Commissioner of Income Tax vs Babulal Grandsons Family Trust

We have heard learned counsel for the income tax Department. The assessment year involved is 1984-85. The following two questions have been referred:

"1. Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in holding that the assessment in the hands of the trust be framed u/s 161 of the income tax Act, 1961?.

Whether, in view of the facts and circumstances of the case, the income tax Appellate Tribunal was correct in law in dismissing the Revenue''s appeal by placing reliance on the decision of the (1989) 31 ITD 52 , where the matter for consideration was entirely different?"

For appreciating the two questions, the relevant facts are set out concisely below:

A trust under the name of "Baboolal Grandsons Family Trust" was created by one Budh Sen by a trust deed dated January 2, 1978. There were four beneficiaries of the trust, namely, Sanjeev, Vinay, Rajeev and Shailendra. The shares of the first two of the beneficiaries aforesaid were 20 per cent, each and the shares of the other two beneficiaries were 30 per cent. each.

In respect of the same assessee, for the earlier assessment year, there was a decision of a Special Bench of the Tribunal, which reversed the order of the Commissioner of income tax u/s 263 and decided the matter in favour of the assessee. An application u/s 256(1) seeking a reference against the decision was rejected by the Tribunal. An application by the Department u/s 256(2) seeking calling of the refused reference was rejected by the Allahabad High Court.

For the assessment year under consideration in this case, i.e., 1984-85, in respect of the previous year ended on March 31, 1984, the assessment was completed by the income tax Officer in the status of the "association of persons'' (called AOP for short). The reason given by the income tax Officer for assessment as AOP was that the shares of the beneficiaries were not determinate. On appeal, the Appellate Assistant Commissioner did not agree with the Assessing Officer''s view because, as stated above, the share of each of the four beneficiaries had been specified by the trust deed itself.

Thus, the fundamental question was whether the assessment should have been made as an AOP.

The concept of AOP is where certain persons constituting that AOP voluntarily join together for any specific venture. Normally, the concept of AOP would not apply where this joining together is not voluntarily, but has been imposed because of external factors as, for example in case of inheritance of joint property or a case like the present one, where the joint is the result of the trust deed and thus has been imposed by the author of the trust.

In the circumstances, the decision of the Appellate Assistant Commissioner as well as the Tribunal, which followed the order of the Special Bench which had become final as mentioned above in respect of the earlier assessment year does not suffer from any error.

Our answer to both the questions referred is, therefore, in favour of the assessee and against the Department. Reference is disposed of.