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TMI Blog1989 (2) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... consolidated order. 3. Brief facts leading to the present appeals before us may briefly be stated as under: On 17th Oct., 1981 one Shri Chandrakantbhai Chimanlal Chokshi (C.C. Chokshi) created as many as 20 discretionary trusts for the benefit of, mainly, one Shri S.B. Shah, his wife and children, by settling on trust a sum of Rs. 100 only in each of the cases. The relevant trust deeds of all these trusts are couched in identical language save some variations in certain insignificant facts. 4. On 19th Oct., 1981 the said Shri C.C. Chokshi further created another 10 discretionary trusts by settling on trust a sum of Rs. 100 in each of the cases. Two out of the said 20 discretionary trusts created by him on 17th Oct., 1981 were made beneficiaries in each of these 10 discretionary trusts. 5. On the following day i.e. on 20th Oct., 1981 the said C.C. Chokshi created another trust called by the name of 'Harish'(HE) Trust' by settling on trust a sum of Rs. 1000 for the benefit of the 10 discretionary trust' created by him on 19th Oct., 1981. All these beneficiary trusts were to have beneficial interest of 10 per cent each in the income as well as the corpus of this Harish (HE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onary trusts were made beneficiaries to another discretionary trusts created on 25th July, 1981. These ten discretionary trusts created on 25th July, 1981 were beneficiaries to the extent of 10 per cent each in Mahavir (SBS) Trust created on 27th July, 1981. Since there is a variation between the statement made by Mr. Patel at bar with regard to the settler of Mahavir (SBS) Trust and the settler of the said trust as mentioned in the chart submitted by Mr. Patel we would ignore the chart altogether from our consideration in deciding these appeals. 7. The ITO completed the assessments under s. 143(3) in the cases of all the appellants on 20th July, 1983. In the case of the principal trust the ITO noted that the said trust had started proprietary business in the name of M/s Harsh Enterprise which dealt in purchase and resale of import trade licence. The said proprietorship business had earned net profit of Rs. 1,66,000 for the principal trust. The said income was allocated to the 10 beneficiary trusts of the first line at Rs. 16,600 each on the ground that the principal trust was a specific trust and the shares of its beneficiaries were determinate. In the cases of the ten benefici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person behind these trusts, if necessary. 9. Opening his arguments Mr. Patel first challenged the order under appeal on the ground of want of jurisdiction to the learned Commissioner to upset the assessments made by the ITO in these cases. Mr. Patel submitted that the assessments in all these cases had been completed by the ITO on 20th July, 1983 while the learned Commissioner had passed the order under appeal on 11th Dec., 1985. It was submitted by the learned representative of the appellants that before its amendment by Taxation Laws (Amendment) Act, 1984 w.e.f. 1st Oct., 1984 sub-s. (2) of s. 263 provided that no order shall be made by the Commissioner under sub-s. (1) of s. 263 after the expiry of two years from the date of the order sought to be revised. Mr. Patel thus submitted that the order under appeal having been passed by the learned Commissioner beyond the prescribed period of two years from the date of the order of assessments made in these cases was obviously bad in law and is required to be set aside. In support of these arguments Mr. Patel heavily relied upon CBDT Circular No. 402 (F. No. 279/146/84-ITJ) dt. 1st Dec., 1984 (printed in (1985) 44 CTR (TLT) 1) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as possible, within two years of the date of the order sought to be revised. This circular does not lay down that in cases where the Commissioner had invoked his jurisdiction to pass an order under s. 263 within the subsistence of the period of limitation, under the unamended law, he would cease to have such jurisdiction on the expiry of two years from the order sought to be revised. This circular, in our opinion, does not advance the case of the appellants. 12. In the case of Srinivasa Metal Works the original assessments for asst. yrs. 1971-72 and 1972-73 were completed on 11th Nov., 1971 and 11th Oct., 1972 respectively while revised assessments under s. 147 of the Act were made on 29th Oct., 1983. The Commissioner initiated proceedings under s. 263 on 7th Oct., 1985. On appeal the assessee contended that since the assessments were completed before the amendment of sub-s. (2) of s. 263 the Commissioner had no jurisdiction. The Tribunal relying on Supreme Court decision in S.C. Prashar Another vs. Vasansen Dwarkadas and Others (1963) 49 ITR 1 (SC) had observed that it is now well settled law that although limitation is a procedural law and although the legislature can exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can extend the period of limitation an important right accrues to an assessee when the remedy against him is barred by the existing law of limitation'. It would be evident that a vested right in favour of an assessee would accrue in such matters when the remedy against him is barred by the law of limitation as it stood at the relevant time. If such remedy against him had not become barred by then existing law of limitation then he would have no vested right. Judged in the light of the principle laid down by the Supreme Court in the above mentioned case the position in the instant cases comes to this. When the ITO had passed his assessment orders on 20th July, 1983 the period of limitation prescribed for action by the Commissioner against the assessment orders passed by the ITO was two years from the date of the orders sought to be revised. That means the limitation expired on 19th July, 1985. Until and unless that date had expired the assessees could not claim that the remedy against them had become barred by the then existing law of limitation and they had obtained a vested right in their favour. But the learned Commissioner had initiated proceedings under s. 263 of the Act by iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trusts and had further found that the assessments had been made by the ITO without conducting necessary enquiries and under such circumstances he had ample authority to revise the assessments as per ratio of the judgment of the Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT (1975) CTR (Del) 61 : (1975) 99 ITR 375 (Del). 18. By his second notice dt. 4th Sept., 1985 the Commissioner had informed the appellants that he doubted that the ITO making assessments in these cases was having no jurisdiction. By his third notice dt. 22nd Nov., 1985 the learned Commissioner had clearly informed the appellants that in the facts and circumstances governing the present cases the principles laid down by the Supreme Court in the case of McDowell Co. Ltd. with regard to avoidance of legitimate taxes and the device adopted by the assessee, stood attracted to the cases of appellants and he intended to view the cases from that angle. The learned Commissioner has reproduced the notices as also the replies thereto as submitted by the appellants in the order under appeal. It can hardly be disputed that the final order as passed by the learned Commissioner in these cases is based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the cases before the learned Commissioner. The appellant appeared to have not raised such an objection before the Commissioner. More over the Commissioner has set aside the assessments in the cases of the appellants on the ground of a device adopted by them to evade the payments to legitimate taxes. It was not disputed before us that the third notice dt. 22nd Nov., 1985 which spoke of Commissioner's intention to judge the merits of all these cases in the light of the principles enunciated by the Supreme Court in the case of McDowell Co., Ltd. were issued to all the appellants and they were given full opportunity of being heard on the subject matter of such notices. We thus find no force in this argument and reject it. 21. Mr. Patel next submitted that the order under appeal stands vitiated for the reasons that the assessment orders made by the ITO in the cases of the appellants were neither erroneous nor prejudicial to the interest of the Revenue. Mr. Patel vehemently urged that the Commissioner did not mention in his order the fact that the assessments as made by the ITO were erroneous and as such prejudicial to the interest of Revenue. Mr. Patel took us through the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1981 the said settlor had again created 10 more discretionary trusts and thereafter on the following day, i.e. on 20th Oct., 1981 he had created the principal trust. In view of such a large number of discretionary trusts having been made beneficiaries to one beneficiary trust of the other but in the final analysis nothing going to the real beneficiaries, i.e. Satish B. Shah, his wife and children, the ITO was expected to have conducted necessary enquiries which he did not. Under these circumstances therefore, the learned Commissioner was perfectly justified in viewing the assessments as made by the ITO as being erroneous inasmuch as they were prejudicial to the interest of Revenue. Mr. Dave further pointed out that in various annexures appended to his order the learned Commissioner had pointed out the tax effect and in view of the evasion of taxes through the mode of such a large number of trusts created by the same settlor within a period of three or four days by settling meagre amounts on trusts in each of the cases, the learned Commissioner could have come to the conclusion that the assessment made by the ITO were erroneous and prejudicial to the interest of revenue. We find f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was assessable. Where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amounts, an assessment so made will be erroneous and prejudicial to the interest of Revenue and the Commissioner would be having jurisdiction to revise such order and cancel the assessment as made by the ITO. The principles laid down in this case by the Supreme Court, to our mind apply on all fours, to the facts of the present cases. Herein also Commissioner has found that had proper enquiries been made by the ITO into the facts of the cases it would have been explicitly clear that it was simply a pre-planned scheme in the direction of evasion of payment of legitimate taxes through the mode of creation of so many trusts by one and the same person at one and the same place. The principle laid down in the case was followed by the Karnataka High Court in the case of Thali Bai F. Jain Others vs. ITO 1975 CTR (Kar) 66 : (1975) 101 ITR 1 (Kar). 27. On the basis of the above discussion we have no hesitation in coming to the conclusion that the assessments as made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heshav Trust where income determined was less than Rs. 1000 but no tax was levied treating the said trust as a specific trust wherein beneficiaries were discretionary trusts. 31. It may be seen that in all the above cases the learned Commissioner had made reference to other similar trusts by way of illustration only and had not made the cases of those illustrative trusts the basis of his order under appeal. In view of the decision of the Supreme Court in the case of Rampiyari Devi Saraogi, which we have explained above, the reference to the cases of the illustrative trusts would simply be additional supporting material and would not constitute the basic ground upon which the order of the learned Commissioner was passed in the present cases. 32. Annexure 4 deals with the cases of appellant trusts Nos. 2 to 11 where income determined was more than Rs. 1000 and tax was levied at a normal rate in view of proviso to s. 164 of the Act. Annexure 5 refers to Mahavir (SBS) Trust and to 10 discretionary trusts which were made beneficiary trusts under that trust and 20 other discretionary trusts which were made beneficiaries to the said 10 discretionary trusts. All these annexures prepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Reference to the cases of certain other similar trusts in various annexures, as pointed out by us above, were simply made by way of illustration and such reference did not constitute the basic ground upon which the order under appeal was passed. This argument too of Mr. Patel is rejected. 35. Coming to the merits of the case Mr. Patel urged that it was not at all a case of adopting a device for evading the payment of legitimate taxes. Mr. Patel submitted that each and every trust in the present cases was evidenced by a validly executed document and was therefore quite valid in law on its own fact. Mr. Patel relying upon the decision of the Supreme Court in the case of CWT vs. Arvind Narottam (1988) 72 CTR (SC) 94 : (1988) 173 ITR 479 (SC) further submitted that the language of the trust deeds being quite plain there was no scope for attributing any intention to the appellants to avoid taxes. Mr. Patel added that income was earned upto the stage of beneficiary trust of the first line and did not go to the ultimate beneficiaries and no member of settlor's family was benefited. Mr. Patel, relying upon the Supreme Court decision in the case of CIT vs. Trustees of HEH Nizam Family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin and development of the concept of trust in India. Suffice it on our part to say that in England the concept of trust was invented by the Chancery Court in order to escape the deficiency of the common law and common law Courts. Originally trust was a complex and artificial legal process. Gradually it became a very popular machinery for preservation of family wealth. In modern times this manner of settling property on trustees is utilised in order to minimise liability to various ways of life. The concept of trust being flexible has been used in India in private transactions. The Hindu Deity gave birth to the gifts to idols established in temples and houses for worship of Gods and Goddesses. This was the origin of the Hindu trusts before the advent of British Rule in India. The law on trust in India was, in the course of time, codified by the Indian Trust Act, 1882. As pointed out by Mr. Dave the object of a trust in view of its very concept should not be opposed to public policy or should not result in the defeat of the provisions of relevant law. 37. It can hardly be disputed that a citizen has a right to create two or more than two trusts for the benefit of others. It is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her observed in that case that 'but the legal effect on a transaction cannot be displaced by probing into the substance of the transaction'. In the case of S.P. Gupta Others vs. Union of India Others AIR 1982 SC 14 it was again stressed that as law is intended to serve a social purpose and it cannot be interpreted without taking into account social, economic and political setting in which it is intend to operate.' It was in this background that in the case of Mc Dowell Co. Ltd. it was laid down that in our view the proper way of construing a taxing statute, while considering a device to avoid tax is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. 38. In Neroth Oil Mills Co. Ltd. vs. CIT (1987) 62 CTR (ker) 33. (1987) 166 ITR 418 (Ker) their Lordships of the Kerala High Court summarised the position of law on devices as follows: "In determining the fiscal consequences of a preplanned tax saving scheme no distinction was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective trust deeds unless the dates of determination were accelerated, the beneficiary trust of the principal trust would not have been there in existence when the date of determination fixed in the case of principal trust arrived. Similarly the beneficiaries of the second line of trust would not be in existence when the date of determination in the case of first line of beneficiary trusts would arrive. All such facts clearly indicated that it was certainly a case of chain trusts where a series of steps had been followed through by virtue of an arrangement. It was certainly a scheme, consisting of a series of documents and transactions, involving tax avoidance or tax deferment. the rule of 'language plain hence no scope for considering avoidance of tax,' could not be made applicable to such a scheme containing composite transactions devised with a view to tax avoidance or tax deferment. The learned Commissioner has rightly turned it down as a device adopted for tax evasion. 40. Mr Patel next submitted that the principle enunciated in the case of Mc Dowell Co. Ltd. were not applicable for the observations made to that effect by the Supreme Court being in the nature of obit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t does not mean that the ratio in the decision of McDowell Co. Ltd's case was over ruled by the Supreme Court. In K.T. Doctor's case the doctrine of lifting the viel was not found applicable to the case of the trust in that case as the trust created in that csse was admittedly a valid trust, as clearly mentioned at page 510 of the report. It was specifically mentioned by their Lordships that in the case before them it was not the contention of the Department that the trust created by Savitaben was a mere fiction or that it was illusory and therefore, their Lordships had to proceed on the footing that a valid trust had been constituted and that trust carried on business during the relevant accounting years. The question involved in that case was whether a business can be vested in the trustees of the trusts and/or business can be run by a trust. On the authority of the Supreme Court decision in the case of J.K Trust vs. CIT (1957) 32 ITR 535 (SC) their Lordships of the Gujarat High Court had recorded the answer in the affirmative. No question of examining the genuineness of a trust, what to say of a series of transactions consisting of a number of trusts, was involved in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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