COMMISSIONER OF INCOME TAX Vs. LAKSHMI PRASAD LAHKAR
LAWS(GAU)-1994-1-1
HIGH COURT OF GAUHATI
Decided on January 20,1994

COMMISSIONER OF INCOME-TAX Appellant
VERSUS
LAKSHMI PRASAD LAHKAR Respondents

JUDGEMENT

M.K. Sharma, J. - (1.)THE following questions of law have been referred to this court under the provisions of Section 256(1) of the Income-tax Act, 1961, for its opinion--
R. A. No. 134/(Gau) of 1988 :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) that the trust, L.P. Lahkar Family Trust, in which the assessee is a trustee, was a valid one and the income from the trust was not assessable in the hand of the trustee, in his individual capacity ?"

R. A. No. 135/(Gau) of 1988 :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the order of the Commissioner of Income-tax (Appeals) that the issue was debatable and as such, action under Section 154 was not called for ?"

R. A. No. 136/(Gau) of 1988 :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Appellate Assistant Commissioner of Income-tax had correctly directed the Income-tax Officer to make the protective assessment in the case of the trust as a regular one treating the trust, as a valid one ?"

(2.)THE broad facts leading to the reference are mentioned hereafter. While taking up the assessment proceeding of the trust, namely, Lakshmi Prasad Lahkar Family Trust, the Income-tax Officer referred to a deed of trust dated January 7, 1978, by which a private trust was claimed to have been brought into existence. THE Income-tax Officer pointed out that the settlor, managing trustee, beneficiaries were members of the same group of family and that the settlor was the cousin brother of the managing trustee and he was also a partner with the managing trustee in the firm, Sibson Construction Co., Tezpur. According to the Income-tax Officer, the provisions of Section 64 were attracted on the facts of the case and that the income was assessable in the hands of the managing trustee as the money settled on trust was withdrawn from the fund of the firm, wherein the managing trustee was the major partner holding 45 per cent. share although the amount was withdrawn from the personal account of the settlor who had no credit on the personal account on the relevant date. On the aforesaid facts, the Income-tax Officer was of the opinion that a circuitous method was adopted to avoid attraction of the provisions of Section 64. THE Income-tax Officer further held that the shares of the said beneficiaries were unknown as per Clause 4 of the deed and that the beneficiaries were not certain as evident from Clause 5 of the deed, i.e., to say, the beneficiaries were unborn children of the trustees which were uncertain and, therefore, the trust was void for uncertainty. On the basis of the aforesaid findings, the Income-tax Officer concluded that in the absence of the valid trust the income was assessable in the hands of the managing trustee. But since the assessee-trust had filed the return, the Income-tax Officer made the assessment as a protective measure for the assessment year 1979-80. So far the assessment of Shri Lakshmi Prasad Lahkar was concerned, the Income-tax Officer made the assessment in the status of individual in which amongst others, the income assessed as per order in the case of the assessee-family trust being share income from Kiron Industries was included to the tune of Rs. 47,000 for the assessment year 1979-80. Subsequently, the Income-tax Officer passed an order under the purported exercise of the power under Section 154 dated April 18, 1982, in which he has noted that after the original assessment was made and on receipt of the copy of the order in the case of Kiron Industries, Tezpur, it was found that Smt. Alaka Lahkar, the other partner of the said firm, holding a 25 per cent. share, was the wife of the assessed, i.e., Shri Lakshmi Prasad Lahkar. THE Income-tax Officer, therefore, observed that a mistake apparent from the record had crept in, in not including the income in the name of Smt. Alaka Lahkar, in the hands of the assessee under Section 64. Under the aforesaid circumstances, the Income-tax Officer initiated proceedings under Section 154 of the Income-tax Act and after objection/written submission was filed by the assessee, the Income-tax Officer held that since the trust was not acceptable as valid one, the objection of the assessee to the affect that Shri Lakshmi Prasad Lahkar was the partner in the said firm in the capacity of the managing trustee of the trust was also not accepted. THE Income-tax Officer, thereafter, proceeded accordingly and passed the rectification order including the share income of the wife also in the assessment of Shri Lakshmi Prasad Lahkar.
Being aggrieved by the aforesaid orders of the Income-tax Officer, the assessee preferred appeals before the Commissioner, (Appeals). While disposing of the appeals, the Commissioner of Income-tax noted that the Income-tax Officer had considered Clauses 4 and 5 of the trust deed. He had, however, overlooked Clause 8 of the trust deed in which it was stated that the trustee would stand possessed of the trust estate in trust and on behalf of sons and daughter of Shri Lakshmi Prasad Lahkar for the time being in equal shares. The Commissioner of Income-tax (Appeals), under the aforesaid circumstances, held that the trust was a valid one and the income from the registered firm was not assessable in the hands of the assessee in his individual capacity and, accordingly, he deleted the addition. The Commissioner of Income-tax (Appeals) further held that the stand taken by the Income-tax Officer regarding Shri Girish Ch. Lahkar having no credit with the firm was also not correct which according to the Commissioner of Income-tax (Appeals) was apparent from the accounts of the partnership firm, Sibson Construction Company, in which there was withdrawal of Rs. 26,080 in the capital account of Shri Girish Ch. Lahkar. Accordingly, the Commissioner of Income-tax (Appeals) held that this income also was not assessable in the hands of the assessee under Section 64 of the Income-tax Act. It may be stated herein that following the aforesaid order of the Commissioner of Income-tax (Appeals), the Appellate Assistant Commissioner in the case of the family trust held that the assessment in the case of the family trust should be treated as regular assessment.

As regards the order of rectification passed by the Income-tax Officer under Section 154, of the Income-tax Act, the Commissioner of Income-tax (Appeals) cancelled the order under Section 154 holding that the assessee was a partner of the firm representing as managing trustee of the family trust and that the matter was debatable and, accordingly, the provisions of Section 154 of the Income-tax Act were not applicable.

(3.)ON further appeals by the Revenue, the Tribunal held that the claim of the assessee was justified to the effect that the trust was a valid one in view of the findings of fact by the Commissioner of Income-tax (Appeals) in the case of Shri Lakshmi Prasad Lahkar. The Appellate Tribunal further held that the trustee stood possessed in respect of the settled property on behalf of the beneficiaries. In respect of the issue for which action was taken under Section 154 of the Income-tax Act, the Appellate Tribunal agreed that the findings of the Commissioner of Income-tax (Appeals) and accordingly all the three appeals preferred by the Revenue were dismissed.
Aggrieved by the order of the Tribunal, the Revenue sought and obtained a reference to this court on the three questions of law referred in paragraph 1 above.



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