DALAL M R DR Vs. COMMISSIONER OF INCOME TAX
LAWS(BOM)-1962-9-17
HIGH COURT OF BOMBAY
Decided on September 04,1962

DR. M. R. DALAL Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Cited Judgements :-

GAJANAND PHOOLCHAND HALDRYON KA VS. INCOME-TAX OFFICER [LAWS(RAJ)-1975-8-16] [REFERRED TO]
LIT LIGHT COMPANY VS. COMMISSIONER OF SALES TAX U P LUCKNOW [LAWS(ALL)-1978-9-33] [REFERRED TO]
M/S. GAJANAND PHOOL CHAND VS. INCOME [LAWS(RAJ)-1975-8-38] [REFERRED TO]


JUDGEMENT

Y.S.TAMBE, J. - (1.)THIS is a reference under Sub -S. (1) of S. 66 of the Indian INCOME TAX ACT, 1922, and the first question that falls for consideration is whether the reassessment proceedings started against the assessee on a notice under cl. (b) of Sub -S. (1) of S. 34 of the Act have been validly initiated.
(2.)THE following facts give rise to this reference : The assessment year with which we are concerned is the asst. year 1952 -53, the relevant previous year being one that ended with 31st March, 1952. The assessee is the late Dr. M. R. Dalal, who died on 2nd Oct., 1952, and therefore has been represented before the IT authorities, the Tribunal as well as before us by his legal representative, his wife, Bai Shirinbai M. R. Dalal. On 13th Oct., 1939, Dr. M. R. Dalal made a trust settling certain shares and securities on trust for the benefit of his son, F. M. Dalal and two daughters Miss Gool M. Dalal and Miss Ketty M. Dalal Under the trust, it was directed that the income from the shares and securities settled on trust should be equally divided amongst his aforesaid three children. The trustees appointed under the trust were the settler himself, his wife, Bai Shirinbai, and the Central Bank Executor and Trustee Company Ltd. By virtue of cl. 13 of the trust deed the trust was made irrevocable for a period of seven years. The said cl. 13 is in the following terms :
"13. It shall be lawful for the Settlor at any time during his life by any deed or deeds with or without power of revocation and new appointment or by will or codicil to revoke either wholly or partially the trusts and powers hereby declared concerning the Trust Funds hereby settled or any part thereof or the moneys or property for the time being representing the same and the same and by the same or any other deed or deeds revocable or irrevocable or by a will or other testamentary document to appoint and declare any new or other trusts or power concerning the Trust Funds or any part thereof to which such revocation shall extend as to him shall seem meet PROVIDED HOWEVER that this power of revocation shall not be exercisable and this deed shall remain irrevocable for a period of seven years from the date hereof and for such further period or periods thereafter as the Settler may by writing declare at the expiration of the said first period of seven years and subsequent further period or periods."

At the time the trust deed was made, Miss Ketty M. Dalal was a minor. In the asst. year 1940 -41 the IT authorities accepted the trust and excluded the share of income from the trust property of Shri F. M. Dalal and Miss Gool M. Dalal from the total income of Dr. M. R. Dalal. However, one -third share of the income of Miss Ketty M. Dalal was deemed to be income of Dr. Dalal by reason of the provisions of S. 16(3) (a) (iv) of the Act. This state of affairs continued till Miss Ketty M. Dalal attained majority on 8th April, 1945. Thereafter, the three children of Dr. Dalal were separately assessed in respect of their share of income in the trust property and Dr. Dalal was separately assessed in respect of his income from other sources and this state of affairs continued till the asst. yr. 1952 -53. For the asst. year 1952 -53, returns of income were filed as under :

(3.)ON 9th Sept., 1953, Shri F. M. Dalal filed a turn of his income which included his 1/3rd share of income from the trust property. On 17th Nov., 1953, Bai Shirinbai M. Dalal, in her capacity as the legal representative of her deceased husband Dr. Dalal filed a return in respect of Dr. Dalal's income which did not include any income from the trust property. On the same day, i.e., on 17th Nov., 1953, Miss Gool M. Dalal and also Miss Ketty M. Dalal filed separate returns in respect of their income which included their respective 1/3rd share of income from the trust. On January 20, 1954, assessment orders were made against Miss Gool M. Dalal and Miss Ketty M. Dalal, in which were included their respective 1/3rd share in the trust property. On 27th Jan., 1954, an order of assessment was made on the applicant in respect of Dr. Dalal's income which did not include any income from the trust. Now it so happened that for the same assessment year, i.e., asst. year 1952 - 53, the Central Bank Executor and Trustee Company Ltd., who was one of the executors of the trust filed a return of the total income of the trust with the 3rd ITO, A -IV, Ward Bombay. During the course of this assessment the ITO noticed that the period of seven years during which the trust was made irrevocable had expired, that the trust had become a revocable trust, and, therefore, the entire income from the trust property was assessable in the hands of Dr. Dalal. He accordingly informed the ITO who had made the assessment in respect of Dr. Dalal's income. By this time, as already stated the assessment in respect of Dr. Dalal's income was completed on 27th Jan., 1954. The ITO, therefore, on receiving the aforesaid communication from the ITO, A -IV Ward, Bombay, issued a notice under S. 34(1) (b) and initiated reassessment proceedings. Before the ITO the applicant who had appeared in response to the notice under S. 34(1) (b), inter alia, raised two contentions. The first contention was that the assessment could not be reopened under S. 34(1) (b) inasmuch as the ITO had not come into possession of any fresh information which was not in his possession at the time the original assessment was closed and completed on 27th Jan., 1954. The other contention which was raised by the applicant was that after the expire of the period of seven years, Dr. Dalal had made the trust irrevocable, and, therefore, the income of the trust properly was not assessable in his hands. Both these contentions were not accepted by the ITO and the entire income of the trust property was included in the income of Dr. Dalal and assessed in the hands of his legal representative. The applicant took an appeal before the AAC, reiterating both these contentions, but the AAC also did not accept the same. It was also contended before the AAC that 2/3rd share of the income of the trust property had already been assessed in the hands of Miss Gool M. Dalal and Miss Ketty M. Dalal, and therefore it could not again be assessed in the hands of the applicant. This contention of the applicant also was not accepted by the AAC. He, however, gave a direction to the ITO concerned to modify the assessment of Miss Gool M. Dalal and Miss Ketty M. Dalal. Further appeal taken by the applicant to the Tribunal also failed. On an application made under S. 66(1), the Tribunal has stated the case raising the following two questions :
"(1) Whether, on the facts and in the circumstances of the case S. 34(1) (b) could be invoked ? (2) Whether the subsequent reassessment including the income of the beneficiaries, is valid in law ?"



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