ARUN FAMILY TRUST Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Ahmedabad Bench SA, in the matter of Income Tax Appeal Nos. 1520 & 1521/Ahd/90 relating to Assessment Years 1985-86 and 1986-87, has referred the following question under Section 256(1) of the Indian Income Tax Act, 1961 (the Act for short) for the opinion of this Court:

(2.) The short facts giving rise to the present matter are that during the assessment proceedings for the Assessment Year 1985-86, the Assessing Officer observed that the Assessee-Trust had credited an amount of Rs. 44,030/- on account of interest to the account of the beneficiaries and claimed deduction thereof. He called for the explanation and after rejecting the same, added the said amount of Rs. 44,030/- to the income of the Trust and accordingly, taxed the Trust. The Trust, all through, had been submitting that the Trust was a specific Trust with six minor beneficiaries, having definite share and that only two Trustees were given absolute power to possess the amount standing to the credit of the said six beneficiaries with further power to spend accumulations for maintenance, support, education, advancement, etc. till dissolution of the Trust. It had been all through submitted by the Assessee that the Trust was settled in the interest of the beneficiaries and the Trust was to enter into the business and the income so earned by the Trust was to be distributed equally between the beneficiaries.

(3.) Shri Talati, learned Counsel for the Assessee, placing his strong reliance upon the judgement of the Division Bench of this Court in the matter of Commissioner of Income-Tax v. Tanvi Sajni Family Trust submitted that if the money was treated to be loan and interest was paid on the same, then, no wrong could be found in the action of the Trust and the Trust was entitled to claim deduction of the amount of interest paid.