GOPAL JALAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE questions referred by the Income-tax Appellate Tribunal are:

(2.) AT the outset in its appellate order the Tribunal had addressed itself to the question whether a valid charitable trust was created by the settlor, Hari Bux Rai, and whether the liability to the trust fund was taken over by the assessee in respect of which interest was paid and claimed by the assessee as a deduction. The Tribunal referred to the three certainties required to create a charitable trust, namely, (1) a declaration of the trust binding on the settlor, (2) setting apart definite property and the settlor depriving himself of the ownership thereof, and (3) a statement of the objects for which the property is thereafter to be held by the beneficiaries. The Tribunal found that there was a declaration of the trust binding on the settlor according to the terms of the trust deed and that the objects of the trust were also specified. The only point, it said, that required determination was whether the property had beea clearly specified and the settlor had divested himself of his beneficial interest in it. It found that upon partition of the parent Hindu undivided family business the settlor had been given a one-third share in the total capital of the family business which amounted to Rs. 1,09,400. The share of Hari Bux Rai was, therefore, Rs. 36,466. Hari Bux Rai was given credit for this amount in the books of the partnership,firm which came into existence after the partition of the family business. Subsequently, a trust was purportedly created by Hari Bux Rai by the registered trust deed and by debiting the accounts of Hari Bux Rai in the firm with the sum of Rs. 25,347, representing Rs. 25,000 as trust money and Rs. 347 as expenses of execution and registration. An account of the Dharmada Trust was opened in the books of the firm the same day. Thereafter, every year interest was credited by the firm to this account. The Tribunal has taken the view that, as there was nothing on the record beyond the entries in the account of the Dharmada Trust in the books of the firm, there was no evidence to show how the trust was created by Hari Bux Rai and how the amount of the trust money was handed over to the trustees. It has observed that the mere passing of those entries did not amount to setting apart a specific sum for the purposes of the trust and the settlor could not thereby be said to have divested himself of his beneficial interest therein. It has pointed out that on September 26, 1939, the cash balance in the books of the firm was about Rs. 1,915 only, which was not at all sufficient to cover the amount of Rs. 25,000 said to have been settled on trust. It was pointed out by the assessee that the department had all along allowed the interest as an allowable deduction and also that the interest had been deducted in the hands of the other brother who had taken over the other half of the liability of the trust. The Tribunal, however, proceeding on the view that the cash balance available with the firm on the date of the creation of the trust was insufficient to cover the amount of Rs. 25,000 held that a valid trust did not come into existence. In coming to this conclusion, the Tribunal relied on Hanmantram Ramnath v. Commissioner of Income-tax, 1946 14 ITR 716.

(3.) REFERENCE was made on behalf of the revenue to Commissioner of Income-tax v. Smt. Shyamo Bibi, 1966 59 ITR 1. That is a case which also turned on the circumstance that the transfer entries were made by the assessee in her own accounts and, therefore, it could not be said that there was any setting apart or appropriation of the fund. The learned judges observed :