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Commissioner of Income-tax Vs. Trustees of Khimchand Amarchand Trust - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 32 of 1965
Judge
Reported in[1978]113ITR185(Bom)
ActsIncome Tax Act, 1922 - Sections 41(1)
AppellantCommissioner of Income-tax
RespondentTrustees of Khimchand Amarchand Trust
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateI.M. Munim, Adv.
Excerpt:
- - the tribunal also upheld the estimate the capital gains made by the subordinate authorities, but directed that the profits should be taxed in the like manner and to the same extent as the beneficiaries would be taxed, because the department was not justified in invoking the provisions of the proviso to section 41 and attempting to tax the capital gains at the maximum rate......set out in paragraphs 3 and 4 of the statement of the case, but suffice it to say, that the capital gains arising from the sale of the property were determined at rs. 3,50,865. the income-tax officer allocated the capital gains between the tow beneficiaries and did not raise any demand against the trustees as such, taking the view that the shares of the beneficiaries in the income from the trust were definite and determinate. the appellate assistant commissioner, whilst confirming the capital gains at the figure arrived at by the income-tax officer, however, took the view that the trustees were liable to capital gains at the maximum rate. the tribunal also upheld the estimate the capital gains made by the subordinate authorities, but directed that the profits should be taxed in.....
Judgment:

Vimadalal, J.

1. This is a reference made to us under section 66(1) of the Indian Income-tax Act, 1922, whereby the following question has been referred to us :

'Whether, on the facts and in the circumstances of the case, capital gains arising out of the sale of Lamington Cinema were liable to be taxed in the hands of the assessees for the assessment year 1960-61 at the maximum rate under the proviso to section 41(1) ?'

2. The short facts necessary for the purpose of disposing of this reference are that one Khimchand Amarchand created a trust by a trust deed dated the September 12, 1944, under which he settled certain properties comprising an open plot of land which had been leased out and on which the lessee had construed a cinema house known as 'Lamington Talkies'. Clause 2 of the deed of trust provided that until the date of the death of the survivor of the settlor and his grandsons, Ashok Sunderlal and Ajit Sunderlal, the trustees were to divide the income of the trust properties into three equal parts and assign one such equal part to the settlor, another to Ashok, and the third to Ajit. Under clause 3 of that deed, on the death of the survivor of the settlor, the said Ashok and the said Ajit, the trustees were to divide the premises into two equal parts and (a) were, out of one part, to pay to the widow of Ashok, Rs. 25,000, if he left a widow, and hold the balance or the while of that part, if Ashok had not left a widow, for the benefit of the children of Ashok absolutely, each male child getting double the share of each female child. It was further provided that if at the date of the period of distribution there was no descendant of Ashok, the trustees were to pay a sum of Rs. 25,000 out of that part to the widow of the said Ashok, if he left a widow and were to hold the balance of that part or the whole of it, if the said Ashok did not leave, each male getting double the share of each female child. In sub-clause (b) of clause 3, there was an identical provision in regard to the other part for the said Ajit's part. Sub-clause (c) of clause 3 proceeded to provide that if at the date of distribution there was no descendant of Ashok or Ajit, the trustees were, subject to the payments to be made to the widows, to hold the trust premises for the benefit of the heirs of the settlor. The settlor died on the October 25, 1956. On the March 26, 1960, the property in question was sold for a sum of Rs. 7,60,000. It is unnecessary to refer t the figures set out in paragraphs 3 and 4 of the statement of the case, but suffice it to say, that the capital gains arising from the sale of the property were determined at Rs. 3,50,865. The Income-tax Officer allocated the capital gains between the tow beneficiaries and did not raise any demand against the trustees as such, taking the view that the shares of the beneficiaries in the income from the trust were definite and determinate. The Appellate Assistant Commissioner, whilst confirming the capital gains at the figure arrived at by the Income-tax Officer, however, took the view that the trustees were liable to capital gains at the maximum rate. The Tribunal also upheld the estimate the capital gains made by the subordinate authorities, but directed that the profits should be taxed in the like manner and to the same extent as the beneficiaries would be taxed, because the department was not justified in invoking the provisions of the proviso to section 41 and attempting to tax the capital gains at the maximum rate. It is from that order of the Tribunal that question set out above has arisen.

3. When the matter came up before the learned Chief Justice and my brother, Tulzapurkar J., they by their order dated July 17, 1974, called for a supplemental statement of case from the Tribunal stating whether at any time during the relevant previous year Ajit and/or Ashok had a child or children. A supplemental statement of case has, accordingly, been submitted to this court stating that Ashok had a male child named Bharat during the relevant previous year. It is agreed, though the supplemental statement of case does not, in terms, say so, that Ajit had no male child during the relevant previous year.

4. On these facts, it has not been seriously disputed before us that the present case would be governed by the decision of this court in the case of R.H. Pandit v. Commissioner of Income-tax : [1972]83ITR136(Bom) . It might, perhaps, have been possible to argue that the shares of the beneficiaries were indeterminate or unknown if the present case had fallen under sub-clause (c) of clause 3 of the deed of trust dated 12th September, 1964. In view, however, of the finding contained in the supplemental statement of case that during the relevant previous year Ashok had a male child, the case is taken out of sub-clause (c) of clause 3 of the trust deed, and there can be no doubt that, following the decision of this court in Pandit's case : [1972]83ITR136(Bom) , the shares of the beneficiaries in the case before us must be held not to be indeterminate or unknown, and the question referred to us must be answered accordingly.

S.K. Desai, J.

5. I agree and have nothing to add.

The Court

6. The question referred to us is answered in the negative and in favour of the assessee. We order that the Commissioner should pay the assessee's costs of the reference.


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