M/s. A.K.K. Specific Family Trust vs The Commissioner of Income Tax

Chitra Venkataraman, J.—The assessee filed the above Tax Case Appeals as against the common order of the Income Tax Appellate

Tribunal relating to the assessment year 1998-99, 1999-2000 and 2000-2001 raising the following questions of law:-

Whether on the facts and circumstances of the case, the Tribunal was right in holding that the beneficiaries under the appellant trust were

unknown or their shares indeterminate and therefore the trust income was taxable u/s 164(1) of the Income Tax Act, 1961?

Whether on the facts and circumstances of the case, the Tribunal was right in holding that the ratio of the judgment of Calcutta High Court in

Commissioner of Income Tax Vs. Trustees of Keshav Mohta Family Trust, was applicable to the facts of the case, especially in the light of the

jurisdictional High Court''s judgment in the case of Commissioner of Income Tax Vs. M.K. Kannan Marriage Benefit Trust and others,

A reading of the order of assessment reveals that the claim of the assessee that it be assessed as a Trust was rejected on the ground that the entire

arrangement of Trust was sham one. Even though, it mentioned about the shares of the beneficiaries, who are twenty three in number, which

included Big HUF, Small HUF and Individual, who were identifiable and their shares were determined, the fact revealed that the very enquiry of

the beneficiaries showed that they were not aware of the shares and some of them were not aware of the existence of the Trust. In the

circumstances, the Trust was assessed u/s 167B of the Income Tax Act, 1961.

Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals) contending that there is specific Trust in the

name of M/s. A.K.K. Trust; the return was filed in the circumstances of representative of assessee and all the beneficiaries are identifiable and their

shares are determinable and therefore the trust is assessable u/s. 161(4) read with Section 161(1) of the Income Tax Act, 1961; however, the

assessment was made under AOP (Association of Persons). One of the grounds before the Commissioner of Income Tax (Appeals) was the

Assessing Officer erred in treating the trust as sham and colourable device. The Commissioner of Income Tax (Appeals) dismissed the appeal and

confirmed the findings of the Assessing Officer.

Aggrieved by this, the assessee went on further appeal before the Income Tax Appellate Tribunal, wherein, in Ground No. 7, the assessee

questioned the order of the Commissioner of Income Tax.

We find that the ground raised as regards the genuineness of the Trust was not considered at all by the Income Tax Appellate Tribunal. On the

other hand, the Tribunal held that as per the terms of the trust deed, ''would be spouse'' and ''would be children'' would also become beneficiaries

with effect from the year of their marriage and from the year of the birth of the child. Thus it could not be held that the shares of some of the

beneficiaries listed were determinable on the date of creation of the trust; the share of the beneficiaries were subject to change depending on their

marriage and number of children born to them. Thus following the decision of this Court in the case of Commissioner of Income Tax Vs.

Muthukrishnan, the Tribunal rejected the assessee''s appeal holding that the very fact that shares of some of the beneficiaries were determined on

the date of the creation of the Trust would not be a good ground for granting relief to the assessee. Thus, the claim of the assessee was rejected.

Aggrieved by this, the assessee filed the present Tax Case Appeal.

On 17.06.2013, after hearing both sides, we passed the order accepting the case of the assessee that mere reference to ''would be spouse'' or

''future child'' by itself would not result in rejecting the claim of the assessee and assessing it as a Trust. In that order, we followed the decision of

this Court in the case of Commissioner of Income Tax Vs. P. Sekar Trust and Peegee Trust, as well as in the case of Commissioner of Income

Tax Vs. M.K. Chandrakanth, However, before signing the order, we found that the question in fact to be decided by the Tribunal was as regards

the genuineness of the Trust. Thus, even though the questions were answered in favour of the assessee, we later on cancelled the said order by

order dated 24.06.2013 and directed that the matter be listed for fresh hearing.

After going through the records and after hearing learned counsel on either side, we found that without giving a finding on the genuineness of the

Trust, the relief claimed in the Tax Case Appeal could not be granted to the assessee following the decision of this Court in the case of

Commissioner of Income Tax Vs. P. Sekar Trust and Peegee Trust, as well as in the case of Commissioner of Income Tax Vs. M.K.

Chandrakanth,

In the circumstances, when the Income Tax Appellate Tribunal had not considered the specific issue raised in Grounds No. 7, the proper course

herein is to set aside the order of the Income Tax Appellate Tribunal and to remand the same to the files of ITAT for passing orders afresh after

considering Ground No. 7 with regard to the genuineness of the Trust. In the result, the Tax Case Appeals are disposed of with the above

direction. No costs.