Income Tax Appellate Tribunal - Ahmedabad
Rama K. Shah Trust, Rama Rupa Trust, Rupa ... vs The Income-Tax Officer on 31 October, 2002
Equivalent citations: [2004]88ITD477(AHD)
JUDGMENT
Garg, Vice-President
1. The first set of five appeals by the trusts and the second set of six appeals by the Revenue against the beneficiaries arise out of the orders of Dy. CIT(A) all for asst. year 1982-83. As they raise common and connected disputes these are being disposed of by this common order for the sake of convenience.
2. The material facts of all the trust appeals are stated to be identical. We, therefore, discuss the facts as are appearing in the case of assessee Rama K. Shah Trust. This trust was created on 30-12-1974 by one Shri Rasiklal Chimanbhai Shah, in fulfilment of directions of Smt. Lilavati Rasiklal Shah in her Will dated 24-12-1973, for the benefit of five beneficiaries namely Niren K. Shah, Rupa K. Shah, Smt. Rama K. Shah, Nita K. Shah and Bindu K. Shah. Clause II defines the provisions subject to which the trustees are to hold the trust fund and income thereof. These are:-
(a) The trustees shall receive the income of the properties of the Trust and in the first place reimburse of pay and discharge all costs and expenses which may be incurred in or about the administration of This Trust including any Income Tax, Wealth Tax or Other Tax charge, levy or cess levied upon the Trustees as also including all outgoings, dues, costs of repairs to immovable properties, if forming part of the Trust Fund.
(b) The net balance of the Income remaining after providing for the contingencies mentioned in Clause (a) above shall be distributed in such proportion and in such manner as the Trustees may in their sole and absolute discretion decide amongst the following beneficiaries:-
(1) Nira K. Shah (2) Rupa K. Shah (3) Smt. Rama K. Shah (4) Nita K. Shah (5) Bindu K. Shah
(c) That the Trustees shall have absolute discretion not to distribute any balance of the income of the Trust Fund for any year to any of the aforesaid beneficiaries and they shall be entitled to accumulate the same for such period as they may think fit in their absolute discretion : provided that such period shall not exceed 18 years from the date of this Deed. Such accumulation in any year will merge in and from part of the Trust Fund and will form part corpus of the Trust Fund and cease to bear or retain the character of the income of the Trust and may be invested in such manner as the corpus of the Trust Fund.
(d) Trustees have full and absolute discretion to utilise the corpus of the Trust Fund in such manner and such circumstances as they may in then absolute discretion think fit for:
(i) Health
(ii) Education
(iii) Maintainance
(iv) Marriage Expenses and
(v) Advancement in life Of any of the beneficiaries abovementioned.
(e) That the period of distribution of the corpus of the Trust shall be the period of 18 years from the execution of these presents or such other earlier period as may be decided upon by the majority of Trustees for the time being.
(f) On the expiry of the period of distribution the Trustees shall distribute the entire corpus of the trust Fund to all or any of the beneficiaries mentioned above in such shares or share as they in their absolute discretion shall think fit.
(g) The Trustees shall act by majority in case of difference of opinion on any question in the course of administration of the trust. However, Mr. Kanubhai R. Shah will act as the CHAIRMAN and/or Managing Trustee and will have an extra or casting vote in case of a tie. Two Trustees present shall form a quorum for any meeting of the Trustees."
3. On 31-12-1979, the trustees decided to distribute a portion of corpas of the trust (Rs. 1000) with information to the beneficiaries, to 2 out of 5, namely, Rama Kanubhai Shah and Bindu Kanubhai Shah to be held, possessed, enjoyed and to exploit properly on joint and survivorship principles or on joint tenancy.
4. The trustees also joined as partners, vide Partnership Deed dated 1-12-1987, in M/s. Nirav Knitware Co. and vide resolution dated 25-6-1980 the trustees purported to distribute the said share in profits and losses of the firm, and the capital of Rs. 3000/- to a stated BOI of the same beneficiaries Rama Kanubhai Shah and Bindu Kanubhai Shah with almost similar terms and conditions. These resolutions read as under:
1) "that the trustees hereby distribute and hand over the part of the properties of the trust held by the trustees of the trust as on 31.12.79 as stated hereinbelow to be held by the beneficiaries named against the properties on principles of joint and survivorship or joint tenancy, amongst and between the beneficiaries referred to as recipients herein these recordings, named herein to be owned, held, possessed, enjoyed, exploited, employed and deployed by them for earning the income for their common enjoyment.
Properties distributed and Names of the recipients who hold
handed over to the possess, enjoy and exploit property
(beneficiaries) recipients on joint and survivorship principles
or on joint tenancy.
--------------------------- ------------------------------------
Rs. 3000/- fixed capital 1. Rama Kanubhai Shah &
and 60% share in profit Bindu Kanubhai Shah BOI
and loss of M/s. Nirav
Knitwear Co.
2) It is further hereby resolved that the beneficiaries who are the recipients of the above properties shall hold the properties stated above, in joint ownership and under joint tenancy under the express provisions hereinafter made under this resolution till such time, they, by an unanimous resolution otherwise decided to hold the properties in severally to the exclusion of other or others and desire to own, hold, possess, enjoy, employ exploit the properties individually and severally.
3) Further it is hereby resolved as under:
i) That the recipients shall appoint one among themselves or appoint any other person as manager to look after, manage and or hold the properties allotted to them the recipients strictly in accordance with the direction given or to be given by them for the time being and from time to time.
ii) The recipients may by unanimous resolution resolve to apply whole or such part of the income from the properties to the cause and benefit of one or more of themselves, i.e. the recipients to the exclusion of other or others of them in such proportion and in such manner and at such time to times as they resolve and that any income not so paid, applied or utilised in a particular year shall be accumulated by investing income investing the resultant the same in the way of compound and interest and there of and the add same to the capital account to be treated as one fund belong in to the said recipients to be owned, possessed, enjoyed, exploited employed, and deployed by them as hereinafter jointly and by survivorship.
iii) Notwithstanding the above provisions the recipients may, by an unanimous resolution passed one month before the beginning of any accounting year, determine, the share of any one or ore then one of all the recipients in the entire income of the fund or any part or portion thereof, as the case may be for the ensuing i.e. the coming accounting year or more than one accounting year or for ever. The share of each one of them shall not unless so determined be equal but it shall be only such as so determined which shall not be necessarily be equal. The said resolution so passed shall be irrevocable for the concerned accounting year or years and they shall hold the right, title and interest in the ratio and proportion as so resolved which shall not necessarily be equal unless otherwise recorded for such period or periods as is covered by such resolution. They may further decide as they may deem fit and necessary either to credit to the account of the concerned recipient and accumulate the income separately to be handed over to him at any later date or period to be decided or to pay the same immediately. In case any one of the recipient dies in the meantime, any sum or sums in his account and due to him shall be paid and distributed equally amongst his legal heirs or to such of the persons be might have directed by a will or otherwise.
iv) Further the recipient shall hold such part or portion of the income of fund as shall not have been covered by the above resolution to be accumulated by way of compound interest and reinvesting the income or interest thereof and adding the same to the fund to be treated as one fund for all purpose.
v) The recipients may at any time and from time to time by passing an unanimous resolution.
a) Distribute and transfer the whole or any part or parts of fund of properties amongst themselves, in such proportion as they deem fit which proportion shall not necessarily be equal.
b) Notwithstanding the above, the recipients may by passing on irrevocable resolution determine the individual share among themselves in to or to the exclusion of one or more of themselves in the properties of the fund and to allot allocate or with intent to distribute and divide the fund or properties in such determine and known share which share shall not necessarily be equal and in such an event the distribution and division of the fund or properties at any time thereafter and whenever the recipients decide to hold own and enjoy the property in severally to the exclusion of other or others shall be made in accordance with such determinate and shown shares amongst themselves. In case of death of any of the recipients his share or value thereof as may be decided shall be given and handover to such of the legatees or the persons as such deceased have directed in his will and in case or interestate death to his legal heirs:
It is hereby recorded gone through verified and accepted by all the beneficiaries under the trust and have subscribed their hands and signed in token of the asset and acceptance of all the contents and intents contained in the preamble and the resolution passed by the TRUSTEE and recorded herein. Beneficiaries who were present by invitation and who received the above properties have also signed this resolution as a token of their consent."
It is signed by the managing trustee and the two beneficiaries.
5. On the basis of the aforesaid resolutions the assessee excluded the share of firm's profit from the trust income and claimed corresponding income in the hands of the distributees/legatees.
6. The AO held the distribution contrary to the terms of the settlement and therefore, not valid. The reasons given are:
"2. Sub-clause (e) contemplate distribution of the corpus at the end of 18 years from the date of the execution of the deed of settlement or such other earlier period as may be decided upon by the trustees for the time being. By Sub-clause (f) it is stipulated that on the expiry of the period of distribution the trustees shall distribute the entire corpus of the trust fund amongst all or any of the beneficiaries in such share or shares as they in their absolute discretion shall think fit. In the instant case the period of 18 years since the execution of the deed of settlement is not yet over. The trustees have no doubt discretion to advance the period of distribution of the corpus. But they have not taken any decision advancing the period of distribution. Their decision to distribute a part of the corpus on 25-6-80 cannot be termed as a decision advancing the period of distribution of corpus within the meaning of Sub-clause (e). If it is considered to be a decision as envisaged by the said sub clause then by virtue of the mandate given Sub-clause (f) they should have distributed the entire corpus on 25-6-80. Admittedly the entire corpus is not distributed.
3. In the matter of distribution of the corpus the trustee have no doubt absolute discretion. They may distribute amongst all or any of the beneficiaries and in such share or shares as they may think fit. But to whomsoever they may decide to allot he share and in whatever proportion they may allot, the allotment has to be absolute. After the allotment the recipients should be free to deal the corpus allotted to them freely in the manner thought fit by them. In the instant case not only the beneficiaries are grouped together but their holding and enjoyment is sought to be regulated by the principles of Joint Survivorship or Joint Tenancy. Besides, they are supposed to employ their share of corpus for earning the income for their common enjoyment. The imposition of such conditions and constitution of the so called bodies of individuals for achieving the desired objective is beyond the scope of their power and authority.
6. What remains to be examined now is the provisions contained in Sub-clause (d). It empowers the trustees in their absolute discretion to utilise the corpus of the trust fund for (a) Health (b) marriage expenses (c) education (d) maintenance and (e) advancement in life. The first four categories are not relevant because it is not their case that distribution is resorted for any such purpose. The trustees have tried to justify their action observing that it would promote advancement in life of the beneficiaries. In what way and to what extent will benefit the beneficiaries is not made clear. In wills and settlement the power of advancement is generally given to the trustees to apply, for the advancement or benefit of each child during his/her minority, part of the property to which he would become entitled to his attaining specified age or on occurrence of any other event. Prima facie therefore, power cannot be exercised for the benefit of the minor beneficiaries. In the instant case all the four major beneficiaries are also recipient of this benefit. The English Trustees Act which empowers the trustees to use capital for the advancement of persons, not necessarily infacts, who are entitled to share of the capital. The English law is however wider in relation to power of advancement. The Indian Trusts Act does not contain any corresponding provisions. Section 36 of the Indian Trusts Act empowers the trustee inter alia to do all acts for the protection or support of the beneficiary who is not competent to contract. Section 41 besides empowers the trustee to apply properly held in trust for minors towards his maintenance or education or advancement in life etc. Quite apart from this, it is rather strange that an occasion for applying corpus for the advancement in life of all the beneficiaries-majors as well as minors should arise simultaneously on 25-6-1980. It is, therefore, difficult to justify distribution of corpus on this basis. It is thus seen that no further advancement has been achieved by the beneficiaries of the trust on account of transferring the partnership share to the Body of Individuals.
Further it is seen that giving up the partnership share to the body of individuals is not the utility in proper sense. ...."
7. The CIT(Appeals) upheld the AO's order vide discussion in paras 3 and 4 of his order which read as under:-
"3. Perusal of assessment order reveals that the appellant has contravened the provisions of trust deed already executed by him. Sub-clause (e) contemplated distribution of corpus at the end of 18 years from the date of execution of deed of settlement or such other earlier period as may be decided upon by the trustees for the time being. By Sub-clause (f) it is stipulated that on expiry of the period of distribution the trustees shall distribute the entire corpus of the trust find amongst all or any of the beneficiaries in such share or shares as they in their absolute discretion shall think fit. In this instant case the period of 18 years since the execution of the deed of settlement is not yet over. The trustees have no doubt discretion to advance the period of distribution of the corpus but they have not taken any decision advancing the period of distribution. Their decision to distribute a part of the corpus cannot be termed as decision advancing the period of distribution of corpus within the meaning of Sub-clause (e).
4. Keeping in view of the above noted facts and circumstances the appellant was also not justified in giving up partner's share to the Body of Individuals because income given to the Body of Individuals is also against the terms of and conditions of the trust. Under such circumstances I would uphold the decision of the ITO."
8. The ld.counsel of the assessee brought to our notice Legal Maxims by Herbert Broom stating that whole includes a part and submitted that when trustees have distributed a part of the trust fund, no fault therewith can be found. In response to the query of the Bench during the course of hearing the assessee filed the following:-
(i) Copy of Partnership Deed dated 1-12-1978. Nitaben Kanubhai Shah is stated to have entered the firm as partner for the trust. Clause 12 and 24 of this deed are:
"12. No partner, shall, without the previous consent in writing of the other partners, sell, charge, mortgage or otherwise deal with his or her share, right title and interest in the partnership to any outsider."
"24. It is hereby agreed upon by and between the parties that the person holding a representative capacity will only himself/or herself be entitled to take part in the partnership management and contrustees or the members of the HUF shall not have any right to interfere in the management of the partnership firm. The firm as a whole and the parties hereto individually shall be responsible only to the person who has signed this deed in a representative capacity."
(ii) Copy of assessment order for firm for A.Y.1981-82 [143(1)] and 1982-83 [143(3)]. The order under Section 184(7) shows that the firm was constituted on 1-12-1978 i.e. from asst.year 1980-81 and there was no change in the firm. Form No. 12 was filed and the firm was granted registration.
(iii) Acknowledgment Receipt for having filed Form No. 12A for asst.year 1982-83.
(iv) Copy of the capital account of Rama K. Shah Trust (Trustee Nita K. Shah) and thereafter Nita K. Shah with effect from 25-6-1990 (on transfer of funds from the Trust to BOI) is enclosed as Annexure-F. Annexure F reads the entry as :
"Capital 3000-00 Transferred to Rama & Bindu BOI Fix Capital of Narav Knitwear Co."
(v) Copies of extracts from books of accounts of the trust showing transfer to BOI.
9. In part-II of the reply, a copy of assessment order for asst.year 1981-82 accepting returned income charged under Section 143(3) without adding share income from the firm. By this, the assessee claimed that genuineness of the transfer was accepted. Therefore, there should be no deviation from earlier assessment.
10. In Part-III of the reply, it is stated that no document was executed for transfer of beneficial interest as the partnership interest was a movable property. Section 9 of Transfer of Property Act which states "a transfer of property be made without writing in every case which a writing is not necessary.
11. In beneficiaries case, the claim of the assessee is that a BOI was constituted by the part distribution and therefore, it cannot be taxed at maximum marginal rate which is applicable only in a case of AOP. It is submitted that the issue stands covered by the decision of Appellate Tribunal in the case of S.C. and others ITA No. 1744/Ahd/1986 dated 21-6-1988 considering the decision of Gujarat High Court in the case of Harivadan Tribhovandas 106 ITR 494 and of Bombay High Court in the case of Associate Cement 147 ITR 776.
12. The ld.Departmental Representative submitted that as per Clause (e) power was to distribute whole on expiry of distribution which is 18 years or such lesser period as decided by majority of trustees (Clause e). On expiry of such period of distribution whether 18 years or lesser the entire corpus is to be distributed to all or any of the beneficiaries. No power is given to the trustees to distribute a part. Clause (d) claimed as advancement in life is also not satisfied. The distribution is to a different entity than the beneficiaries i.e. BOI on joint and survival principle on joint tenancy with further conditions imposed. It is nothing but creation of a trust upon a trust by distribution of corpus by entering into partnership trustee who was stated to be partner for all beneficiaries only for two beneficiaries. As discretionary powers are given it would be hit by Section 164 as well besides Section 167 there being no difference between BOI/AOP as held by Supreme Court in Meera and Co. 224 ITR 635 SC. He also referred to decision of Supreme Court in the case of ITO v. Ch. Atchaiah 218 ITR 239 for the assessment of income in right hand only irrespective of its assessment having been made in the hands of another person.
13. We have heard the parties and considered the rival submissions. It is true that whole may include part but that is of determining the capacity of the doner and not for the obligation imposed. When the direction is given to distribute the whole he cannot be complying with the direction of the settlor if he did for a part. Legal Maxim by Broom discusses it in the context of "the greater contains the less" The example given is:
1. Debtor. If a debtor tender more than he owes, it is good, and the creditor ought to accept so much of the sum tendered as is due (i). But if he tender a bank-note or coin of a larger amount than the sum due, requiring change, that is not a good tender, for the creditor may be unable to take what is due and return the balance (k); though if the creditor knows the amount due, and is offered a larger sum, and, without any objection on the ground of change, merely makes a collateral objection, the tender is good (1). Where, however, a party has separate demands for unequal sums against several persons, an offer of one sum for the debts of all, not distinguishing the claims against each, is not a valid tender, and will not support a plea by one of the debtors, that his debt was tendered (m).
2) A tenant in a fee-sample : A tenant in a fee-simple possesses over the estate held in fee; for he may either grant to another the whole of such estate, or charge it in any manner he think fit, or he may create out of it any less estate or interest; and to the estate or interest thus granted he may annex such conditions, not repugnant to the rules of law, as he pleases (n). In these cases, the rule of the civil law applies: non dabat cui phus licet quod minus est non licere (o) : or, as it is usually expressed in our books, cui licet quod majus non debel quod minus est non licere (p).
3) Authority - having power to do the more : He who has authority to do the more important act shall not be debarred from doing, that of less importance, a doctrine founded on common sense, and of general application, not only with reference to the law of real property, but likewise to that of principal and agent, as we shall hereafter see. A man having a power may do less than such power enables him to do; he may, for instance, lease for fourteen years under a power to lease for twenty-one (q); or, if he have a licence or authority to do any number of acts for his own benefit, he may do some of them and need not do all (r).
14. In statutory interpretation also the decision is under the head "over performance" and "greater includes less" the same example of "tender of higher amount by a debtor" are narrated. This rule is stated to be corresponding to rule that when an action is permitted, anything less is included in the permission.
15. On a careful reading of these extracts of examples, it would be evident that these are cases of outer limit prescribed and acts done within the limit was held valid. No question of outer limit, is there in the present case. Direction is to do whole and no power is given to the trustees to do more or less. It is an absolute direction given to the trustees. In our opinion, therefore, the trustees cannot do less.
16. A trust, under Section 3 of the Indian Trust Act is an obligation annexed to the ownership of the property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the other. It is thus an obligation on the trustee to do certain things in accordance with the terms of the trust deed. It is normally indicative of a duty, relation and responsibility of the trustee. It is an obligation on the trustee arising out of the confidence reposed in him to apply the property faithfully and according to such confidence. In other words, the trustee is holding the property subject to duty of employing it or its proceeds according to the directions given by the person from whom it was derived. It is a duty deemed in equity to rest on the conscience of the legal owner.
17. There is a vast difference between a power and a trust. A power may be discretionary, to be exercised or not, whereas a trust is imperative; the trustee if he accepts, must do as the settle directs. The Bombay High Court in the case of Mahadev Ramchandra v. Damodar Vishwanath Air 1957 (Bom) 218 held:
"There is a fundamental distinction between trusts and powers. A trust is an obligation annexed to ownership. A trustee holds properly subject to an obligation which the testator has imposed upon him. The obligation follows from a peremptory direction of the testator that the trustee must dispose of his estate in certain definite ways or upon certain specified or ascertained or ascertainable objects. A trustee has no freedom of choice as to how he should distribute the testator's estate. He is bound to carry out the injunction given by the testator, and his conduct in the matter of disposition of the estate must strictly conform to that injunction He must act within the sphere of the testator's direction and must not deviate from it or modify it."
In the case of power, the position is quite different. There is no direction by the testator. There is only his wish or recommendation, and the wish is that the donee of the power would have absolute discretion and free unfettered choice as to the objects, institutions or persons amongst whom the estate of the testator might be distributed. Powers are never imperative; they leave the act to be done at the will of the party to whom they are given. Trusts are always imperative, and are obligatory upon the conscience of the party instructed. The test is whether what is expressed by the testator is his discretion intended to control the conduct of the person to whom it is addressed or whether it is merely his wish or indication of his mind that the person appointed by him should use his own discretion and act as he though best. In the former cases it is a trust whereas in the latter case it is a power. Powers may be general or limited and general power are such as the donee can exercise in favour of such person or persons as he pleases including himself. In order to consider whether the testator created a trust or gave power, the will must be construed as a whole and the intention of the testator must be gathered. Where it is a case of power, there can be no question of the testator's direction being defective for uncertainly."
This was a case of the period before the formation of Gujarat State and when the Gujarat territory was subject to jurisdiction of Bombay High Court.
18. Similarly, the Madras High Court in the case of Aiyathurrai v. Municipal Council AIR 1965 (Mad.) 517 held as under:-
"A trustee has no freedom of choice, and he will be bound to distribute in accordance with the direction given by the testator, he no doubt holds legal title in the property but the choice of the beneficiary is not his but that of the testator. A power of appointment on the other hand, does not imply any idea of property in the donee of the power. Unlike the case of a trust, there is no obligation in the case of a donee of the power, to exercise the power."
19. Lewin on Trusts, 16th Edition, at page 385 also drew distinction between the two by stating as under:-
"A mere, or bare, power is a power in the proper sense of the word; it is not imperative but purely discretionary; it is a power which the trustee cannot be compelled to execute, and which on failure of the trustee, cannot be executed vicariously by the court. Powers in the nature of a trust.
Powers in the nature of a trust, on the other hand, are not discretionary but imperative have all the nature and substance of trusts, and ought rather, as Lord Harwick observed, to be designated by the name of trusts."
20. In these circumstances, the contention raised by the assessee that whole includes a part or that the greater contains the less are of no help in determining the issue arising in this case. The cases cited from Brooms Legal Maxims and for statutory Interpretation by FAR Bennion are of exercising a power and not dealing with an obligation of a trustee. We accordingly, do not find any force in this contention of the assessee.
21. Part II of the trust deed as extracted above deals with the terms and conditions subject to which the trustees have to hold the trust finds. Sub-clause (a) of this part obliges the trustee to reimburse or pay and discharge all costs incurred for the administration of the trust. Clause (b) casts an obligation to apply the balance for the benefit of the five beneficiaries named in the trust deed. Clause (c) gives an absolute discretion to the trustee not to distribute the balance and accumulate the same for such period as they think fit not exceeding 18 years from the date of the deed. Clause (d) gives an absolute discretion to the trustees to utilise the corpus of the trust funds for the five objects of health, education, maintenance, marriage expenses and advancement in life of any of the beneficiaries. The period of distribution is defined in Sub-clause (e) of Part-II of the trust deed to mean the period of 18 years from the execution of the deed or such other earlier period as may be decided by the majority of the trustees. Clause (f) obliges the trustees to distribute the entire corpus of the trust on the expiry of the period of distribution in such share or shares as in their absolute discretion they think fit. Clause (d) provides for a situation in case of difference of opinion between the trustees on any question arising in the course of administration of the trust. From the above it is clear that distribution of the income is provided by Clause (d) whereas the distribution of the corpus is provided by Clause (d), (e) and (f). If the distribution of corpus is decided to be on the expiry of 18 years or the earlier period as per Clause (e) of Part-II of the trust deed, it has to be of the entire corpus as provided in Clause (f) of the trust deed. No mandate or discretion is given to the trustees to distribute the corpus otherwise. Wherever the settlor wanted to leave the matter to the discretion of the trustees they have provided so specifically but in case of distribution of the trust funds, the direction is to distribute the entire corpus of the trust fund and no discretion is left to the trustees to distribute the lesser portion thereof.
22. A trust upon trust is created in this case by the trustees. The fund of the trust was to be held for the benefit of the five beneficiaries named in the deed. It was to be utilised for the purposes set out in Clause (d) of clause II of the Trust Deed. No such case has been made in this case that the distribution was for any of the said purposes. By this distribution in part one trust is converted in two trusts-one for original beneficiaries with reduced trust fund and second for the BOI of 2 out of 5 beneficiaries on certain directions, terms and conditions prescribed, and the trust originally remaining partner for 5 beneficiaries, now becoming partner for the BOI of the beneficiaries. This, in our opinion, is not permitted and would be hit by provisions of Section 8 of Indian Trust Act. Even assuming that the arrangement is permitted, it would be a discretionary trust of the two beneficiaries BOI.
23. We may further observe that the BOI is claimed to be an entity separate to the beneficiaries of the assessee, and if that be so, how can the part of trust funds be given a BOI which is not a beneficiary of the trust, the beneficiaries having 2 individuals. On that ground also, the distribution would be invalid and beyond the powers of the trustees. We also find ourselves in agreement with the observations of the AO in para 6 of the order that it was not a case of exercising the discretion of the trustees to use the corpus of the funds for any of the objects mentioned in clause (d) of Part-II of the trust deed. No plea has been put forth for utilisation of the corpus funds for the first four objects of health, education, maintenance or marriage expenses. The attempt is to justify the distribution for the last category namely advancement in life. Clause (d) provides for utilisation and not distribution. Be that as it may in what way and to what extent this distribution benefitted the beneficiaries was not made clear. No advancement has been shown to have been achieved by the beneficiaries of the trust in transferring the partnership share to the Body of Individuals.
24. We may now deal with the contention of the assessee that the AO having accepted the class of the assessee in the earlier year cannot take a contrary view in the subsequent year when the facts and circumstances are the same Reliance is placed on the judgment of Gujarat High Court in the case of Sayaji Iron and Engg. Co. v. CIT 253 ITR 749. This contention of the assessee, in our opinion has no force-firstly because each year is a separate year and the principle of res judicata and estoppel does not apply to income-tax proceedings; secondly because in the earlier year there is no discussion on the issue and, therefore, the AO did not take any decision of his own and proceeded on the assumption that whatever was claimed by the assessee was correct; thirdly because in view of the Supreme Court decision in the case of ITO v. Ch. Actchaiah 218 ITR 239, the right persona lone is to be assessed even though the income was declared and assessed in the hands of another person or that it was not assessed in the earlier year. In the words of Their Lordships of the Supreme Court, "the person lawfully liable to be taxed can claim no immunity because the AO has taxed the said income in the hands of another person contrary to law. Similar would be the position for an assessment in the subsequent or another year"; fourthly because there is no heroism in perpetuating the mistake as said by Justice Bhagwati in he case of Distributors (Baroda) P.Ltd. 155 ITR 120. The decision relied upon by the assessee has no applicability in the present case as the matter was not examined by the AO in the earlier year which, the alternative method of referring to a larger Bench us is available in the case of Tribunal was not available to the AO while making the assessment and a right person is to be assessed in terms of the Supreme Court decision in the case of Ch.Alchaiah (supra).
25. In so far as the appeal in the case of the distribute BOIs are concerned a further discussion may not be necessary because the income which have been assessed in their hands is liable to be assessed in the hands of the trust, the distribution being contrary to the provisions of the trust deed. However, for the sake of completeness of the disposal, we may discuss the issue in the subsequent paragraphs.
26. The claim of the assessee which is accepted by the Dy.CIT(A) is that these are BOIs and, therefore normal rate of taxation will apply. Revenue's case, on the contrary, is that they are AOPs within the meanings of the provisions of Section 167A as they stood at the relevant time would apply and, therefore, liable to be taxed at maximum marginal rate.
27. The issue is not whether there was a BOI or not but whether there was an "Association of Persons" within the meaning of Section 167A. Section 167A at the relevant time stood as under:-
"167A. Charge of tax where shares of members unknown.- where the individuals shares of the members of an association of persons (other than a company or a co-operative society) in the whole or any part of the income of the such association are indeterminate or unknown, tax shall be charged on the total income of the association at the maximum marginal rate."
28. On a close reading of this section, one thing is clear that a wider coverage is given to the concept of an "Association of Persons". It is an "association of persons" which is other than a company or a co-operative society. In this larger context, the term "association of persons" may include the combination of individuals and others including BOI individuals, combination of individuals and non-individuals and also combination of non-individuals and other non-individuals. Both these entities namely association of persons and Body of Individuals have been included in Clause (v) of Section 2(31) of the Income-tax Act with the added words "whether incorporated or not". In Meera and Co. v. CIT 224 ITR 635, the Supreme Court observed that when Clause (v) speaks of "an association of persons" or "body of individuals", this implies that an association of persons is not something distinct and separate from "body of individuals". It has been added to obviate any controversy as to whether only combinations of human beings are to be treated as a unit of assessment. The intention clearly is to hit combination of individuals and individuals, combination of individuals and non-individuals and also combination of non-individuals with non-individuals. These combinations who are engaged together in some enterprise when such joint enterprise does not fall within any of the categories enumerated in Sub-section (31) of Section 2 of the Act.
29. The General Clauses Act defines persons as including a company or association of persons or body of individuals whether incorporated or not. In order to give a comprehensive definition of the person so as to cover all entitles mentioned in Clause (i) of the existing definition in Section 2(9) of 1922 Act, (i) the existing definition in Section 2(9),(ii) the existing charging provisions in Section 3 and 4 and (iii) the General Clause Act was felt desirable to be incorporated in Section 2(31) of the 1961 Act. We may refer to the following paragraph from the judgment of the Supreme Court in Meera and Co. (supra) at page 649-650:-
"In the background of these definitions, when several individuals are found to have joined together for the purpose of making profit, the group of individuals may be conveniently described as "a body of individuals". We have seen how the controversy arose under the Indian Income-tax Act as to the meaning of "association of individuals". There was a conflict of opinion on whether 'individuals' include artificial or non-judicial persons. But there can be no scope for any controversy now. "An association of persons" or "a body of individuals", whether incorporated or not, has been brought within the net of taxation. The intention of the Legislature is clearly to hit combinations of individuals or other persons who were engaged together in some joint enterprise. The combinations may or may not be incorporated. A profit-yielding joint venture has to be taxed as a single unit. In the case before us, we have a widow and her minor sons who are engaged in the business activity which generates income. It does not make any difference that the widow and the minor sons did not start the business. The business was inherited. But the fact that the business has been continued by the widow or her own behalf as well as on behalf of the minor sons after buying the interest of the mother goes to show that there is an organised activity jointly carried on the produce income. It is a clear case of a joint business venture of a few individuals. The income of the business has been rightly assessed in the status of a "body of individuals"."
30. From the aforesaid extract, it is clarified by the Supreme Court in clear terms that it does not make any different that the widow or the minor sons did not start the business and that the business was inherited. But the fact that business has been continued by the widow on her own behalf as well as on behalf of minor sons after buying the interest of the mother goes to show that there is organised activity jointly carried on to produce income and it was a clear case of joint business venture of a few individuals. In the subsequent paragraphs, the Supreme Court observed that "it is well settled by this Court in the Act of 1922 by a series of judgments the association of persons must be an association which is formed by volition of the parties for the purpose of generation of income and this is the basic test and that a minor can be a member of such a body or association is also well settled by a number of decisions. Even if we proceed on the basis that volition to start the business is a must, we find from the copy of the resolution dated 31-12-1979 as under:-
AND WHEREAS the Trustees have as a matter of caution consulted and ascertained the views of the beneficiaries Smt. Ramaben Kanubhai Shah, Nira Kanubhai Shah, Nitu Kanubhai, Bindu Kanubhai and Rupa Kanubhai respectively for the distribution of the corpus of the trust and especially for the distribution of portion of the corpus to be distributed to two or more number of the beneficiaries to be held, possessed and enjoyed by them jointly and on the principles of joint and survivorship and/or the principle of joint tenancy.
AND WHEREAS the trustees have unanimously come to a conclusion that such distribution as is specified and resolved hereinafter is more advantageous made and better utilisation of the corpus or trust property for the benefit and advancement in life of the beneficiaries under the Trust and that the beneficiaries and their guidance have so accepted.
AND WHEREAS the Trustees have communicated to the beneficiaries that the Trustes have decided to partly distribute the corpus of the trust property as on 31.12.79 and to be held by and amongst the beneficiaries to corpus under the deed of Trust in such part of parts as hereinafter referred to as recipients to be held possessed, enjoyed and exploited jointly and on the principles of survivorship or under joint tenancy."
AND WHEREAS the beneficiaries are convinced that such distribution as proposed by the Trustees will be to the benefit and better advantage."
31. Similar was the observation in the resolution dated 25-6-1980. These extracts (SIC) indications that a volition was there on the part of the beneficiaries for the distribution of the property to be held by the BOIs of the two beneficiaries. In view of this, even though the distributees are called BOIs they are in fact, association of persons within the wider meaning given to the term "association of persons" by Section 167A of the Act which, as aforesaid excludes from its ambit only a company or a co-operative society. All other combination of individuals and non-individuals would be covered within the meaning of "association of persons" and a maximum marginal rate is to be applied. The decision relied upon by the Dy.CIT(A) in his order namely of the Tribunal in the case of S.C. and others, of the Gujarat High Court in the case of Harivadan Tribhovandas 106 ITR 494 and of Bombay High Court in the case of Associated Cement would not be of much help to the assessee in view of the Supreme Court decision in the case of Meera and Co. (supra) and the wider meaning adopted for the terms "association of persons" by Section 167A of the Act.
32. We, therefore, hold that even if the income is assessable in the hands of the distributes, the same has to be assessed at the maximum marginal rate by virtue of provisions of Section 167A of the Act.
33. In the result, assessee's appeals are dismissed whereas the Revenue's appeals are allowed.