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TMI Blog1992 (1) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from that date the said firm was reconstituted. A deed of partnership dated 3-1-1980 was executed. Smt. Maniben retired from partnership and Shri Karsanbhai Kacharabhai Patel as trustee of the assessee-trust (Neo Trust) joined the partnership as partner. This reconstituted firm commenced business from 1-1-1980 and was dissolved with effect from 31-1-1980 by a deed of dissolution dated 7-2-1980. The business of the erstwhile firm was taken over by the assessee-trust as running business. From 1-2-1980 the said business was carried on by the assessee-trust. The accounting year of the assessee-trust for Assessment Year 1981-82 ended on 30-9-1980. 2.1 The ITO completed assessment for Assessment Year 1981-82 under section 143(3) read with section 161 of the IT Act, 1961 on 14-3-1983. In the assessment order the ITO determined (i) the income of the old firm for three months from 1-10-1979 to 31-12-1979 (Rs. 3,91,542), (ii) the income of the reconstituted firm in which the assessee-trust had joined as partner for period from 1-1-1980 to 31-1-1980 (Rs. 1,30,514) ; and (iii) the income of the assessee trust as proprietor of said business for eight months from 1-2-1980 to 30-9-1980 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The beneficiaries of each of these oral discretionary family trusts which were created on 28-12-1979, were two oral discretionary trusts which had been created a few days earlier and the beneficiaries of each of the subsequently mentioned Oral Discretionary Family trusts were three minors. 4. The assessee-trust (Neo Trust) was created by trust deed date 31-12-1979. Some of the beneficiaries of the assessee trust are mentioned in Schedule I of the deed while other beneficiaries are mentioned in Schedule II of the trust deed. The beneficiaries mentioned in Schedule I of the trust deed can be divided in three categories. The first category is that of individuals. The second category is that of Oral Discretionary Trusts. The third category is that of Oral Specific Trust. 4.1 As far as first category is concerned, there are seven individuals. Six of these individuals were partners in firm of Neo Detergent. The seventh individual is a minor who had been admitted to the benefit of said partnership. As far as Oral Discretionary Trusts are concerned they are Oral Trusts created on or about 28-12-1979 mentioned above. Each of these trusts, as already stated, has two beneficiaries and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We shall assume that the IAC had issued instructions under section 144A of the Act. However, that by itself would not be a bar to exercise jurisdiction by the CIT under section 263. The order of which revision has been made by the CIT is that of the ITO and not that of the IAC. The order of the ITO, although passed in pursuance of instructions under section 144A of the Act, is subject to revision under section 263 of the Act.This has been made clear in the Explanation inserted in section 263 by the Taxation Laws (Amendment) Act, 1984 with effect from 1-10-1984. Consequently this ground is rejected. 9. The next ground raised on behalf of the assessee is that the order of the ITO had merged in its entirety in the order of the CIT(Appeals) date 17-10-1983 and as such the learned CIT should not have exercised jurisdiction under section 263 of the Act, inspite of the fact that subject matter of appeal before the CIT (Appeals) was entirely different from the subject matter of the revisional order.This submission cannot be accepted. There was difference of opinion among the High Courts on the question whether there was complete merger of the assessment order in the order of the CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch appeal. " 9.2 The learned counsel for the assessee submitted that this provision would be applicable to those orders of the CIT which are passed after 1-6-1988 and for that submission he relied on the decision of the Bombay High Court in the case of Ritz Ltd. v. Union of India [1990] 184 ITR 599. We find that there is difference of opinion on this point. The language of abovementioned provision is categorical in nature. It is specifically mentioned therein that power of the CIT would be deemed always to have been extended to subject matters as had not been considered and decided in such appeal. Thus, by virtue of this provision the CIT had, in 1985, powers to exercise jurisdiction under section 263 regarding such matters as had not been considered and decided in appeal by the first appellate authority. This is the additional reason on the basis of which the submission of the assessee is liable to be rejected. Besides, we find from the copies produced before us that the only ground raised in appeal before the CIT(Appeals) by the assessee was that the ITO had erred in disallowing import fees of Rs. 20,000 and at the time of hearing of the appeal the assessee did not press that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust are not trustees of Oral Discretionary Trusts of first line mentioned in First Schedule of the trust deed. It cannot be said that that part of the income which was receivable by the assessee trust for the benefit of these 11 Oral Discretionary Trusts of first line was receivable for the benefit of any one person. It cannot equally be said that individual shares of the persons on whose behalf or for whose benefit such income was receivable was determinate. Consequently as far as that income is concerned, which according to the assessee, was receivable by the assessee trust on behalf of said 11 Oral Discretionary Trusts of first line, the provisions of section 164(1) are clearly attracted and as such the maximum marginal rate under said provision would be applicable. 11.3 We do not agree with the submission of the learned counsel for the assessee to the effect that the trustees of each Oral Discretionary Trusts of first line were the real beneficiaries of the assessee trust and that under the law we are not entitled to inquire as to on whose behalf and for whose benefit those trustees had to receive part of the income from the assessee trust. We are of the opinion that substanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) CIT v. A. Raman Co. [1968] 67 ITR 11 (SC) (3) M. V. Valliappan v. ITO [1988] 170 ITR 238 (Mad.) (4) CWT v. Arvind Narottam [1988] 173 ITR 479 (SC) (5) Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 (SC) (6) Addl. CIT v. M.K. Doshi [1980] 122 ITR 499 (Guj.) (7) CIT v. Gosar Family Trust [1991] 189 ITR 18 (Guj.) We have carefully considered those decisions. None of these decisions is directly applicable to the facts of the present case. These decisions are not of any assistance to the assessee as far as the point in controversy was concerned. Each case would depend on the peculiar facts therein. We have already highlighted the peculiar facts of the present case and our decision is based on the facts as they appear on record. In one of the decisions on which emphasis has been laid it has been pointed out that the trustee can be a partner in a firm on behalf of trust. There is no dispute about the legal position of trustee being a partner in a firm on behalf of the trust. What we are concerned with in the present case is whether the share payable to the trustees of Oral Disc. Trusts who have been shown as beneficiaries in the trust deed would in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st deed relating to these beneficiaries is very important. That clause is clause III(b)(ii) which is as follows :-- " It is hereby agreed and declared between the parties to this Deed of Trust and the Trustees shall stand possessed of the 28.5 per cent balance of the income which shall be divided and receivable for and on behalf of and for the benefit of the Trusts mentioned as beneficiaries in the Schedule II herein attached to this Trust Deed, and shall be divided as per shares specified against each of the said beneficiaries mentioned herein in the said Schedule II herein attached, but it is specifically made known that the beneficiaries of the said Trusts shall have no right, title or interest either vested or contingent in the said income up to the period mentioned in this clause and therefore, it is specifically provided and made known that the said income which is receivable for and on behalf of the said Trusts which are beneficiaries, is to be accumulated and not to be paid to the each of the said beneficiaries of the said Trusts shall be forming part of the corpus of and for and on behalf of each of the said Trusts up to the period of 19 years from the date of this prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned counsel for the assessee on the decision of the Gujarat High Court in the case of Gosar Family Trust. We find that the said decision is of no assistance to the assessee trust. In that decision the main question was whether expression "beneficiaries" in clause I of proviso to section 164(1) refers to only income beneficiaries or whether it refers to corpus beneficiaries also. The High Court has held that said clause refers to corpus beneficiaries also. This point is not relevant as far as Oral Specific Deferred Trusts of Schedule II are concerned. The provisions in the trust deed with which the High Court in said case was concerned were entirely different from the provisions of the trust deed with which we are concerned in this appeal. As already stated in the trust deed with which we are concerned, there is a specific clause which says that the beneficiaries of the Oral Specific Deferred Trusts have no right, title or interest either vested or contingent in the income of the assessee-trust for a period of 19 years and that the said income would form part of the corpus of the trust. Consequently that decision does not in any way support the plea of the assessee. 13.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 263 should be taken into account in those assessments.Thus this is not a case of double taxation of the same income and there is no legal infirmity in the order passed by the learned CIT. 13.4 Before parting, we may mention that reliance had been placed in the course of arguments on behalf of the department on decision of the Supreme Court in the case of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148. The submission on behalf of the assessee in this regard was that the assessee was entitled to arrange its affairs in such manner as to attract minimum incidence of tax and that since there was no illegality in the formation of the trusts the principle laid down in said decision of the Supreme Court would not apply. It was also submitted on behalf of the assessee that the said decision of the Supreme Court has been referred to a larger Bench and there is a debate as to where the line should be drawn between tax avoidance by lawful means and tax evasion by resorting to unlawful scheme. We have not considered it necessary to deal at length this controversy. We have taken a view that substance of the transactions should be taken into account and when the substance of the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf and for the benefit of 11 Oral Discretionary Family Trusts mentioned in First Schedule and 7 Oral Specific Deferred Trusts mentioned in the Second Schedule. ITA No. 1175/Ahd/1985 for Assessment Year 1982-83 : 15. The material facts for Assessment Year 1982-83 are identical with facts for Assessment Year 1981-82. It was admitted before us that the decision for assessment year 1981-82 on material facts would govern the decision for Assessment Year 1982-83 also. For reasons given in the order for Assessment Year 1981-82 above we hereby set aside the directions of the CIT to apply maximum marginal rate in the hands of the assessee in respect of the income which is receivable by the assessee-trust for and on behalf and for the benefit of V.G. Zala Oral Specific Trust. That part of the income which has been received for the benefit of V.G. Zala Oral Specific Trust shall be allocated to the said trust and would be assessable in the hands of the said trust. We confirm the direction of the CIT for charging maximum marginal rate in respect of the income receivable by the assessee trust for and on behalf and for the benefit of 11 Oral Discretionary Family Trusts mentioned in First ..... X X X X Extracts X X X X X X X X Extracts X X X X
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