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Commissioner of Income-tax Bombay Vs. Gopaldas T. Agarwal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 62 of 1969
Judge
Reported in[1979]116ITR613(Bom)
ActsIndian Trusts Act, 1882 - Sections 8 and 58
AppellantCommissioner of Income-tax Bombay
RespondentGopaldas T. Agarwal
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateS.E. Dastoor, Adv.
Excerpt:
- .....by his declaration dated november 8, 1956, impressed his one-tenth share in the income from the trust properties, with the character of huf property and, therefore, it was not includible in his total income for the assessment years 1956-57, 1958-59, 1959-60 and 1960-61 ?' 2. assessee, gopaldas tulsiram, is assessed to income-tax in the status of an individual. by an indenture of trust dated february 2, 1943, created by his father, tulsiram devidayal, certain properties were settled upon trust for the benefit of himself, his wife and four sons. during the lifetime of the settlor, the assessee, who is one of the four sons of the settlor, was, under clause 2(c)(ii) of the trust deed, entitled to receive one-tenth of net income from the trust properties. by a declaration made by the.....
Judgment:

Kantawala, C.J.

1. At the instance of the revenue, the following question has been referred to us for our determination :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee had by his declaration dated November 8, 1956, impressed his one-tenth share in the income from the trust properties, with the character of HUF property and, therefore, it was not includible in his total income for the assessment years 1956-57, 1958-59, 1959-60 and 1960-61 ?'

2. Assessee, Gopaldas Tulsiram, is assessed to income-tax in the status of an individual. By an indenture of trust dated February 2, 1943, created by his father, Tulsiram Devidayal, certain properties were settled upon trust for the benefit of himself, his wife and four sons. During the lifetime of the settlor, the assessee, who is one of the four sons of the settlor, was, under clause 2(c)(ii) of the trust deed, entitled to receive one-tenth of net income from the trust properties. By a declaration made by the assessee on November 8, 1956, he declared that on April 1, 1955, he voluntarily threw his right to have as beneficiary one-tenth of the total income of the trust properties into the common stock of the joint family with the intention of abandoning all separate claims upon the said right and with effect from the said date the right to receive one-tenth of the total income under the said trust formed part and parcel of the joint and undivided Hindu family consisting of himself, his wife and his sons for the above assessment years. In view of the said intention, which was ultimately put on record by the said declaration, he contended that the income receivable by him under the trust cannot be regarded as individual income but was income of the HUF. That contention of the assessee was rejected by the ITO and he included the income receivable under the trust as the individual income of the assessee.

3. In the appeals preferred by the assessee, the AAC also rejected the contention of the assessee and upheld the decision of the ITO for inclusion in the assessee's total income his share of income from the trust properties. In further appeals preferred by the assessee, his contention was accepted by the Tribunal. The Tribunal referred to the written declaration made by the assessee on November 8, 1956, and pointed out that the genuineness of the said declaration was not even disputed on behalf of the revenue. By the said declaration, the assessee voluntarily threw his right to have as a beneficiary one-tenth of the net income under the trust into the common stock of the joint family with the intention of abandoning all his separate claims therein and it should be treated as forming part and parcel of the joint family property. The Tribunal pointed out that for impressing his self-acquired properties with the character of HUF properties no formalities were required, except the making of a clear and unequivocal declaration. Since such a declaration was made by the assessee, the income of the trust was not regarded as the income of the assessee for the four assessment years with which we are concerned.

4. It is from these orders of the Tribunal that the above question has been referred to us by the revenue for the four assessment years hereinabove referred to.

5. Mr. Joshi, on behalf of the revenue, submitted that the assessee was merely a beneficiary under the indenture of trust created by his father. His submission was that the interest of a beneficiary under an indenture of trust cannot be impressed with the character of HUF properties and, therefore, notwithstanding the declaration made by the assessee, his interest under the trust would continue to be his individual property and cannot be regarded as HUF properties. He, therefore, submitted that the taxing authorities were right in rejecting the contention of the assessee, and the Tribunal was in error in taking the view that the interest of the assessee under the trust cannot be regarded as a part of his individual property.

6. Section 8 of the Trusts Act provides that the subject-matter of a trust must not be merely beneficial interest under a subsisting trust. But there is no provision under the Trusts Act, which imposes any restriction upon a member of a family from impressing his interest under the trust with the character of HUF property. Actually, s. 58 of the Trusts Act provides that the beneficiary, if competent to contract, may transfer his interest under a trust, but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest. A member of a joint Hindu family is always competent to impress his separate property with the character of HUF property. This he can do by making a unilateral and unequivocal declaration and when such a thing is done it will be impressed with the character of HUF property. Our attention has not been drawn by Mr. Joshi to any provision which prevents a member of a joint Hindu family from impressing his beneficial interest under a trust with the character of HUF property. What is required is merely an unequivocal declaration on the part of the beneficiary to do so. The genuineness of the declaration made by the assessee has not been doubted by any of the taxing authorities. If that was so, right from April 1, 1955, the assessee's interest under the trust was impressed with the character of joint family property. Such a thing can be done by a coparcener by unilateral act. There is no question of either the family accepting or rejecting it. Thus, once an unequivocal declaration is made by the assessee to impress his interest under the trust as HUF property, it ceases to be his separate property and the income derived therefrom cannot be regarded as part of his individual or separate property. Thus, in our opinion, the Tribunal was right in taking the view that once the declaration was made by the assessee on April 1, 1955, right from that date whatever interest was derived by the assessee as a beneficiary under the trust ceased to be his separate property and it became impressed with the character of HUf property. The income so derived cannot, therefore, be treated as income of the assessee in his individual capacity. The view that has been taken by the Tribunal is right and accordingly the question referred to us is answered in the affirmative and in favour of the assessee. The revenue shall pay the costs of the assessee.


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