writing. In s. 161 the liability of the representative-assessee is confined to the income in respect of which such person is a representative assessee. The assessment on a representative assessee under s. 161 is separate and distinct from his personal assessment. Every representative assessee is liable to tax under s. 161 " in like manner and to the same extent " as the persons beneficially entitled to the income. The liability of the trustee under s. 161 is co-extensive with that of the beneficiary, the interposition of the trustee for the purpose of assessment does not affect the incidence of tax on the beneficiary. Since the tax has to be levied on the representative asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be levied on them under s. 161 to the same extent as it would be leviable upon the beneficiaries. In the instant case, there being several persons beneficially entitled to the income, with well-defined shares, the assessment of the representative assessee can, be made only at the individual rates of tax applicable separately to the total income of each beneficiary. In view of the aforesaid legal position, under the facts and circumstances of the case, the Tribunal was right in holding that the income from the trust property has to be allocated among the beneficiaries according to their respective shares, and inclusion of the same in the total income of the HUF is not justified. In these circumstances and for the reasons mentioned above, our answers to the three questions referred to us are answered in the affirmative, in favour of the assessee, and against the Department. For the same reason, we also answer all the three questions referred in each of the Income-tax Reference No. 5 of 1978, Income-tax Reference No. 6 of 1977 and Income-tax Reference No. 11 of 1977 in the affirmative, in favour of the assessee and against the Department. The petitioner shall pay to the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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