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R.P. Garg, Accountant Member

1. These two appeals are by the assessee against the orders of the CIT(A) for the assessment year 1987-88 - the first in quantum and the other against penalty levied under Section 271(1)(c) of the Income-tax Act, 1961. For the sake of convenience, both the appeals are being disposed of by this common order.

2. The assessee was a beneficiary in a private trust, known as "Lokhandwala Developers", created by Abdulla F. Furniturewala on 4-1-1982 with a corpus of Rs. 1,000. The assessee was 10 per cent beneficiary in the income as well as the corpus of the trust. On 21-7-1986, the assessee assigned/sold its beneficial interest for a sum of Rs. 15 lac to M/s. Lokhandwala Builders (P.) Ltd. The other beneficiaries also transferred their shares to them and, thereafter, the trust was dissolved on 31-7-1986. The amount received by the assessee was credited straightaway to the profit and loss appropriation account and thereafter it was transferred to general reserve. The Assessing Officer brought the said amount to tax as capital gain by allowing a cost of acquisition of Rs. 100, i.e., the amount proportionate to its beneficial interest in the trust. After noticing certain facts leading to the formation of the trust, examining the balance-sheets, the relation between the settlor, beneficiaries and the trustees, the Assessing Officer concluded that it was a well planned and stage managed affairs by the family group of Lokhandwala to avoid possible tax on capital gain and for this, he placed reliance on the decision of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148; that of the Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 and that of the Kerala High Court in the case of Neroth Oil Mills Co. Ltd. v. CIT [1987] 166 ITR 418. He also levied a penalty for concealment for not declaring this income from capital gains.