Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ...

on 1 June, 1982

Gauhati High Court Gauhati High Court Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ... on 1 June, 1982 Equivalent citations: 1983 142 ITR 677 Gauhati Author: Pathak Bench: D Pathak, K Saikia JUDGMENT Pathak, Actg. C.J. 1. This batch of four cases are referred for the opinion of this court under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), at the instance of the Commissioner of Income-tax, North Eastern Region, Shillong. The facts and the questions referred in all the four cases are identical and, therefore, we propose to dispose of these cases by a common judgment. The questions referred are as follows : "(1) Whether, on the facts and in the circumstances of the case and on a proper construction of the relevant clauses of the trust deed dated April 19, 1964, the Tribunal is right in holding that the trust created under the said deed is valid and not inconsistent with any of the provisions of the Indian Trusts Act, 1882 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the transfer of the properties belonging to the Hindu undivided family made in favour of the trust by the major member of the family and also by the karta on behalf of himself and the minor members before, there was any partition of the properties among the members of the family inter se was not void and not forbidden by Hindu law ? (3) Whether, on the facts and in the circumstances of the case, and having regard to the provisions of Sections 161 and 164 of the Income-tax Act, 1961, the Tribunal is right in holding that the income from the trust properties has to be allocated among the beneficiaries according to their respective shares and inclusion of the same in the total income of the Hindu undivided family is not justified ?" 2. As the facts in all the four cases are identical, although the parties are different, we may refer only to the facts of the Income-tax Reference No. 3 of 1977. 3. From the statement of the Income-tax Reference No. 3 of 1977, the following material facts emerge : A Hindu undivided family consisting of Shri Gangadhar Sikaria (karta), his wife, Smt. Devi, his major son, Bhagawati Prasad Sikaria, and his minor sons, Santosh Kumar, Ramautar and Ashok Kumar, was the owner of the rice mill known as Shri Shankar Rice Mill, situate at Udalguri in the district of Darrang, Assam. The members of the HUF, viz., (1) Sri Gangadhar Sikaria for himself and as the guardian of his minor sons, (2) Smt. Sita Dvi Sikaria (wife), and (3) Bhagawati Prasad Sikaria (major son) formed themselves into a partnership, in the name and style of Shri Shankar Rice Mill under registered partnership deed dated the 17th April, 1959, for the purpose of carrying on the business of running the said mill and also a ridging machine under the name and style of Shri Ganga Industries at Gauhati. The joint family was also owning a building at Ulubari in Gauhati. Being desirous of creating a trust in respect of the aforementioned family properties, (1) Sri Gangadhar Sikaria on behalf of himself and as the natural guardian of his minor sons, (2) his wife, Smt. Sita Devi Sikaria, and (3) his eldest son, Bhagawati Prasad Sikaria, executed a registered trust deed dated April 19, 1964. By the said document the aforementioned settlors created a trust known as Gangadhar Sikaria Family Trust and continued themselves as the trustees of the said trust. The family properties specified in Schedules A, B and C appended to the deed had been transferred and assigned to the trustees to be held by them in trust for the personal benefit of the beneficiaries specified in the deed, namely, Smt, Sita Devi Sikaria (wife of the karta), Sri Bhagawati Prasad Sikara (major son of karta) and the minor sons of the karta, namely, Santosh Kumar, Ramautar and Ashok Kumar, and also for the benefit of the sons of the karta to be born thereafter, equally in their individual capacity. It may be noted here that the karta is the only member of the
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Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ... on 1 June, 1982

HUF, excluded from the benefit of the trust and barring the karta all the other members of the HUF are the beneficiaries of the trust. It is provided in the trust deed that the partnership hitherto carrying on business in the name and style of M/s. Shri Shankar Rice Mill at Udalguri and in the name and style of M/s. Ganga Industries at Gauhati shall cease to function and the said business shall belong to the trust with all its assets and liabilities as per books of account save and except the investment of capital in Sikaria Brothers in the name of Gangadhar Sikaria and the taxation liabilities and other liabilities not appearing in the books of account. Clause 5 of the trust deed provides that the net income of the trust shall be divided equally among the beneficiaries, viz., Smt. Sita Devi Sikaria, Bhagawati Prasad Sikaria and the minor sons of Gangadhar Sikaria, and that any son to be born to him after the commencement of the trust shall also be entitled to an equal share of the income of the trust but in case of loss the same shall be borne equally by the major beneficiaries and the minor beneficiaries shall not be liable for the losses. 4. For the assessment year under reference the trust filed the return in respect of the income from the trust properties. The ITO held the trust to be not valid for two reasons. One was that, so long as the joint family was not divided and the properties remained joint, it was not open to the karta and other members of the family to alienate the family properties by creating a trust or otherwise. Another was that Clause 5 of the trust deed which provided for the minor beneficiaries not being liable for the losses, if any, and the losses being borne only by the major beneficiaries was inconsistent with the concept of a valid trust and violated the principles of the Trusts Act. Having held the trust to be not valid, the ITO completed the assessment on the assessee as an association of persons as a protective measure. A copy of the assessment order forms part of the statement of the case as annex. A. 5. On appeal by the assessee, the AAC examined the validity of the trust in the light of the provisions contained in Sections 5 and 6 of the Indian Trusts Act, 1882. He held that there was a valid transfer of trust properties in favour of the trustees and that on the execution of the trust deed the trustees became the owners of the trust properties and the income from the trust properties was liable to be assessed only in the hands of the trust. As regards the provision in the trust deed for the exclusion of the minor beneficiaries from the liability to share the losses, if any, the AAC held that there was no express provision in the Trusts Act, prohibiting exclusion of minor beneficiaries from such liability. Holding the trust to be a valid one, the AAC observed that the ITO was not justified in making the assessment on the assessee-trust on a protective basis. He accordingly directed the ITO to make a fresh assessment on the assessee-trust on a regular basis, treating it as a valid trust. A copy of the order of the AAC forms part of the statement of the case as annex. B. 6. Aggrieved by the direction given by the AAC to make a fresh assessment on the assessee-trust on a regular basis treating it as a valid trust, the department preferred an appeal before the Tribunal. Aggrieved by the action of the AAC in confirming certain additions and disallowances made by the ITO in the assessment for the same assessment year, the assessee preferred another appeal before the Tribunal. The Tribunal disposed of both the appeals of the assessee and the department by a common order dated December 1, 1975. Against this order of the Tribunal, on an application made by the Department under Section 256(1) of the I.T. Act, the above questions are referred to this court by the Tribunal for decision. 7. It was contended before the Tribunal by the learned counsel for the Department that the execution of the trust deed was a colourable transaction and the purpose of the trust in the present case was unlawful being forbidden by law, fraudulent and opposed to public policy and, therefore, not valid in view of Section 4 of the Act. 8. A pointed attack had been made on the provision of Clause 5 of the trust deed, which provides for the minor beneficiaries not being liable for the losses, if any, and the losses being borne only by the major beneficiaries, therefore, such provision is inconsistent with the concept of a valid trust and violates the principles of the trust deed. Both these contentions have been repelled by the Tribunal, Regarding the first contention the Tribunal held :
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Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ... on 1 June, 1982

"We are also not impressed with the argument of the learned counsel for the Department that the transfer of the joint family properties to the trust is forbidden by Hindu law. An alienation of property belonging to a Hindu joint family otherwise than for a legal necessity or for the benefit of the estate is only voidable but not void. Such an alienation can be attacked only by the other members of the family who were not parties to the transfer as not binding upon them. It is not open to outsiders including the Revenue to impugn the transfer as void or non est. That apart, we fail to see how it can be said that the transfer of properties in the present case is not for the benefit of the estate. The transfer in the present case is merely in favour of the trustees, who are no other than the members of the family, to be held in trust for their own benefit. It is true that one member of the family (the karta) has been excluded from the benefit of the trust. The mere fact that the karta has renounced his right to a share in the income from the trust property while the trust is subsisting does not detract from the transfer of the properties to the trust being for the benefit of the estate. We, therefore, reject the contention that the trust is illegal, being forbidden by Hindu law and opposed to public policy and in fraud of the Revenue." 9. Regarding the second contention, the Tribunal held : "As regards Clause 5 of the trust deed, we fail to see how it is inconsistent with the concept of a valid trust. We do not find any authority for the proposition enunciated by the learned counsel for the Department that the losses, if any, must be only on the trust account and must be carried forward to be adjusted against future profits of the trust and that it is not open to the settlor of the trust to provide for the apportionment of the losses among the beneficiaries or for the exclusion of the minor beneficiaries from liability to share the losses with the major beneficiaries. In our view, the stipulation made by the authors of the trust that the losses shall be borne by the major beneficiaries to the exclusion of the minor beneficiaries is not in any way inconsistent with the concept of a valid trust and does not offend any of the provisions of the Trusts Act." 10. However, these contentions are not canvassed before us now. 11. In order to appreciate the contentions raised on behalf of the parties, it is apposite to set out the relevant portions of the trust deed which is marked as annex. D to the paper book. "THIS DEED OF TRUST made this 19th day of April, 1964, BETWEEN Shri Gangadhar Sikaria, son of Shri Kamakhya Prosad Sikaria for self and as natural guardian for the minor sons, Santosh Kumar Sikaria, Ramautar Sikaria and Ashok Kumar Sikaria, Hindu merchant of Gauhati in the State of Assam, hereinafter called the SETTLORS of the FIRST PART : Shrimati Sita Devi Sikaria, wife of the said Gangadhar Sikaria of Gauhati in the State of Assam, hereinafter called the SETTLOR of the SECOND PART : Bhagwati Prasad Sikaria, son of the said Gangadhar Sikaria, Hindu merchant of Gauhati in the State of Assam, hereinafter called the SETTLOR of the THIRD PART : WHEREAS, Shri Gangadhar Sikaria as karta of the Hindu joint family consisting of self, his wife, Sita Devi and his sons, Bhagawati Prasad Sikaria, Santosh Kumar, Ramautar and Ashok Kumar, was the owner and otherwise fully seized and possessed of the rice mill known as Shri Shankar Rice Mill situated at Udalguri in the district of Darrang (Assam) with all its lands, buildings, structures, godowns, chattels, compounds, plants, machinery and a T.M.B., truck etc. AND WHEREAS Gangadhar Sikaria as karta of the Hindu joint family was carrying on business in partnership along with Sita Devi and Bhagawati Prasad Sikaria under the name and style of Shri Shankar Rice Mill at Udalguri as per deed of partnership registered on the 30th October, 1959, with the Sub-Registrar, Gauhati, with its head office at Gauhati and the said partnership owns a ridging machine under the name and style of Shri Ganga Industries at Murlidhar Sharma Road, Gauhati and the joint family was also the owner of a building on Dr. B. Barua Road, Sarania, Ulubari in Gauhati.
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Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ... on 1 June, 1982

Now THIS DEED WITNESSETH that the settlors hereof, being members of the said joint family and partners, hereby transfer and assign the property in respect of the said rice mill and Shri Ganga Industries and the joint family capital in the said partnership business and the building at Ulubari in Gauhati to the trustees hereof constituted to hold the same to the trustees upon trust and set apart the said rice mill property more particularly described in schedule A and joint family capital in the partnership business of Shri Shankar Rice Mill and the ridging machinery of Shri Ganga Industries more particularly described in Schedule B and the building at Ulubari in the town of Gauhati more particularly described in the schedule C hereto in trust for the personal benefit of Sita Devi Sikaria, Bhagawati Prasad -Sikaria and the minor sons of Gangadhar Sikaria in their individual capacity in equal shares and have constituted themselves as the trustees for the time being, subject to the powers and provisions hereinafter expressed and declared. (2) *** (3) Sri Gangdhar Sikaria, Smt. Sita Devi Sikaria and Shri Bhagawati Prasad Sikaria shall be the first trustees of the trust and the minor sons of the said Gangadhar Sikaria shall become trustees when they attain majority. Any trustee may retire voluntarily by giving notice to the other trustees and in case of death or retirement of any trustee, the property shall be held and managed by the remaining or surviving trustees for the time being. (4) The rice mill known as Shri Shankar Rice Mill, situated at Udalguri in the district of Darrang with all its lands, buildings, structures, godowns, compounds, chattels, plant, machinery and a T.M.B. truck, etc., more particularly described in the Schedule A hereunder, hereby becomes the property of the trust and vests in the trustees for the time being. The partnership business hitherto carried on under the name and style of Shri Shankar Rice Mill at Udalguri with its head office at Gauhati and branch "business at Gauhati in the name and style of Shti Ganga Industries at Gauhati in the State of Assam, between Gangadhar Sikaria, Sita Devi Sikaria and Bhagawati Prasad Sikaria shall cease to function as a partnership business and shall belong to the trust with all its assets and liabilities as per books of accounts save and except the investment of capital in Sikaria Brothers in the name of Gangadhar Sikaria and the taxation liabilities and other liabilities not appearing in the books and accounts. The settlors hereby set apart the rice mill known as Shri Shankar Rice Mill situated at Udalguri in the district of Darrang, with all its lands, buildings, structures, godowns, compounds, chattels, plant, machinery and a T.M.B. truck etc., more particularly described in schedule A and the ridging machinery in the name of Shri Ganga Industries at Gauhati, more particularly described in schedule B hereunder and the building let out at Ulubari in the town of Gauhati, more particularly described in schedule C hereunder in trust for the personal benefit of Sita Devi Sikaria and Bhagawati Prasad Sikaria and the minor sons of Gangadhar Sikaria already born or to be born hereafter equally in their individual capacity. The individual capital of Sita Devi Sikaria and Bhagawati Prasad Sikaria and other members of the family in their individual capacity appearing in the books of the partnership business carried on under the name and style of Shri Shankar Rice Mill shall not belong to the trust but shall remain their individual property. Only the joint family capital invested in the business of Shri Shankar Rice' Mill be likewise set apart in trust by this deed. The residential house at Murlidhar Sharma Road, Gauhati, and the joint family capital and share in the name of karta, Gangadhar Sikaria, in the firm of Sikaria Bros., with its branch known as Kamrup Flour Mills at Dispur, Gauhati, shall remain the undivided property of the joint family. (5) The net income of the trust, after adjustment of all expenses, loss or damage and depreciation etc., shall be divided equally amongst Sita Devi Sikaria, Bhagawati Prasad Sikaria and the minor sons of the said Gangadhar Sikaria in their individual capacity and any son born hereafter to Gangadhar Sikaria shall also be entitled to an equal share of the income of the trust from the beginning of the next accounting year from the date of his birth in his individual capacity but in case of loss, if any, the same shall be borne equally by the major beneficiaries only, excluding the minors. In case of death of Sita Devi Sikaria, her share of benefit shall vest in her sons equally. In case of death of any other beneficiaries, his share of benefit shall vest in his heirs and successors or nominees.

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Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ... on 1 June, 1982

(6) The trustees shall hold property of the trust hereby set apart and any property representing the same trust for the personal benefit of Sita Devi Sikaria and Bhagawati Prasad Sikaria and minor sons of the said Gangadhar Sikaria and any other son hereafter born to the said Gangadhar Sikaria in their individual capacity eqally to the exclusion of the said Gangadhar Sikaria...... (14) The trust shall cease on the attainment of majority of all the sons of Gangadhar Sikaria and on the sale of the property of the trust or as and when unanimously decided by all the trustees when the assets of the trust after meeting the liabilities shall be divided among the beneficiaries in equal shares." 12. The above deed of trust is relatable to Income-tax Reference No. 5 of 1978 also. So far as Income-tax Reference No. 6 of 1977 and Income-tax Reference No. 11 of 1977 are concerned, there is another deed of trust dated 23rd of November, 1964. This deed relates to another party. As the terms of the latter deed is similar to the one noticed above, we need not reproduce it here as the same construction will appear. 13. Mr. G. K. Talukdar, the learned counsel appearing on behalf of the Department, submits that the deed of trust is not in conformity with the Indian Trusts Act, 1882, hereinafter called "the Act", and as such no valid trust was created by the trust deed. The reasons for the above contention are based on Sections 3 and 7 of the Act. The interpretation clause of the trust found in Section 3 reads as follows : "A 'trust' is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him, for the benefit of another, or of another and the owner;......" 14. The learned counsel submits that on a perusal of the trust deed it appears that the settlors, including the minors, are the owners of the HUF property. They are the owners of the HUF family property as well as the partnership property. Therefore, as they are all owners of the property, there is none to take the benefit except the owners themselves. The trust deed shows that Gangadhar Sikaria, Sita Devi Sikaria and Bhagawati Prasad Sikaria are all authors of the trust, the trustees and also the beneficiaries in their individual capacity except Gangadhar Sikaria. The opening part of the trust deed shows that Gangadhar Sikaria on his own behalf and as natural guardian of the minor sons are the settlors. Therefore, according to the learned counsel, the minors are also the settlors. But they are not trustees and they are only beneficiaries till the attainment of their majority. The learned counsel proceeds to submit that Section 3 requires that the trust property must be for the benefit of "another" or of "another and the owner". It shows that the trustee, i, e., the owner himself may be the beneficiary but along with him there must be "another" in order to bring the trust in conformity with the provision of Section 3 of the Act. The learned counsel submits that here even the minors were the settlors, therefore, all of them being the settlors, there is no "another" person to derive benefit out of the trust property. In support of his contention the learned counsel refers to an illustration given in Underhill's Law of Trusts and Trustees, 11th Edn,, at. p. 7, The illustration reads : "A, by deed, declares that he holds 1,000 government stock standing in his own name and belonging to him, instruct to pay the dividends to himself for life, and, after his death, upon trust to pay the dividends to his wife for life, and, after the death of the survivor of them, upon trust to sell the stock and divide the proceeds amongst their children. Here A, is both creator of the trust, trustee, and one of the beneficiaries. If he were the sole beneficiary, the trust would never arise, for a man cannot enforce a trust against himself. Or, if he became such by surviving wife and children, and becoming the sole personal representative and next of kin of the latter, it would cease, because the trusteeship would merge and be extinguished in the beneficial ownership." 15. The learned counsel submits that here, in this case also, as the settlors including the minors were the authors of this trust and also the beneficiaries, except Gangadhar, the trusteeship would merge and extinguish in the beneficial ownership. On the other hand, Dr. B. P. Saraf, the learned counsel appearing on behalf of the respondent, submits that the real author of the trust is Gangadhar Sikaria, being the karta of the HUF. Sita Devi Sikaria and Bhagawati Frasad Sikaria also joined as the settlors of the trust as a measure of abundant
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Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ... on 1 June, 1982

caution, so that these persons later on cannot object. Mr. Talukdar counters the above submission, of Dr. Saraf and contends that as some of the properties of the partnership, namely, the ridging machine under the name and style of Shree Ganga Industries also became the subject-matter of the trust, therefore, it was necessary for Sita Devi and B. P. Sikaria to become the settlors, they being the partners in the earlier partnership. We find that Mr. Talukdar has got some force in the contention. Here, in the trust deed, not only the HUF property but also the partnership property, namely, the ridging machine being the subject-matter of the trust, the inclusion of Sita Devi and B. P. Sikaria along with Gangadhar Sikaria was essential to create the trust. Reading the trust deed, we find that the minors in existence at the time of creation of the trust and also the minors to be born are made beneficiaries and none of the minors are trustees. Therefore, they do not own the trust property but they are only beneficaries with Sita Devi and B.P. Sikaria, who are trustees along with Gangadhar Sikaria. The presence of the minors in the trust deed as beneficiaries, in our opinion, is sufficient to bring the trust in conformity with the provision of Section 3 of the Act. The minors answer the description of "another" found in Section 3 of the Act. 16. The precise contention of the learned counsel for the department is that the deed of trust violates Section 3, inasmuch as, according to him, the settlors, trustees and beneficiaries are all the same. We find that the aforesaid contention is not factually correct. The authors of the trust is Shri Gangadhar Sikaria, the karta, who is competent to alienate the property of the HUF who has been joined by two other major members of the family, namely, Sita Devi and Bhagawati Prasad Sikaria. The aforesaid three persons are also trustees. The beneficiaries are two of the trustees, namely, Sita Devi and Bhagawati Prasad Sikaraia and all minor sons of Gangadhar Sikaria. Gangadhar Sikaria, the karta is not a beneficiary. 17. It is now clear that the "owners", namely, the trustees and the beneficiaries are not the same. The minors are the beneficiaries who are not trustees, i. e., the owners. Under the deed of trust every minor on attaining majority becomes a trustee. Under Clause 14 of the trust deed on the event of all the minors attaining majority, the trust will cease to operate. At this stage, only the owners and the beneficiaries will become the same and the trusteeship would merge and extinguish in beneficial ownership. Till that event happens, the trusteeship and the beneficial ownership remained distinct and the trust can be enforced against the trustees by the beneficiaries. It is, therefore, clear that the deed of trust in question is not violative of Section 3 of the Act. The trust created by the aforesaid deed is, therefore, valid and legal. In our opinion, the contention raised on behalf of the Department is not at all tenable. Section 7 of the Act (Indian Trusts Act, 1882) reads as follows : "7. A trust may be created(a) by every person competent to contract, and (b) with the permission of a principal civil court of original jurisdiction, by or on behalf of a minor; But subject in each case to the law for the time being in force as to the circumstances and extent in and to which the author of the trust may dispose of the trust property." (emphasis* supplied). 18. Mr. Talukdar submits that as the creation of the present trust involved the property of the minors it could not be competently created unless there was the permission of a principal civil court of original jurisdiction obtained by or on behalf of the minor. It is submitted that there is a specific bar to make any trust in respect of a minor's property without the permission of the court. On reading the section we find that, to Clause;(b) of Section 7, an exception has been engrafted to the aforesaid barring provision, namely, that the creation of the trust is subject to the law for the time being in force. Here in this case the parties are governed by the Mitakshara school of Hindu law. Here Gangadhar Sikaria, the karta of the family, has settled in trust the HUF property in which the minors have interest. Under the pure Hindu law, the natural guardian as the karta of the family had the unfettered right to alienate the joint family property for legal necessity and for the benefit of the estate or the family. Now the pure Hindu law has, in this context, been somewhat amended by the enactment of the Hindu Minority and Guardianship Act, 1956. Sub-section (2) of Section 8 of this Act
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provides that the natural guardian shall not, without the previous permission of the court, mortgage or charge, or transfer by sale, gift, exchange or otherwise, any part of the immovable property of the minor... Sub-section (3) of Section 8 provides that any disposal of immovable property by a natural guardian in contravention of Sub-section (1) or Sub-section (2), be voidable at the instance of the minor or any person claiming under him. This provision shows that the alienation here in this settlement of the trust, including the interest of the minor, is only voidable at the instance of the minor or anybody claiming under him. That being the position of law, we find that the settlement of the HUF property including the interest of the minors, does not become void ab initio or non est. If a karta alienates the property of an HUF including the interest of the minor for the benefit of the estate or for legal necessity such alienation is valid. The Tribunal has recorded a finding that the settlement of the trust property is for the benefit of the estate. Dr. B. P. Saraf, the learned counsel for the assessee, submits that the contention sought to be raised by the Department that there is no valid alienation cannot be agitated now in view of the finding of the Tribunal that the alienation was for the benefit of the estate. Even otherwise, such alienation by the karta, in respect of the HUF including the interest of the minor, is only voidable and not void. Even if the transfer is not for the legal necessity and for the benefit of the estate, the transfer by the karta will be only voidable. Hence the contention raised now that the Tribunal has not given any reason for coming to the finding that the settlement of the trust is for the benefit of the estate is of no substance. 19. In para. 242 of Mulla's Hindu Law, 14th Edn., it has been stated that an alienation by the manager of a joint family made without legal necessity is not void, but voidable, at the option of the other coparceners. They may affirm it or they may repudiate it, but a creditor cannot repudiate it, there being no suggestion that it was in fraud of creditors. 20. In Raghubanchmani Prasad Narain Singh v. Ambica Prasad Singh. AIR 1971 SC 776, their Lordships of the .Supreme Court had ruled that alienation by the manager of a joint Hindu family even without legal necessity is voidable and not void : 21. We also find a similar view to have been taken in CIT v. Brafiam Dutt Bhargava [1962] 46 ITR 387, where a Division Bench of the Rajasthan High Court at Jodhpur held, on a review of the legal position, the following two broad propositions : (1) That a gift by the manager of a joint Hindu family of the family property, at any rate to a member or members thereof, is only voidable and not void ab initio : and (2) that such a gift can be attacked only by the members of the family whose interests are affected thereby and not by strangers. 22. In the above view of the legal position, we hold that the Tribunal correctly decided the questions as posed in questions Nos. 1 and 2 that the trust was a valid one and also that the settlement of the trust property was legally made. 23. With regard to the question No. 3 it has been contended by the learned counsel for the Department that having regard to the provisions of Sections 161 and 164 of the I.T. Act, the Tribunal was not right in holding that the income from the trust has to be allocated among the beneficiaries according to the respective shares and inclusion of the same in the total income of the HUF was not justified. We have given our anxious consideration to the argument advanced by the learned counsel. The assessment in the instant case in respect of the very same income was made by the ITO in the hands of the two persons, namely, the trust, which is the petitioner before us "on protective basis" and the HUF "on regular basis". This double assessment in respect of the very same income was made as a protective measure. It was done because the trust had submitted a return showing the income, which according to the ITO was assessable in the hands of the HUF, to which the property belonged prior to the creation of the trust and as, in his opinion, the trust was not a valid trust.
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Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ... on 1 June, 1982

24. On appeal, the AAC held that the trust was a valid trust and the income in question was assessable in the hands of the trust. The decision of the AAC was affirmed by the Tribunal also. The Tribunal, having found that there was a valid trust, held that the income from the property of the trust can be assessed only in the hands of the trust and not in the hands of the HUF. The dispute in regard to the person who should have been taxed in respect of the income from the properties which was the subject-matter of the trust having been resolved by the Tribunal, we do not find anything wrong in this action of the Tribunal. Once the Tribunal held that there was a valid trust and that the income in question was assessable in the hands of the trust, it was obligatory on the part of the Tribunal to say that the income was not assessable in the hands of the HUF. Moreover, it was also necessary for the Tribunal while disposing of the appeal to give a decision in regard to the manner of the assessment of the trust. In the instant case the Tribunal, having found the trust to be valid, held as follows : "We may incidentally point out that, whether the trust is valid or not the assessment could only be made as on an association of persons, the number of trustees being more than one. The action of the ITO in making the assessment on an association of persons is, therefore, unexceptionable. We have been told that the assessment of the HUF was made by the Income-tax Officer for the same assessment year including in its total income, the income from the trust properties and that in the appeal by the HUF the Appellate Assistant Commissioner excluded the income from the trust properties from the total income of HUF since he was of the view that the trust was a valid one and the income from the trust properties should be assessed only in the hands of the trust on a regular basis but not on a protective basis. Since we too hold that the trust is a valid one it follows as a logical corollary that there is no justification for making the assessment on the trust on a protective basis. In view of our finding, the income from the trust properties has to be allocated among the beneficiaries according to their respective shares and the inclusion of the same in the total income of the HUF is not justified." 25. The aforesaid finding is in no way contrary or inconsistent with the provisions of Section 161 or Section 164 of the I.T. Act, 1961. 26. Section 160 of the I.T. Act which enumerates the categories of the representative assessees who are assessable in respect of the income of the beneficiaries which belong to other persons, specifically includes a trustee appointed under a trust declared by a duly executed instrument in writing. In Section 161 the liability of the representative-assessee is confined to the income in respect of which such person is a representative assessee. The assessment on a representative assessee under Section 161 is separate and distinct from his personal assessment. Every representative assessee is liable to tax under Section 161 "in like manner and to the same extent" as the persons beneficially entitled to the income. The liability of the trustee under Section 161 is co-extensive with that of the beneficiary, the interposition of the trustee for the purpose of assessment does not affect the incidence of tax on the beneficiary. Since the tax has to be levied on the representative assessee, the trustee, in the like manner and to the same extent as it would be liable upon the person specifically entitled to the income, in a case like the present one, where the several persons are beneficially entitled to the income, the assessment on the representative assessee should be at the individual rates of tax calculated separately to the total income of each beneficiary. 27. Thus the basis of assessment on the representative assessee is laid down in Section 161(1). The tax should be levied upon the representative assessee in the like manner and to the same extent as it would be leviable upon the beneficiaries. In Section 164, exceptional cases where the above basis of assessment are not available, are specified. The exception relevant for the purpose of such case is one where the individual shares of the beneficiaries are indeterminate or unknown. 28. If a case falls under Section 164, the tax is leviable and recoverable from the representative-assessee in the manner laid down in Section 164, We may illustrate thus : If the instrument of trust does not define the specific and individual shares of the beneficiaries, the trustees would be assessable at the rate appropriate to the total income of the trust. It is, however, open to the
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Commissioner Of Income-Tax vs Gangadhar Sikaria Family Trust ... on 1 June, 1982

Department, even in such cases, to assess the trustees not at the appropriate rate but at the rate applicable to the total income of the beneficiaries who actually receive the trust income, if such course would result in any benefit to the Revenue. 29. The legal position contained in Sections 160, 161 and 164 of the I.T. Act is absolutely clear. In the instant case the property was being held under trust by three trustees, namely, Gangadhar Sikaria, Sita Devi Sikaria and Bhagawati Prasad Sikaria, for the benefit of the beneficiaries mentioned in the trust. The beneficiaries are two of the trustees who are Sita Devi and Bhagawati Prasad Sikaria and the minor sons of Gangadhar Sikaria. The shares of these beneficiaries are equal. Thus, in the present case, the beneficiaries and the individual shares of the beneficiaries are determinate and known and as such Section 164 of the Act has no application to the facts of the present case. The only section that is applicable for the assessment of the income of the trust remains to be Section 161 of the Act. The total number of trustees being more than one, they are assessable as an association of persons but the tax must be levied on them under Section 161 to the same extent as it would be leviable upon the beneficiaries. In the instant case, there being several persons beneficially entitled to the income, with well-defined shares, the assessment of the representative assessee can be made only at the individual rates of tax applicable separately to the total income of each beneficiary. 30. In view of the aforesaid legal position, under the facts and circumstances of the case, the Tribunal was right in holding that the income from the trust property has to be allocated among the beneficiaries according to their respective shares, and inclusion of the same in the total income of the HUF is not justified. 31. In these circumstances and for the reasons mentioned above, our answers to the three questions referred to us are answered in the affirmative, in favour of the assessee, and against the Department. 32. For the same reason, we also answer all the three questions referred in each of the Income-tax Reference No. 5 of 1978, Income-tax Reference No. 6 of 1977 and Income-tax Reference No. 11 of 1977 in the affirmative, in favour of the assessee and against the Department. 33. The petitioner shall pay to the respondent-assessee one set of costs which we assess at Rs. 200. K.N. Saikia, J. 34. I agree.

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