COMMISSIONER OF INCOME TAX Vs. DUTTS TRUST

JUDGEMENT

(1.) THE firm of U. B. Dutt Co., in which there was three partners, carried on business as general merchants in calicut. THEy also owned a cinema and a saw mill at Kallai and a rice mill at Ernakulam. In 1935 certain creditors applied, for the adjudication of the partners as inslovents under the Provincial Insolveny Act. This petition was not proceeded with because on the 14th December, 1935, an agreement was arrived at under which the debtors properties were to the conveyed to trustees for the benefit of their creditors. Accordingly the debtors assets were conveyed to three trustees with power to realize what was necessary and to pay the creditors proportionately out of the moneys that received. THE trustees sold the cinema in the firms financial year which ended on the 30th June 1937. THE general business was also sold, but they carried on the saw mill business which proved to be a profitable concern. THE profits made from the saw mills were sufficient to pay in full all the creditors.

(2.) THIS cases deals with the assessment of the trustees for the year 1939-40. The trustees claimed that the creditors were the beneficiaries of the trust, but the Income-tax authorities held that the partners were. The trustees also claimed to be entitled under the provisions of Section 10 (2) (vi) to an allowance for depreciation of the assets which had been sold in the previous year, but this claim was also disallowed. In these circumstance the Commissioner of Income-tax referred to this Court for decision the following questions :