Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Hemesh Family Trust on 22 June, 1994
Equivalent citations: [1994]51ITD88(AHD)
ORDER
Abdul Razack, Judicial Member
1. The Income-tax Officer, Ward 4(4), Ahmedabad has preferred this appeal challenging the decision of the Appellate Commissioner (A/C) in his order dated 26-3-1990 which relates to the assessment year 1983-84. In order to decide the fate of this appeal brief facts accompanying this appeal are to be recorded and they are as follows :
One Shri Ishwardas Gordhandas Patel, resident of 4/A Shivalaya, Chembur, Bombay executed a deed of settlement on 20-4-1982 on two non-judicial stamp papers one of the value of Rs. 60 bearing No. 467 and another of the value of Rs. 40 bearing No. 466 purchased by Shivalaya Construction Co. on 5-7-1982 from the General Stamp Office, Bombay. By virtue of the said deed of settlement he transferred a sum of Rs. 1,000 to three persons, namely,(1) Shri Bhagwandas Gordhandas Gujarati, resident of Pune, (2) Shri Purshottamdas Bhikhabhai Patel of Dholka and (3) Smt. Kalindi Jayantilal Patel of Dholka as trustees to hold the said sum for the benefit of three beneficiaries who are mentioned in Clause (2) of the said deed of settlement and their names are as under :
1. Hemesh, son of Shri Navnit Kanaiyalal Patel,
2. Pinakin, son of Shri Bhagwandas Gordhandas Gujarati.
3. Amarish, son of Shri Bhagwandas Gordhandas Gujarati.
There are several terms and conditions set out in the deed of settlement and the same are not being extracted here being irrelevant for deciding the dispute in the appeal. The said deed of settlement Xerox copy of which has been filed by the assessee's counsel Shri S.N. Soparkar contains 15 typed pages. On the first page of the said deed of settlement it is recited 'this settlement is made at Ahmedabad on 20-4-1982 between ...' and on the last and the 15th page it is recited on the left side "solemnly declared at Dholka by the...and the settlor Shri Ishwardas Gordhandas Patel has signed it". There are two signatures of witnesses, namely, Shri Kanjibhai Nagarbhai Patel and Shri Dineshbhai Keshavlal Shah. The three trustees named above have also signed against their typewritten names. The signature of other two trustees viz. Bhagwandas Gordhandas Gujarati and Smt. Kalindi Jayantilal Patel are in English. On the said last 15th page again it is typed "on this 20-4-1982" and the same is underlined. A return showing nil taxable income after distribution of income of Rs. 1,46,276 to the three beneficiaries was filed on 27-7-1984. The income arose to the trustees was from business carried on of agricultural machinery particularly pumps. The Assessing Officer (A.O.) during the course of assessment proceedings treated the said trust/settlement as bogus, illegal and invalid as well as sham on the ground that the said deed was executed on 20-4-1982 on stamp paper purchased at Bombay on 5-7-1982 by Shivalaya Construction Co. of Bombay. Besides the Assessing Officer was of the opinion that the settlor was resident of Bombay, one trustee was resident of Pune and two trustees were resident of Dholka and the travelling expenses were only Rs. 2,079. The Assessing Officer was of the opinion that the trust was created by the settlor to evade taxes and after drawing support from the decision of the Supreme Court in the case of McDowell & Co. v. CTO [1985] 154ITR 148 treated the said trust as sham, bogus and invalid but nonetheless charged tax at the maximum marginal rate under Section 164 of the Act and computed the income in a round sum of Rs. 1,48,000 as against the income earned and declared by the trustees in a sum of Rs. 1,46,276. One of the trustees not being satisfied with the order passed by the Assessing Officer went to the A/C for redressal of the grievance.
2. The A/C after taking the appeal on record called for a remand report from the Assessing Officer as per his order dated 6-10-1986. The remand report was received by the A/C from the Assessing Officer through letter dated 20-1-1990. In this report the Assessing Officer pointed out that the claim of the assessee that the trust deed was executed on 20-9-1982 and not on 20-4-1982 is not correct. According to the Assessing Officer the assessee filed certain declaration in assessment year 1984-85 and in this declaration the date of trust deed is written as 20-4-1982. In another copy the date is corrected as 20-9-1982. But the signature of the witnesses are not there. According to the Assessing Officer all these show that efforts were made to change the date as an afterthought. The Assessing Officer was therefore of the view that the trust created by the settlor was bogus, illegal and invalid. The A/C therefore framed an issue, whether the trust is bogus, illegal and invalid trust. According to the A/C from the facts on record it was obvious that the main reason for treating the trust as bogus by the Assessing Officer is that there is a discrepancy in the date while as per the deed of settlement it is 20-4-1982, it is claimed later on that it was executed on 20-9-1982. Another reason was that while the settlor of the trust is a resident of Bombay and the trustees are at Pune and Dholka and the business of the trust is at Ahmedabad. Through letter dated 5-3-1987 it was explained that at the time of original assessment a copy of the trust deed was submitted which was executed on a stamp paper dated 5-7-1982. The date of execution of the deed of settlement was mentioned through oversight as 20-4-1982 instead of 20-9-1982. In support of the contention of the correct date of execution was 20-9-1982 an affidavit dated 16-10-1986 solemnly affirmed at Bombay by the settlor Shri Ishwardas Gordhandas Patel was filed. In this affidavit the settlor (deponent) had stated that the deed of settlement was actually executed on 20-9-1982 and the sum of Rs. 1,000 was duly handed over on the said date to the trustees. An affidavit of Shri Purshottamdas Bhikhabhai Patel, a trustee executed on 27-2-1987 and solemly affirmed at Dholka was also filed wherein he confirmed that he received an amount of Rs. 1,000 on 20-9-1982. Photostat copy of cash book of the trust showing receipt of Rs. 1,000 on 20-9-1982 and also copy of account of trust fund from ledger showing date as 20-9-1982 was filed. A certificate from Dena Bank, Dholka branch regarding the bank account of the trust was also filed in which it is certified that the account was opened in the name of Hemesh Family Trust on 19-1-1983. A copy of minutes of the first meeting of the trustees held on 25-9-1982 accepting the trust settlement of Rs. 1,000 as well as deciding to start business in the name of Hem Trading Co. to be run by Purshottamdas Bhikhabhai Patel the trustee of the trust was also filed. It was submitted that in view of the evidences produced above it is very clear that the trust is genuine bona fide and has come into existence in pursuance to trust deed executed on 20-9-1982. It was further submitted that mere writing of wrong date does not invalidate a genuine settlement made by the deed. The assessee also relied upon the decision of the Madras High Court in the case of Imperial Automobttes v. CIT [1973] 87 ITR 695. The A/C took note of the abovementioned documents and accepted the contention raised before him and held that the trust created was a genuine, legal and valid trust and the discrepancy in the date was a technical mistake. While allowing the assessee's appeal the A/C drew support from the decision of the Madras High Court in the above-mentioned case of Imperial Automobiles. The Assessing Officer is riot satisfied with the decision arrived at by the A/C and hence this appeal.
3. Shri M.S. Rai, representative of the department submitted that the A/C has ignored the salient features of this case viz. the user of the stamp paper by the settlor purchased by Shivalaya Construction Co. at Bombay; non-payment of stamp duty to the Government of Gujarat as per the Bombay Stamp Act; the unsatisfactory explanation regarding the execution of the deed of settlement which was actually on 20-4-1982 and not. on 20-9-1982; inadmissibility of the said deed of settlement on account of non-payment of proper chargeable stamp duty in accordance with the provisions of Bombay Stamp Act, variance in the signature of one of the trustees viz. Shri Purshottamdas Bhikhabhai Patel at page 15 of the deed of settlement in comparison with the signature of the said person/trustee on the affidavit dated 27-2-1987 affirmed at Dholka. If all these factors were judiciously considered by the A/C then his decision would have been perfect and justified in law. According to the D.R. no trust came into existence by virtue of the alleged deed of settlement which was executed on 20-4-1982 and not on 20-9-1982 as has been made out by the trustees. The D.R. therefore submitted that the impugned order of the A/C was not in accordance with law and therefore should not be sustained.
4. The assessee's counsel Shri S.N. Soparkar on the other hand submitted that there has been a bona fide and genuine mistake in mentioning the correct date of execution of the deed of settlement which was on 20-9-1982 and not on 20-4-1982 as was written and reiterated at two places in the deed of settlement executed by the settlor Shri Ishwardas Gordhandas Patel. Regarding user of the stamp paper by the settlor which was purchased by Shivalaya Construction Co. our attention was drawn to the averments made in para 4 of the affidavit of the settlor dated 16-10-1986 which has been solemnly affirmed at Bombay and which forms part of the paper book filed in the appeal by the assessee's counsel. The assessee's counsel further submitted that the deed of settlement was actually executed on 20-9-1982 and not on 20-4-1982 and relied on the affidavit of one of the trustees Shri Purshottamdas Bhikhabhai Patel who confirmed that he received the amount of Rs. 1,000 on 20-9-1982. Photostat copy of the cash book showing the receipt of Rs. 1,000 on 20-9-1982, certificate from Dena Bank, Dholka branch regarding the opening of the bank account on 19-1-1983, copy of the certificate of registration under the Gujarat Sales Tax Act dated 24-12-1982, copy of the minutes of the first meeting of the trustees held on 25-9-1982 accepting the trust/settlement as well as deciding to start business in the name of Hem Trading Co. to be run by Purshottamdas B. Patel were all filed before the lower authorities and the A/C duly considered all those documentary evidences and came to the conclusion that a trust was created by the settlor on 20-9-1982 and not on 20-4-1982. The assessee's counsel also drew support from the decision of the Madras High Court in the case of Imperial Automobiles (supra) which has been relied by the A/C in allowing the assessee's appeal. Regarding the admissibility of the deed of settlement on account of non-payment of proper stamp duty to the Government of Gujarat as the instrument was executed at Ahmedabad the assessee's counsel submitted that the same was not raised by the ITO and the same could not be taken note of by us in this appeal on the basis of the argument advanced by the D.R. The assessee's counsel also objected to the argument advanced by the D.R. bringing to our notice the variance of the signature of one of the trustees Shri Purshottamdas B. Patel appearing on the last and 15th page of the said deed of settlement with the signature contributed by the said person on the sworn affidavit dated 27-2-1987 at Dholka. According to the assessee's A.R. the same was not taken note of or considered by any of the lower authorities and therefore it was not open for this Tribunal in the present appeal to take note of the same and weigh it for the purpose of arriving at a decision on the controversy involved. According to the assessee's A. R. the A/C has considered the issues before him in proper perspective and the impugned order being valid and proper in law requires to be upheld by us.
5. We have heard the elaborate arguments advanced by representative of both the sides. We have also perused copy of the questioned deed of settlement and the affidavits of the settlor as well as of one of the trustees Shri Purshottamdas Bhikhabhai Patel. We have also gone through other documents placed by the assessee's counsel before us in this appeal. In our view the revenue has a very strong case to succeed and the A/C has taken a lopsided and illegal view being influenced and carried away by giving credence, weightage and consideration to various irrelevant and extraneous evidence and factors while ignoring very prominent and salient features which are emboldened in the present case.
6. Neither the author of the trust nor any of the trustees have been able to lead satisfactory evidence as to how and for what reasons and circumstances the date 20-4-1982 occurring at two places in the questioned deed of settlement was written and recited instead of 20-9-1982 which according to the settlor and one of the trustees was the true and actual date of the execution of the said deed of settlement. The photostat copy of the cash book showing receipt of Rs. 1,000 on 20-9-1982, the certificate from Dena Bank, Dholka branch regarding opening of the bank account in the name of trust, a certificate of registration under the Gujarat Sales Tax Act, copy of the minutes of the first meeting of the trustees to start business are not clinching evidence which could go to demonstrate or establish satisfactorily that the said deed of settlement was executed by the settlor on 20-9-1982 and not on 20-4-1982 as typed as 20-4-1982 at two places in the said deed of settlement; once at the first page and again on the last and 15th page as "on 20-4-1982", after the signatures of the settlor, witnesses and trustees.
7. According to Section 3 of the Bombay Stamp Act, 1958 as applicable to the State of Gujarat any instrument executed in the State of Gujarat has to be charged with duty on the value or amount indicated in Schedule I appended to the said Act. As per Section 10 of the Bombay Stamp Act, 1958 all duties with which all instruments are changeable shall be paid by means of stamps. The instrument of trust is executed at Ahmedabad in the State of Gujarat which is clearly recited on the first page of the said deed of settlement and the non-judicial stamp papers denoting payment of proper duty as per Schedule I r.w.s. 3 and 10 of the Bombay Stamp Act should have been purchased in the State of Gujarat. But surprisingly two non-judicial stamp papers, one of the vlaue of Rs. 60 bearing No. 467 dated 5-7-1982 and another of the value of Rs. 40 bearing No. 466 dated 5-7-1982 sold to Shivalaya Construction Co., Bombay have been utilised by Shri Ishwardas Gordhandas Patel as author of the trust for execvting the said deed of settlement at Ahmedabad. While it is mentioned on the first page of the deed of settlement on the stamp paper of value of Rs. 60 that it is executed at Ahmedabad but on the last and 15th page it is mentioned 'solemnly declared at Dholka by the.... Thus the Government of Gujarat has not been paid the proper duty chargeable on the instrument of settlement which has been executed at Ahmedabad (or perhaps at Dholka) in Gujarat State. No instrument or document can be executed by a person on stamp paper which is not in his name or purchased by him. We also do not find any provision in the Stamp Act that a person who has purchased stamp paper can negotiate, transfer or endorse stamp papers purchased by him to or in favour of any other person to enable other person to execute an instrument on such stamp paper. Besides as per the stamp law the stamp duty on instruments chargeable to duty have to be paid to the concerned State Government where a particular instrument/document is executed. In the instant case since the instrument was executed at Ahmedabad (or at Dholka) then the deed of settlement should have been executed on stamp papers purchased within the State of Gujarat which factually is not done. And admittedly the stamp papers purchased by another person viz. Shivalaya Construction Co. at Bombay have been used and utilised for executing the deed of settlement by Shri Ishwardas Gordhandas Patel. The instrument of settlement therefore is clearly inadmissible in evidence for any purpose as per the mandate contained in Section 34 of the Gujarat Stamp Act, 1958 which we reproduce below and which is also analogous to the provisions of Section 35 of the Indian Stamp Act, 1899 :
No instrument chargeable with duty (not being an instrument referred to in Sub-section(1) of Section 32A) shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon registered or authenticated by any such person or by any public officer unless such instrument is duly stamped :
Provided that-
(a) any such instrument not being an instrument chargeable with a duty of twenty naye paise and less shall, subject to all just exceptions, be admitted in evidence on payment of the duty with which the same is chargeable, or in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;
(b) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped;
(c) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a Criminal Court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898;
(d) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been excuted by or on behalf of the Government or where it bears the certificate of the Collector as provided by Section 32 or any other provision of this Act.
It is therefore abundantly clear that there is an absolute bar and prohibition regarding the validity and admissibility of any instrument which is not properly stamped. This in our view leads to an irresistible conclusion that no instrument of trust was executed on 20-4-1982 by the settlor Shri Gordhandas Patel or even for that matter on 20-9-1982 though in the absence of satisfactory and reliable evidence we are unable to accept that the same was executed on 20-9-1982 and not on 20-4-1982.
8. When we refer to the provisions of Section 160(1)(iv) of the Income-tax Act, 1961 we find that for the purpose of the said Act a representative-assessee means a person in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Musalman Wakf Validity Act, 1913) receives or is entitled to receive on behalf of or for the benefit of any person, such trustee or trustees.
9. The trustee in order to be assessed in representative capacity or as a representative-assessee in terms of Section 160(1)(iv) r.w.s. 161/164 in respect of the income earned under the terms and conditions of the trust deed/settlement deed for the benefit of the beneficiaries, have to establish that there was a duly executed instrument in writing. The word 'duly' means properly and that which is as per or in accordance with law is proper. Since the instrument of settlement/trust is executed at Ahmedabad, Gujarat State without payment of duty to the Government of Gujarat which is chargeable under Section 3, Schedule I of the Bombay Stamp Act then the same cannot be said to be an instrument which is 'duly executed' and that being the case the trustees cannot be assessed as and in a representative capacity under Section 161 in respect of the income earned by them, in terms of the Deed of Trust. The income therefore, earned by them; that is to say by the trustees, has therefore to be considered in law as income earned by them jointly for a common purpose and intention, namely, to carry on a business along with the settlor/author of the trust in the guise of a trust created through an instrument in writing styled as 'Deed of Settlement' or Trust Deed with a view to evading taxes being paid to the Government lawfully on the income which may be derived from the business run by the trustees, under a purported deed of settlement/trust. Such devices and schemes fall in the net of the ratio laid down in McDowell's case decided by the Hon'ble Supreme Court, reported in 154 ITR 148.
10. The author of the trust Shri Ishwardas Gordhandas Patel has filed an affidavit before the Assessing Officer which was executed on 16-10-1986 at Bombay stating that the deed of settlement was executed by him on 20th September, 1982 and not on 20th April, 1982 as has been recited incorrectly in the said deed of settlement and that too on a stamp paper purchased by Shivalaya Construction Co. in which he was an employee. It is not known how he could remember after four years in October 1986 that the instrument of Trust was executed on 20th September, 1982 and not on 20th April, 1982 though the date is specifically recited, written and typed in words and not in figures. The averments/statements of the deponent viz. Shri Ishwardas G. Patel cannot be given credence or relied upon being in the nature of a self-serving statement. As stated by us above no satisfactory and reliable evidence has been placed either before the Assessing Officer or before us which could go to establish or persuade us that what the author of the trust and one of the trustees say is true and correct. Even the statement of one of the trustees Shri Purshottamdas B. Patel in his affidavit dated 27-2-1987 says that the instrument of settlement was executed on 20th September, 1982 and not on 20th April, 1982 and further the settlor handed over the sum of Rs. 1,000 to him on 20th September, 1982 do not inspire any confidence as the said averment is a general and bald statement unsupported by any clinching and satisfactory evidence. We therefore do not wish the place any credence on the contents/averments made in the affidavit by one of the trustees Shri Purshottamdas B. Patel.
11. There is one more aspect which deserves to be surfaced. In the said instrument of trust on the last page which is the 15th page of the author of the trust, the three trustees and two witnesses have contributed their signatures. The first trustee is Shri Purshottamdas B. Patel and he has signed against his name in Gujarati as 'Fakirbhai Patel'. This trustee has also filed an affidavit dated 27-2-1987 and has signed in the said affidavit in Gujarati as 'Purshottamdas B. Patel' and not as 'Fakirbhai Patel' as has been signed against his name on the 15th and last page of the deed of settlement. We cannot accept the plea of the assessee's counsel that since this case was not examined from this angle by either the Assessing Officer or by the first appellate authority the same cannot be taken note of by us in deciding the present appeal.
12. We are unable to appreciate as to why we should be asked to keep our hands off and refrain from scrutinising judicially important documentary evidence which forms part of the case on the spacious plea that the same escaped the attention of the lower authorities. When any illegality, dubious act or colourable transactions are noticed by the Tribunal though for the first time then we cannot turn a Nelson's eye and approve the same being unmoved and unconcerned thereby remaining silent and passive as mute spectators, nor can we so gulliably accept everything which comes before us for consideration by shutting our eyes to the naked illegalities committed and forming part of record. Doing so would amount that this Tribunal is being privy or party to such illegalities or perhaps an impression will be gathered by the public at large that we are placing premium on dishonesty, illegality, dubious acts and colourable transactions. In fact we will be failing in our duty as Judicial Officers of the Sovereign State if we do not take note and cognizance of such illegal and dubious acts or resile from taking correct decisions or suggest suitable action or remedies despite the fact and the plea that such illegal and dubious acts went unnoticed by or before the lower authorities.
13. The handwriting and the letters used for both the singatures of the said trustee Shri Purshottamdas B. Patel diabolically differ on occult examination by us and we find no similarity or semblance in both the signatures or in the letters and alphabets used in the signatures. To us it appears that even the so-called instrument of trust settlement is a forged one. However, a further and deep examination and enquiry into this aspect may reveal and unravel much more mysteries engulfing this case.
14. We are therefore of the firm conclusion that no trust was created or had come into existence under a duly executed instrument in writing on 20th April, 1982 or for that matter on 20th September, 1982 and therefore there cannot be an assessment on the Trustee(s) in representative capacity under Section 160(1)(iv) r.w.s. 161 of the Income-tax Act, 1961. In our view the Assessing Officer therefore grossly erred in charging tax on assessed income, at maximum marginal rate under Section 164 of the Act because no trust was created or had come into existence as held by us above. We therefore vacate the impugned order of the A/C as the same is fallacious and contrary to law. However, while we uphold the computation of income by the Assessing Officer in his order dated 3-3-1986 passed under Section 143(3), we do not affirm and approve the assessment being made by him in the status of 'discretionary trust' as no assessment under the Income-tax Act can be made in such a status. We further hold that Shri Ishwardas Gordhandas Patel, Bhagwandas Gordhandas Gujarati of Pune, Shri Purshottamdas Bhikhabhai Patel of Dholka and Smt. Kalindi Jayantilal Patel of Dholka who are mentioned as authors and trustees in the said alleged deed of settlement, have joined together with a common purpose and intention to do business and earn income and adopted a dubious and colourable device with a view to evading payment of income under the Income-tax Act, 1961 by bringing into existence a false, forged and fabricated document viz. the alleged deed of settlement. The facts of the case in our view fall into the teeth of McDowell's case relied by Assessing Officer. The assessed income therefore should be subjected to tax at rates as applicable to AOPs under the Income-tax Act, We order and direct accordingly.