MANIK CHANDRA Vs. ASSISTANT COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE above two appeals raise a common question of law and, therefore, both the appeals are heard together and disposed of by this common judgment. Both the appeals are filed by the assessee. They pertain to the assessment year 1980 -81. For the sake of convenience, we are mentioning hereinbelow the facts in Income -tax Appeal No. 2 of 2003. Facts :

(2.) THE appellant, Manik Chandra, is an individual, For the assessment year 1980 -81, he was assessed under Section 143(3) of the Income -tax Act, 1961. The order of assessment was passed on February 28, 1981. Thereafter on January 31, 1985, he was served with a notice under Section 148 of the Act. He filed his return of income on February 26, 1985. He objected to the reopening of assessment. The assessment was reopened for the following reasons : Nidhi Life Trust was created by one Shri Surender Goyal, brother -in -law of the assessee, by settling Rs. 7,500 in favour of the trust. Similarly, Ruchi Life Trust was created by Yogender Goyal, brother -in -law of the assessee, by settling Rs. 7,500 in favour of the trust. The minor daughters of the assessee, Km. Nidhi and Km. Ruchi, were respective beneficiaries under the aforestated trusts. Under the aforestated trust deeds the income from the trust fund was to be accumulated and held by the trustees and was to be handed over to the two daughters of the assessee on their attaining the age of 18. Under the trust deeds the trust funds were invested in the partnership firms, M/s. Chandra Brothers and M/s. Commercial Body Builders, by the trusts of Nidhi Life Trust and similarly the funds of Ruchi Life Trust were invested in the partnership firm, Kailash Traders. During the assessment year in question the two trusts earned income from the said partnership firms amounting to Rs. 1.12 lakhs which was assessed in the hands of the respective trusts with an order dated March 25, 1983, passed under Section 143(3) of the Income -tax Act. However, the assessment was reopened on March 21, 1988, with an order under Section 143(3)/148 of the Income -tax Act and the said income of Rs. 1.12 lakhs was assessed in the hands of the assessee under Explanation 2A to Section 64(1)(iii) on the ground that the said income of Rs. 1.12 lakhs had to be clubbed with the income of the assessee in respect of the assessment year 1980 -81. Being aggrieved by the order of reassessment dated March 21, 1988, the assessee went in appeal before the Commissioner of Income -tax (Appeals). By order dated February 5, 1996, the learned Commissioner of Income -tax (Appeals) took the view that the minors had no right to receive the income of the trust till the age of 18. The learned Commissioner of Income -tax (Appeals) took the view that since the minors had no right to receive the income during their minority the provisions of Section 64(1)(iii) read with the Explanation 2A was not applicable and therefore the income of Rs. 1.12 lakhs could not be clubbed with the income of the assessee. Being aggrieved by the order passed on February 5, 1996, by the Commissioner of Income -tax (Appeals), the Department preferred an appeal before the Income -tax Appellate Tribunal, New Delhi. By impugned judgment and order dated July 22, 2002, the Tribunal took the view that the two trusts were created for the benefit of minor children. It was held that the income was generated by way of investments made by the trust for the benefit of the minors. It was held that the right to receive the income had accrued to the minors but payment was to be made to the minors on their attaining majority. It was further held that the income which was accumulated was for the benefit of the partners of the firm in which investment was made by the trustees and therefore Section 64(1)(iii) read with the Explanation 2A was attracted and therefore the Income -tax Officer was right in taxing the income of Rs. 1.12 lakhs in the hands of the assessee. Being aggrieved the assessee has filed this appeal against the decision of the Tribunal under Section 260A of the Income -tax Act. Arguments :

(3.) FOR the reasons given hereinafter all the above mentioned three questions are answered in the negative, i.e., in favour of the Department and against the assessee. Findings :