AJIT TRADERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE references are at the instance of an assessee to income-tax. The respondent is the Revenue. The matter relates to the assessment years 1978-79 to 1980-81. The Income-tax Appellate Tribunal (in short, "the Tribunal") has referred the following question of law for the" decision of this court:

(2.) THE assessee is a firm known" as "Messrs. Ajit Traders". It was constituted by a partnership deed dated July 1, 1976. THEre were five partners therein. Partners Nos. 2, 4 and 5 became partners in a representative capacity representing three trusts. THEre was only one beneficiary in each trust. THEy were all minors. THE Income-tax Officer took the view that the trusts were formed as a device to avoid tax on the income of the minors which would be taxed along with their parent's income. THE Appellate Assistant Commissioner held that the trusts had not been validly created. THE trusts were created by deeds executed on June 24, 1976. THE Tribunal, on a review of the entire facts and the respective deeds, came to the conclusion that the settlors had first gifted the amounts to the minors, and the gifted amounts became the property of the minors and it is only thereafter that the trusts were created. THE Tribunal held that the settlors could not have constituted a trust without complying with the provisions of Section 7 of the Indian Trusts Act. It was held that the trusts constituted of the minor's properties are invalid. In consequence, it was held that there was no valid partnership. THEreafter, at the instance of the assessee, a common question of law extracted hereinabove has been referred for the decision of this court.

(3.) WE, therefore, .answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue.