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7. To appreciate the reason given by the AAC it is necessary to state some details with regard to the constitution of the trusts. All the three trust deeds were executed on 24-6-1976 and are identically worded. In respect of Suchita Benefit Trust, the settlor was Shri Madhusudan Mulji Thakker, the beneficiary being minor Suchita. The trustees were Shri Ajit Kumar Thakker, Shri Madhusudan Thakker and Smt. Kusum Ajit Kumar Thakker. In respect of Dharmesh Benefit Trust, the settlor was Shri Ajit Kumar Thakker, the beneficiary being Master Dharmesh. The trustees were Shri Madhusudan Thakker, Shri Ajit Kumar Thakker and Shri Chandrakant Thakker. In respect of Bijal Benefit Trust, the settlor was Smt. Kusum Ajit Kumar Thakker, the beneficiary being Miss Bijal. The trustees were Shri Chandrakant Thakker, Smt. Kusum Ajit Kumar Thakker and Shri Madhusudan Thakker.

9. The view taken by the AAC was that there was first a gift of the amounts to the minors, that the amounts became the property of the minors and that thereafter the settlors could not have formed any trust with regard to the said amounts. As far as the minors were concerned, their guardians could not have constituted the trusts for the amounts without the permission of the principal civil courts of original jurisdiction in view of Section 7 of the Indian Trusts Act, 1882.

10. It was contended by the learned representative for the assessee that the gift deeds and the trust deeds were executed on the same date, that it was a simultaneous transaction, that it cannot, therefore, be said that the gifted amounts became the property of the minors and that the construction of the trusts was with funds belonging to the minors. As against this, it was contended by the learned departmental representative that the gift is antecedent to the constitution of the trust and that the amounts had become the property of the minors before the constitution of the trusts. The learned departmental representative also supported the order of the AAC on the ground relied on by the ITO, namely, that the trust was constituted to defeat the provisions of Section 64(1) and, further, that the effect of the constitution of the trust is that the minors are made to suffer the loss of the firm.

12. The only other question to be considered is, whether the constitution of the trust is bad for the reason that it has been constituted with the amount belonging to the minor. The preamble of the trust deeds, one of which has been extracted earlier, will show that at first a particular amount was gifted by the settlor in cash to the minor in each case, that the amounts were deposited in some other firms and that the trusts were constituted with regard to the said amounts. The learned representative for the assessee was unable to explain why the amounts were first gifted to the minors and why the trusts were not straightaway constituted by the settlors with the amounts without first gifting the amounts to the minors. As already stated, the only contention advanced by the learned representative was that as the transactions were simultaneous, it should be treated as a case of the settlors constituting the trusts with regard to their own amounts and not with regard to the amounts belonging to the minors as per the gifts. On a careful consideration of the matter, we are unable to accept the contention advanced by the learned representative. The preamble clearly says that the minors have received the gifts of the amounts in cash in terms of the gift deeds executed on the same day. The settlors, therefore, chose to make a specific gift of the amounts to the minors and that too by executing gift deeds. It is then stated in the preamble that the minors are entitled to the amounts gifted and that the amounts are deposited in certain partnership firms. Then comes the recital that the settlor desires that the credit balance in the firm in favour of the minor should be held by the trustees upon trust under the provisions declared and contained in the trust deed. Under these circumstances, we hold that the amounts were first transferred to the minors by way of gifts, that the amounts became the property of the minors and that it was only subsequently that the trusts were constituted. It is clear from Section 7 that the settlor can constitute a trust only with regard to a property, at his disposal and not with regard to a property which already belongs to a minor.

...The agreement dated March 30, 1972 makes it very clear that the monies transferred from the capital accounts of the partners were for the purpose of the trust fund, i.e., it is not a straight gift to the minors and inter vivos, this being made a subject-matter of the trust. It is not a cause of two different transactions as viewed by the department. There is no initial gift to the minor and later a transfer to the trust. There is only one transaction, a transfer from the capital account to the trust fund. So the settlor in respect of these amounts is really the four partners whose accounts have been debited. The minors did not at all come into the picture....