1. In this reference, at the instance of the assessee, the following three question have been referred to this High Court for its opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in permitting the revenue to raise the contention to the effect that independently of section 60 of the Income-tax Act, the business in question belonged to the assessee and not to the K. T. Doctor Family Trust
(2) If the answer to the above question No. 1 is in affirmative, was the Tribunal justified in law in deciding the said contention without remanding the case to the lower authorities for good reason after giving reasonable opportunity to the assessee to lead necessary evidence on the said question
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the business carried on by the assessee was not carried on by him for and on behalf of the K. T. Doctor Familm Trust
2. The facts leading to this reference are was follows : We are concerned with assessment years 1972-73 and 1973-74. The assessee before us is an individual and he derives income from house property, salary, interest, etc. Financial year 1971-72 is the relevant previous year for assessment year 1972-73 and financial year 1972-73 is the previous year for assessment year 1973-74. For the purposes of this judgment so far as assessment year 1972-73 is concerned, the relevant period is October 1, 1971, to March 31, 1972. By a deed of irrevocable trust dated September 30, 1971, Savitaben Tapidas, the mother of the assessee, settled in trust in the first instance Rs. 1,000 for the benefit of four persons named in the trust deed. The assessee and his wife, Mala, were appointed trustees of this trust. The assessee, his wife Mala, and their two sons, Kedar and Kashmalan, were the only four beneficiaries under this trust. The assessee was to get 40 per cent, share both in the income and in the ultimate distribution of the corpus of the trust and the three other beneficial under this trust. The assessee was to get 40 per cent. share both in the income and in the ultimate distribution of the corpus of the trust and the three other beneficiaries, namely, Mala, Kedar and Kashmalan, were given 20 percent. share each. Under clause V(7) of the deed, the trustees were authorised to start certain business or industry and by their resolution dated October 18, 1971, the trustees resolved to start a business in the name and style of K. T. Doctor Enterprise. It may be pointed out that after the creation of the trust, a further amount of Rs. 4,000 was paid by the settlor, Savitaben Tapidas, to the trustees for the purposes of this trust and the question that arose for consideration is regarding the income from this trust. The assessee is a chemical engineer and till July 4, 1972, he was working as a chemical engineer with Alembic Industries at Baroda. On July 4, 1972, he resigned his job and thereafter devoted himself exclusively to the work of K. Doctor Enterprise which was the business started in pursuance of the resolution of the trustees. It was found that for the previous year relevant to the assessment year 1972-73, an amount of Rs. 3,391 was earned by K. Doctor Enterprise as income and during the previous year relevant to the assessment year 1973-74, an amount of Rs. 22,376 was earned by K. Doctor Enterprise. The assessee contended that out of this amount of income, only 40 per cent. being his share in the income of the trust should be treated as part of the income of the assessee in his individual capacity and the balance for the two relevant previous years should be treated as income in the hands of the respective other beneficiaries, namely, Mala, Kedar and Kashmalan. The contention of the assessee before the I.T. authorities was that income from the said business constituted income of the trust created by Savitaben Tapidas and it could not be treated as the income of the assessee in his individual capacity. He was contending all along that out of the income of the trust for the relevant year, only 40 per cent. should be treated as his income. The ITO rejected this contention of the assessee and held that the entire business income of K. Doctor Enterprise would be taxable in the hands of the assessee. The ITO relied upon the provisions of s. 60 of the I.T. Act. He held that the income derived by the wife and minor children of the assessee from the trust was includible in the income of the assessee in the light of the provisions of s. 60 of the I.T. Act. In the course of the assessment proceedings, the assessee was examined on oath and his statement was recorded. He stated before the ITO that, as a trustee, he could not be required to give any know-how, intelligence and mental services to the trust in terms of the trust deed and further that the income was earned because of intelligence and technical know-how and that no trust fund was required for the business which was being carried on by the trust except for and by way of expenses. The ITO came to the conclusion that the assessee had created a device to transfer his own earnings to the trust and thus had transferred 60 per cent. of his professional income to his wife and children through the trust so as to avoid the mischief of s. 64 of the I.T. Act. According to the ITO, even though the trust empowered the trustees to carry on the business of consulting engineers, the direction in the trust deed would be effective only in so far as his business could be carried on with the aid of the trust fund and resources of the trust, not with the personal ability, know-how and technical knowledge of the trustees or of one of the trustees. According to the ITO, the personal ability and know-how and technical knowledge of the trustee were the mental equipment of the trustee himself and that the trustee was not an employee of the trust. No remuneration had been paid to the trustee for the services rendered by him to the trust and hence the ITO, according to him, came to the conclusion that this was a case of throwing one's own earning in the trust for which there was no legal obligation to be seen.
3. The assessee took the matter in appeal to the AAC and before that appellate officer the assessee disputed the applicability of s. 60 to the facts of the present case. He contended that the technical skill of the assessee as chemical engineer was not a type of asset contemplated in s. 60 of the I.T. Act. It was urged before the AAC that the business activity in question had been undertaken under the name of K. Doctor Enterprise on behalf of the trust only. The AAC rejected the contention of the assessee and held that it was the technical knowledge and acumen of the assessee which alone were responsible for creating the income and that out of the two trustees, he alone was capable of undertaking the activities provided for in the trust deed. The AAC took note of the fact that the assessee had on July 4, 1972, resigned his job with M/s. Alembic Industries and that he was getting a sum of Rs. 45,000 per annum from his job with Alembic Chemicals. The AAC held that Mala, the wife of the assessee, who was an M.A. in Sociology was incapable of doing the job in question in view of lack of technical know-how and a chemical engineer's skill. He held that the provisions of s. 60 has been correctly applied to the instant case and that there was no necessity of identifying the asset which was capable of being transferred. He held that transfer of income was sufficient for the purposes of s. 60 and such transfer took place in the instant case when 60 per cent. of the income in question was made by the assessee distributable to his wife and sons as the remaining three beneficiaries.
4. Two separate appeals, one in respect of each relevant assessment year, were field before the Income-tax Appellate Tribunal. The Tribunal held that even apart from s. 60 of the I.T. Act, 1961, under the deed of trust itself since there was no obligation on the trustees to carry on the trade and that the since there was mere authorisation or empowering of the trustees to carry on the business, the income of K. Doctor Enterprise could not be held to the income of the trust on the facts of the present case. The Tribunal, therefore, decided in favour of the revenue and against the assessee. The Tribunal rejected the view of the ITO that the assessee had created a device to transfer his own earnings to the trust. The Tribunal ultimately confirmed the order passed by the ITO though on a line of reasoning entirely different from the line of the reasoning which had appealed to the ITO and the AAC. Thereafter, at the instance of the assessee, the three questions set out hereinabove have been referred to us for our opinion. At the hearing of the reference before us, Mr. K. C. Patel for the assessee and Mr. Raval for the revenue concentrated on the third question because the other two questions pale into insignificance if question No. 3 is decided in favour of the assessee. It may be pointed out that after the Tribunal first passed its order dismissing the two appeals, a miscellaneous application for review was made by the assessee and what the assessee called inconsistencies were sought to be pointed out to the Tribunal in that miscellaneous application. On that miscellaneous application the Tribunal passed an order substituted para. 19 for the original para. 19. By the newly substituted para. 19, the Tribunal remanded the matter to the ITO to reconsider the question as to whether the business income from K. Doctor Enterprise was entirely taxable in the assessee's individual hands or partly in the hands of the assessee's wife as partner or a member of an association of persons. So far as this question was concerned, the ITO and the AAC had not considered the assessability of the amount belonging to K. Doctor Enterprise independently of the provisions of s. 60 of the Act. The Tribunal pointed out in the newly substituted para. 19 that, according to the Tribunal, the business of K. Doctor Enterprise was not the business of the trust and that as a corollary to the Tribunal's decision, the question which would fall for determination would be whether the income which accrued or arose to K. Doctor Enterprise by virtue of the agreement entered into by it could be said to have arisen to the assessee as individual wholly or partly to the assessee's wife as a partner or as a member of an association of persons and that question was required to be looked into at the hands of the authorities below.
5. In order to understand the approach of the Tribunal and in order to answer the question that have been referred to us, it is necessary to refer to the deed of trust created by Savitaben, the month of the assessee. The deed of settlement mentions in the recital clause that the settlor was desirous of settling in trust the cash amount of Rs. 1,000 out of natural love and affection towards her son, Kumudkant (the assessee herein), the daughter-in-law and son's children and for various other considerations stated in the deed of trust. 'The trust fund' under the interpretation clause I in the deed of trust means the cash amount of Rs. 1,000 in respect of which the settlement was created and all moneys, investments and donation paid or transferred to and accepted by the trustees either from the settlor or anyone else. Under clause II of the deed of trust, the trustees were to hold and stand possessed of the said trust fund and income thereof upon trust with and subject to the powers and provisions contained in the deed of trust. The net balance of the income remaining after providing for the contingencies mentioned in sub-clause (a) of clause II were to be distributed in the proportion which we have mentioned earlier, namely, 40 per cent. to the assessee, 20 per cent. to the assessee's wife and 20 per cent. to Kedar, the son of the assessee, and the remaining 20 per cent. to Kashmalan, the second son of the assessee. The period of distribution of the corpus of the trust was to be 20 years from the execution of the trust deed. The assessee was appointed as chairman and managing trustee and in case of difference of opinion between the trustees the trustees were to act by majority and the assessee was to have a casting vote in cash of a tie. Clause V provided as follows :
'The trustees may at any time or times at their discretion, invest the trust fund in any of the investments hereby authorised and may from time to time at their discretion sell any or all the stocks, shares and other investments comprising the trust fund, and shall invest the net money produced by any and every such sale, and may, from time to time, at their discretion alter or vary the investments which shall for the time being constitute the said trust fund as they may think it.'
6. Under sub-clause (6) of clause V of the deed of trust, the trustees were expressly authorised to start or buy or take over any business or industry either as proprietors or as partners or as shareholders of any limited company for the purpose and/or for the benefit of the trust and for such purpose to enter into all contracts, transactions, commitments, and to do all things necessary for the proper conduct and management of such business including payment of remuneration to any person for looking after the same. Under sub-clause (7) of clause V, in particular the trustees were expressly authorised to start the business or industry either as proprietors or partners and the business or industries which were mentioned in the four cls. (a)(d) were :
(a) consulting engineers and designers of chemical, pharmaceutical and allied plants, machinery, projects, etc.;
(b business of manufacture and production of any machines, equipment, chemicals, pharmaceuticals, etc.;
(c) furnishing designs, technical know-how, etc., for the purpose of manufacturer or setting up of any plant, machinery or process, equipment, etc.; and
(d) business in purchase and sale of machinery and sale of machinery, process equipment and plants including taking up of sales agencies and representation of foreign/Indian manufacturers.
7. It may be pointed out that as shown by the statement of accounts, annex. 'G', considerable amount was being received by way of selling commission and also substantial amount was received by K. Doctor Enterprise by consultancy fees. Kayditrol account was a separate account maintained by K. Doctor Enterprise and the Kayditrol account was credited with consultancy fees and selling commission. K. Doctor Enterprise also received income by way of consulting and design fees and by way of general machinery sales account.
8. When one peruses the order of the Tribunal, one finds that the entire approach of the Tribunal was from the point of view of an attempt to find out whether there was an obligation on the trustees to run the business of K. Doctor Enterprise. In para. 17 of the order of the Tribunal, after analysing sub-cls. (6) and (7) of clause V, the Tribunal held that under these clauses, inter alia, certain powers were given to the trustees for starting a new business or industry. There was in terms no reference to the trust property at all and in the view of the Tribunal the trustees were under no obligation to exercise and make use of the powers under this part whether with or without the aid of the trust money. The Tribunal was of the view that for deciding the question as to the existence of an obligation as contemplated in s. 3 of the Indian Trust Act, the Tribunal was required to find whether the trustees could be sued in court for their default in case they had not for any length of time or ever carried on all or any of the business or industries so empowered to be carried on as per the instrument of trust. The Tribunal held that the fourth part of clause V would not mean a trust unless some other provisions in the instrument of trust persuaded the Tribunal to a different conclusion. In para.19 of its order, the Tribunal expressed its view that in spite of the power clauses, that is, sub-cls. (6) and (7) of clause V, if the trustees made use of any small amount out of the trust money, that being not covered by the obligation attached to the ownership of trust money, it might mean unauthorised user and it would not make the business income in question the trust income. Without definitely expressing their opinion in definite words on the point, the Tribunal also saw weight in the department's contention that the alleged use of the paltry amount out of the trust money was not by way of its investment capable of giving rise to the income shown to have been earned in the two years under consideration. They, therefore, held that the business under consideration was not trust business. The Tribunal's conclusion was, therefore, based on its conclusion that since there was no obligation on the trustees under the deed of trust to the business and there was merely a power conferred upon them to start a new business under the trust deed, the business of K. Doctor Enterprise could not be said to be the business of the trust.
9. In our opinion, the entire approach of the Tribunal on this question is erroneous in law. The Tribunal has failed to notice that a business is property and like any other property a business can also be vested in the trustees of a trust. In J.K. Trust v. CIT : 32ITR535(Bom) , the Supreme Court held that property was a term of the widest import and subject to any limitation or qualification which the context require, it signified every possible interest which a person could acquire, hold and enjoy. Business would undoubtedly be property, unless there was something to the contrary in the enactment. It was pointed out that there was nothing in s. 4(3)(i) of the Indian I.T. Act, 1922, which restricted in any manner the normal and accepted meaning of the word 'property' and excluded business from its connotation. Business would, therefore, be property for the purposes of s. 4(3)(i) of the I.T. Act, 1922, and managing agency of a company was business and was 'property' for the purposes of s. 4(3)(i). Venkatrama Aiyar J., speaking for the Supreme Court, observed (p. 541) :
'There is also authority in support of the view of view that business is property within the intendment of section 4(3(i). In re The Tribune , the question was whether a trust created over the Tribune press and newspaper was for a charitable purpose as defined in section 4(3)(i) of the Act. The majority of the learned judges of the High Court took the view that the object of the trust was not wholly religious or charitable, and that accordingly the exemption under that section could not be claimed. This decision was taken in appeal to the Privy Council, which held, reversing the judgment of the High Court, that the object of the trust was in its entirely charitable and that it came within the exemption enacted in section 4(3)(i) : vide In re The Trustees of the Tribune  7 ITR 415 . That is a question with which we are not concerned in this appeal, and the actual decision of the Privy Council does not bear on the present controversy. What is relevant to our purposes is that before the High Court a contention was raised that the word 'property' must bear the same meaning both in section 9 and 4(3)(i), that in section 9 it was used in contradistinction to business which was dealt with under section 10, and that, therefore, 'property' in section 4(3)(i) could not include business. This contention was repelled by the High Court, which held that the meaning of the word 'property' in section 4(3)(i) could not be controlled by the connotation of that word in section 9 : vide In re The Tribune . Before the Privy Council, however, the question whether business of the Tribune press and newspaper was property was not raised, the Board merely observing that in the letter of reference there was 'no suggestion that the income under assessment is not derived from property held under trust declared in the 20th and 21st paragraphs of the will'.'
10. It was observed at page 542 that the weight of authority was clearly in favour of the view that business would be property for the purposes of s. 4(3)(i) of the Act of 1922. It was held that the office of the managing agency which is clearly property and even alienable under certain circumstances could be property held in trust though it was property which carried with it certain obligations and in law there was no objection to creating a trust over property burdened with obligations, though, if it was onerous by reason of such obligation, the trustees might be entitled to disclaim it. In the case before the Supreme Court in J.K. Trust's case : 32ITR535(Bom) , it was a trust in the form of business of managing agency. Thus, it is clear in the light of this decision of the Supreme Court that a business can be run by the trustees, in their capacity as trustees and this species of property can be held by the trustees. In Thiagesar Dharma Vanikam v. CIT : 50ITR798(Mad) , it was held by a Division Bench of the Madras High Court that if a trust carried on business and the business itself was held in trust and the income from such business was applied or accumulated for application for the purposes of the trust of a religious or a charitable character, the conditions prescribed in s. 4(3)(i) were fulfilled and the income was exempt from taxation. At page 803, it was observed :
'It is, however, clear that the terms of the trust deed expressly provided for the trust funds being employed in any trade, industry or business, which means that the trust can carry on the business just like an individual or a firm or a limited company. It is not the contention of the department that the trust is a mere fiction or that it is illusory and we have, therefore, to proceed on the footing that a valid trust has been constituted and that the trust carried on the business during the relevant accounting years.'
11. In the case before us also, it is not the contention of the department that the trust created by Savitaben is a mere fiction or that it is illusory and hence we have to proceed on the footing that a valid trust has been constituted and that trust carried on the business during the relevant accounting years.
12. A situation similar to the situation before us also arose before the Bombay High Court in CIT v. Pruthivi Trust (see p. 488 supra). In that case also, there was a power to the trustees to carry on business of marketing the product with the use of inventions and patents settled upon the trust and that was to be done with the idea of raising funds for the fulfilment of the aims and objects of the trust. When such activity, according to the Bombay High Court, is done by the trustees, then it is quite clear that the business so done is the business of the trust and hence this business itself is property held under trust.
13. It is thus clear that it is possible for a trust to start its own business and to derive income from the business so that the income can be utilised for the objects of the trust. So long as there is nothing illegal or immoral in the creation of the trust or in the objects of the trust and the business is a normal legal business, and again so long as it cannot be said that the trust is illusory or fraudulent, the trust deed must be allowed to operate in the manner contemplated by the settlor. It is true that there was no obligation on the trustees to carry on any business but if they did not decide to carry on a business, such business as they carried on would be the property of the trust. If the business is carried on in part from the assets derived from the trust fund the income from the business would be income of the trust and must be applied in accordance with the directions contained in the deed of trust, we fail to understand how, in this context, anything except the concept of the power of trustees and authorisation of the trustees to carry on the business is relevant as the subject matter of inquiry. Under s. 50 of the Trusts Act :
'In the absence of express direction to the contrary contained in the instrument of trust or of a contract to the contrary entered into with the beneficiary or the court at the time of accepting the trust, a trustees has no right to remuneration for his trouble, skill and loss of time in executing the trust.'
14. It is, therefore, clear that the assessee, K. T. Doctor, in his individual capacity was not entitled to any remuneration for his trouble, skill and loss of time in executing the trust, namely, in carrying on the business of the trust. It may be that it is because of the skill and know-how possessed by the assessee that the business of the trust prospered, but, for such know-how and skill and technical knowledge no remuneration was payable to the assessee in his individual capacity by reason of the provisions of s. 50 of the Trusts Act. In our opinion, therefore, the entire income derived from the business of K. Doctor Enterprise would be the income from the property owned by the trust, namely, the business of K. Doctor Enterprise, and that income from the business would be distributed to the different beneficiaries and assessable in accordance with the provisions of s. 161 and the ensuing sections of the I.T. Act. The trustees would be representatives for definite beneficiaries whose shares also were determined and, in the light of the provisions of I.T. Act, the respective shares of the income of the beneficiary concerned would be liable to be taxed in the hands of that beneficiary.
15. It is obvious that the provisions of s. 60 of the I.T. Act cannot be invoked at all in the instant case. Section 60 deals with transfer of income where there is no transfer of assets and provides that all income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of the Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income. Now, it must be notice that the trust was created not by the assessee, K. T. Doctor, but was created by his mother who paid the amount of Rs. 1,000, in the first instance and Rs. 4,000, subsequently, from her own money. If the trustees by virtue of the power conferred upon them carried on business and thus acquired in the shape of K. Doctor Enterprise, it cannot be said that the income arising from the business of the trust was income arising to the assessee, K. T. Doctor, in his personal capacity by virtue of a transfer whether revocable or not and whether effected before or after the commencement of the Act and, in any event, the transferor was not the assessee. The Tribunal was, therefore, right in rejecting the contention of the department which appealed to the ITO and the AAC, namely, that the provisions of s. 60 could be invoked in the instant case. It is obvious that the provisions of s. 64 could never have been invoked in this case because no property was transferred and no business was done in partnership by the assessee.
16. In our opinion, the entire error has arisen from the omission on the part of the Tribunal to consider the business as property which could be held by the trustees in their capacity as trustees. Once this legal concept is clearly borne in mind and once the authorisation for running the business is found in the trust deed the business carried on by the trustees would be the business of the trust and it is only when income from the trust is distributed in accordance with the provisions of the trust that share of the income allocated to the beneficiary would be the individual income of that beneficiary by virtue of the provisions of s. 161, sub-s. (1), of the I.T. Act, and if the trustees any tax in their capacity as representative assessee by virtue of s. 162, the representative assessee would be entitled to recover the amount so paid from the beneficiary.
17. It was contended by Mr. Raval on behalf of the revenue that this is not a business carried on by the trust and that the Tribunal has found as a fact that this was not the business of the trust. In the alternative be argued that even if it is held to be the business of the trust, the veil must be lifted to ascertain that this business in reality and substance is the business of the trust.
18. We are unable to agree with either of these two submissions of Mr. Raval. The Tribunal has not approached the question from the angle of power only because it went in search of an obligation to carry on the business and finding no obligation in the deed of trust to carry on the business, it came to the conclusion that this was not the business carried on by the trust. Once that legal error is removed, it is clear that the business was the business of the trust and there is no finding of fact recorded by the Tribunal that this was not the business carried on by the trust. As regards the alternative argument regarding lifting of the veil, we are afraid, no such exercise is permissible in law so far as trustees are concerned. The concept of lifting the veil is permissible only in the case of a company with a view to find out the real persons being the corporate body, namely, the company, but in the case of trustees, they are under legal obligation to carry out the objects of the trust and to act in accordance with the deed of trust subject to the overall provisions of the Indian Trusts Act, and if they fail in their duty or if they do carry on certain activity as trustees, they are accountable in their capacity as trustees. Thus, lifting of veil or piercing of the veil is an exercise which is not permissible in the field of the law of trusts. The only conclusion was that there was no trust of the business because there was no obligation to carry on the business. That was the only conclusion which the Tribunal arrived at and when one analyses the order of the Tribunal and finds that its approach is wrong, the conclusion is of no consequence.
19. We, therefore, come to the conclusion that since there was a power and authorisation to the trustees to carry on business and in exercise of that power and that authorisation the trustees carried on the business of K. Doctor Enterprise, the income of the business must be held to be the income of the trust. In the light of s. 50 of the Trusts Act, it was not open to the assessee to receive the entire income of K. Doctor Enterprise as his own income. The resolutions passed by the trustees in their capacity as trustees were for starting the business of K. Doctor Enterprise and even if the income of the business was due to personal skill and know-how and intelligence of the trustee, Kumudkant Doctor, it was not open to him to receive any remuneration for his trouble, skill and loss of time in executing the trust, namely, in attending to the business of the trust.
20. Under these circumstances, the principal question which was urged before us, namely, question No. 3, must be answered in the negative, that is, in favour of the assessee and against the revenue. In view of our answer to question No. 3, it is not necessary, so far as facts and circumstances of this case are concerned, to answer question No. 1 or question No. 2. The Commissioner will pay the costs of this reference to the assessee.