COMMISSIONER OF INCOME TAX Vs. KARELAL KUNDANLAL TRUST

JUDGEMENT

(1.) THIS reference has been made by the Income-tax Appellate Tribunal, Jabalpur, in accordance with the orders of this court in M.C.C. Nos. 409/74, 414/74 and 415/74 pertaining to assessments for different years and the common question which has been referred for our answer is as under :

(2.) THE facts are that for three assessment years under consideration, the ITO assessed Karelal Kundanlal Trust in the status of an AOP (association of persons). According to the ITO, the settlor executed a trust deed on October 24, 1950, conveying certain movable and immovable properties to the trustees named therein. THE ITO, therefore, made the assessment in the hands of the trustees to whom the properties had been conveyed in the status of an association of persons (AOP). It was pleaded before the ITO that, in a trust, the trustees were bound to fulfil the purpose of the trust and to obey the directions of the author of the trust given at the time of its creation.

(3.) LEARNED counsel for the assessee, on the other hand, contended that Section 161 of the I.T. Act, 1961, provides for assessment in a representative capacity and what is a representative assessee, has been defined in Section 160(1)(iv). It was contended that the note put by the learned author in Kanga and Palkhivala's Income-tax Act about the Department's option only means that the Department has the option either to assess the representative assessee or a direct assessment on the person who is beneficially entitled to the income. It was, therefore, contended that it does not mean that the Department can assess the trustees individually and, as they are more than one, they could be treated as an association of persons as was done in this case by the ITO and maintained by the AAC. LEARNED counsel relied on a decision reported in CIT v. V. S, Kumaraswami Reddiar Trust [1982] 138 ITR 808 (Ker), where the question has been considered in detail. He also placed reliance on the decision in C.R. Nagappa v. CIT [1969] 73 ITR 626 (SC), where their Lordships of the Supreme Court have considered Section 161 of the I.T. Act, 1961. It was, therefore, contended that the Tribunal was right in setting aside the assessment of the trustees as an association of persons.