COMMISSIONER OF INCOME TAX Vs. NELSON TRUST

JUDGEMENT

(1.) In these connected cases, the question raised is whether the sole beneficiary of the Trust can revoke the Trust before the duration of the Trust. The respondent Trust was created in the year 1981 when the sole beneficiary Mr. Nelson was a minor aged 14 years. The Trust was to be operative until the beneficiary became 21 years of age and thereafter the Trust property was to be transferred to the beneficiary. However, on becoming major on 13.11.1984, the sole beneficiary revoked the Trust and took over the assets and business of the Trust and started carrying on business as the proprietor, with effect from 1.4.1985. Relying on clause 2 of the Trust Deed, the assessing officer held that he Trust is continuing business and consequently the respondent was assessed as a Trust. Even though the beneficiary was also assessed in his individual capacity on the same income, the respondent assessee filed appeal, which was allowed by the Commissioner of Income Tax (Appeals) and the Tribunal on second appeal, confirmed it. It is against the order of the Tribunal, that the department has filed these appeals for the assessment years 1986-87 and 1987-88.

(2.) We have heard Shri P. K. R. Menon, learned Senior Counsel appearing for the Revenue and Shri P. Balakrishnan and Shri K. B. Pradeep appearing for the respondent.

(3.) While clause 15 of the Trust Deed says that the Deep of Trust shall be irrevocable, clause 2 provides for duration of the Trust as follows: