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Mrs. Sunita Divecha Vs. Tenth Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1990)32ITD531(Mum.)
AppellantMrs. Sunita Divecha
RespondentTenth Income-tax Officer
Excerpt:
.....263. the ito reframed the assessment and while doing so, added a sum of rs. 38,000 earned by yash trust, the trustees of which were the assessee and himanshu bharat divecha. the beneficiary was shri yash bharat divecha. the said commission of rs. 38,000 was assessed in the hands of the assessee.3. when the matter came before the dy. cit(a), he confirmed the finding of the ito adding the income of rs. 38,000 on account of commission earned by yash trust from m/s. industrial tube manufacturing company.4. the learned authorised representative for the assessee submitted that it was after 1985 that the amendment came to the effect that the trust would not be doing any business. in the light of k.t. doctor v.cit [1980] 124 itr 501 (guj.) and cit v. k.k. birla [1982] 137 itr 126 (cal.).....
Judgment:
1. The only ground raised by the assessee in this appeal under the Income-tax Act for assessment year 1980-81 is that the income earned by a trust, of which the sole beneficiary was the assessee's son, Master Yash Bharat Divecha, should not have been taxed in the hands of the assessee.

2. Briefly to state the facts, after the assessment of the assessee, Mrs. Sunita Divecha, was framed, the same came to be reopened under Section 263. The ITO reframed the assessment and while doing so, added a sum of Rs. 38,000 earned by Yash Trust, the trustees of which were the assessee and Himanshu Bharat Divecha. The beneficiary was Shri Yash Bharat Divecha. The said commission of Rs. 38,000 was assessed in the hands of the assessee.

3. When the matter came before the Dy. CIT(A), he confirmed the finding of the ITO adding the income of Rs. 38,000 on account of commission earned by Yash Trust from M/s. Industrial Tube Manufacturing Company.

4. The learned authorised representative for the assessee submitted that it was after 1985 that the amendment came to the effect that the trust would not be doing any business. In the light of K.T. Doctor v.CIT [1980] 124 ITR 501 (Guj.) and CIT v. K.K. Birla [1982] 137 ITR 126 (Cal.) besides IT0 v. U.P. Tractors [1986] 19 ITD 199 (Jab.), he submitted that the income earned by Yash Trust on account of commission from M/s. Industrial Tube Manufacturing Company should not have been added in the hands of the assessee. He placed before me not only a copy of the trust deed but also the deed of dissolution by which the trust became defunct. He also placed before me a copy of the account as per which the accumulated profits of the trust came to be enjoyed by the minor son of the assessee. He also submitted that the veil is got to be pierced by the Revenue only in corporation matters and not in the case of trusts. The learned Departmental Representative, on the other hand, relied on the orders of the two lower authorities. In the rejoinder, the learned authorised representative for the assessee submitted that for subsequent year, namely, 1981-82, it is the trust which has been subjected to tax in respect of the commission income and not the assessee. On a query from the learned Departmental Representative that there is no proof to the fact that the assessee's assessment was not made in respect of the commission earned by the trust, the learned Authorised Representative for the assessee unequivocally submitted that no assessment was made in respect of the commission income in the hands of the assessee.

5. After taking into consideration the rival submissions, I am unable to sustain the addition of Rs. 38,000, being the commission income of Yash Trust in the hands of the assessee. There is no controversy about the fact that the trust is legally constituted. There is nothing irregular and fraudulent about its coming into being. The business was conducted by the trust and though the assessee was friendly or related with the said M/s. Industrial Tube Manufacturing Company but the business was secured by her on behalf of the trust and it was the beneficiary, her minor son Yash Bharat Divecha, who earned the said income and he was paid the said amount ultimately when the trust had become defunct. There is also no dispute about the fact that for the assessment year 1981-82, similar commission income earned by the trust has been assessed in the hands of Yash Trust, as per copy of the assessment order placed at pages 33-34 of the compilation. There are certificates to the effect from M/s. Industrial Tube Manufacturing Company to the following effects, vide pages 31 and 32 of the compilation: This is to certify that we have given a cheque of Rs. 38,000 (Rupees thirty eight thousand only) being commission to the Yash Trust On 28-12-1979.

This is to confirm that we have paid a commission of Rs. 38,000 (Rupees thirty eight thousand only) to M/s. Yash Trust, 7, Pashmina, Pedder Road, Bombay, through Mrs. Sunita B. Divecha, trustee of the Trust on 28-12-1979 for the following: (a) on 3% commission for the import of Aluminium Strips from Israel at Rs. 25,600.

(b) on sales of Aluminium Strips to customers Rs. 12,400 lump sum.

Total Rs. 25,600 + Rs. 12,400 = Rs. 38,000.

Simply because the assessee looked after the affairs of the trust because her minor son was the beneficiary, the same could not militate against the claim of the assessee.

6. In similar circumstances, their Lordships of the Gujarat High Court have held as under in K.T. Doctor's case (supra): Lifting the veil to ascertain whether a business in reality and substance is the business of the trust is not permissible in law so far as trusts are concerned. The concept of lifting the veil is permissible only in the case of a company with a view to finding out the real person behind the corporate body, namely, the company. The Trustees are under a legal obligation to carry out the objects of the trust and to act in accordance with the deed of trust subject to the provisions of the Indian Trusts Act, 1882, and if they fail in their duty they are accountable in their capacity as trustees.

The abovestated finding in the Gujarat High Court decision directly supports the contention of the assessee.

7. Regarding the factum that the assessee is the mother of the beneficiary. Shri Yash Bharat Divecha, the Calcutta High Court decision in the case of K.K. Birla (supra) supports the contention of the assessee. In the said case, their Lordships have held asunder: that in this case the minor was carrying on business through the guardian, her father. The assessee was not acting for himself but as the guardian, for and on behalf of the minor. There was no law debarring a minor from entering into a contract through her guardian. The Tribunal was right and the income of the minor from the speculation business and the interest arising out of the investment made from such speculation income were not assessable as the income of the assessee.

In the present case as well, whatever the assesses was doing astnistee of the trust, the beneficiary of which was her minor son, Shri Yash Bharat Divecha.

8. The Tribunal's decision in the case of U.P .Tractors (supra) is for the proposition that in case the business is different from the one which is done by and on behalf of the assessee, the income of the same could not be clubbed up in the income of the assessee. In the said decision, it was held that in case of benami transactions, the revenue has to prove that the apparent was the real state of affairs. What the learned Members have held in the said case reads as under The fact remained that the investment in UPEM was made by S, the enjoyment of income was by her and she retained full control over the income and the assets as also the custody thereof and accordingly the apparent being the real state of affairs, could not be disputed. The onus of proof to dislodge the belief about the apparent being the real state of affairs having not been discharged by the revenue, the AAC's orders were upheld.In the light of the above three decisions, the commission income of Rs. 38,000 ought to have been subjected to tax in the hands of the trust and not in the hands of the assessee. I, accordingly, reverse the action of the Dy. CIT(A) and allow the appeal of the assessee.


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