COMMISSIONER OF INCOME TAX V. H H MAHARAJA FAMILY TRUST NO.1

ITR/271/1984

AI Insights

The case involves the Commissioner of Income Tax versus H H Maharaja Family Trust No.1, where the Income Tax Appellate Tribunal referred two questions of law to the High Court of Gujarat concerning the applicability of Section 60 of the Income-tax Act, 1961, and the treatment of interest income earned by the beneficiaries of the trust. The questions pertained to the assessment years 1979-80 and 1980-81, with similar issues previously addressed in 1976-77 and 1978-79. The core issue was whether the interest income earned by the beneficiaries from their own investments should be included in the income of the trust under the principle of constructive receipt. The High Court, referencing its earlier decision and the specifics of the case, concluded that the beneficiaries had invested in their own right and not as agents of the trust, thus the income derived from these investments could not be considered as income received by or on behalf of the trustees.

• Counselvise Citation: [1999] 140 COUNSELVISE.COM (IT) 718729 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 06-04-1999
• Assessment Year: misc
• Other Referred Cases: ITR 252 of 1983
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Respondent
• Court: HIGH COURT
• Department Lawyers: MANISH BHATT
• Assessee Lawyers: R P BHATT
• Keywords: Beneficiaries; Constructive Receipt; Income Tax; Interest income; Trust
• Section: 60

Judgement Text

" IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 271 of 1984 For Approval and Signature: Hon'ble MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? 2. To be referred to the Reporter or not? 3. Whether Their Lordships wish to see the fair copy of the judgement? 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus H H MAHARAJA FAMILY TRUST NO.1 -------------------------------------------------------------- Appearance: MR RP BHATT for Petitioner MR MANISH R BHATT for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE Date of decision: 06/04/99 ORAL JUDGEMENT #. The Income Tax Appellate Tribunal, Ahmedabad Bench C has referred the following two questions of law for the opinion of this Court: \"whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the provisions of Section 60 of the Income-tax Act, 1961 were not applicable to the facts of the case? 2.Whether in the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the interest income earned by the beneficiaries ofthe assessee trust were not liable to the included in the income of the assessee trust on the principle of constructive receipt? #. The reference relates to two assessment years 1979-80 and 1980-81. Similar questions arising out of assessment of assessment years 1976-77 and 1978-79 were made subject matter of ITR 252 of 1983 at the instance of CIT. The said reference has been decided by this Court on 7.1.1997. The court held that the investments were made by the beneficiaries in their own right and not as the agents of the assessee trust. Therefore, the income derived by the beneficiaries from their own investments could not be regarded as income received by or on behalf ofthe trustees. In our view therefore, the Tribunal rightly held that the principle of constructive receipt could not be invoked by the revenue authority for justifying its stand to include the interest income earned by the beneficiaries in the hands of the trustees. The court further held that the interest income did not accrue to beneficiaries by virtue of the transaction of the loan, but it accrued to them by virtue of subsequent transactions of their having invested the amounts. It is therefore clear that the provisions of Section 60 of said Act could not have been invoked by the revenue for assessing the income of the beneficiaries in the hands of the assessee trust. The Tribunal was therefore justified in holding that the provisions of Section 60 were not applicable to the facts of the present case. #. In the facts and circumstances of the present case, this Court answered both the questions in affirmative in favour of the assessee and against the revenue. Following the aforesaid decision, this court in assessee's own case relating to earlier years, we answer the aforesaid two questions referred to us in the affirmative in favour of the assessee and against the revenue. Reference stands accordingly disposed of with no order as to costs. (Rajesh Balia, J) (A.R. Dave, J) "