V. Balasubramanian, Vice-President - (1.) THE assessee is assessed as an individual. Shri Jagjiwan Ujemshi Mulji, the father of the assessee, died intestate on 5-7-1959. A sum of Rs. 4,000 was inherited by the assessee from his father. Treating this as the nucleus of the HUF consisting of himself, his wife and daughter, the assessee withdrew a sum of Rs. 1,000 from his personal current account with the Bank of India and claimed to throw this into the common hotchpotch of his alleged HUF. A declaration to this effect was also filed before the income-tax authorities. Subsequently on 23-3-1978, the assessee, his wife and his unmarried daughter as settlors and in their capacity as members of a HUF settled an amount of Rs. 1,000 and certain shares held by the assessee individually on a trust for the benefit of the assessee, his wife and his unmarried daughter, i.e., themselves. For the assessment years 1972-73, 1973-74 and 1974-75, the TTO did not accept the claim of the assessee that the income from the above assets were to be assessed in the hands of a HUF, consisting of himself, his wife and daughter. A protective assessment was also made on the alleged HUF. THE above assessments on the individual including in his income, the income from the properties allegedly thrown into the common hotchpotch, came up on appeal before the Tribunal on the question of status. For the assessment year 1972-73, the status claimed of HUF was not accepted by the Tribunal as well. Relying on the Supreme Court decision in the case of Surjit Lal Chhabda v. CIT [1975] 101 ITR 776, the Tribunal in IT Appeal Nos. 471 to 473 (Bom.) of 1976-77, dated 10-7-1978 held that the exercise of the assessee in throwing his personal properties into what he thought to be the family hotchpotch was an exercise in futility as it did not have any impact on the incidence of taxation, so far as his individual assessment was concerned. On the above basis the Tribunal negatived the application of Section 64(2) of the Income-tax Act, 1961 ('the Act'), as claimed by the assessee with regard to the income of the individual properties stated to be thrown into the common hotchpotch. For the assessment years 1973-74 and 1974-75, the Tribunal held that there was a change in the circumstances inasmuch as the shares and cash were transferred to a trust for the benefit of the family members. For the assessment years 1973-74 and 1974-75, the Tribunal remitted the matter back to the AAC for consideration of the consequences of the transfer of the assets to the trust in the light of the observations made by it.
(2.) For the assessment year under appeal when the matter came up before the Commissioner (Appeals), the Commissioner (Appeals) felt that the ITO had not considered the issue from the angle suggested by the Tribunal. He went through the deed of trust, dated 2.2-3-1972. He also considered the decision of the Gujarat High Court in the case of Ratilal Khushaldas Patel v. CIT [1965] 55 ITR 517. The Commissioner (Appeals) held that the trust was one created by the assessee-individual for his own benefit and hence, the income was assessable in his own hands as beneficiary. In the alternative, he held that if the income is regarded as belonging to the 3 persons, one-third of the income belonged to the assessee in his own right and was assessable in his hands. The balance of two-third was also assessable in his hands by applying the provisions of Section 64(1) (iv) and 64(1)(v). It is against the above order of the Commissioner (Appeals) that the present appeal is laid before the Tribunal. The learned counsel for the assessee has pointed out that even on the basis of the decision of the Tribunal for the earlier years, the assessee's claim was to be accepted for the year under appeal. Even if the throwing of the property into the common hotchpotch had not become effective, there was a proper transferring of the property to a properly created trust. Under the trust, the income was to go to the joint family consisting of the assessee, his wife and minor daughter. There was a provision for accumulation of the income for as long a period as 22 years. Even if the first act of throwing into common hotchpotch performed in 1971 was ineffective, the creation of the trust with a benefit going to the HUF was a legal fact of importance. The assessee as an individual has no right to the income of the trust nor can the wife or the minor child be regarded as the beneficiary of an indirect transfer for their benefit. The entire amount, therefore, was to be excluded from the assessment of the assessee. The decisions in Surjit Lal Chhabda's case (supra), Ratilal Khushaldas Patel's case (supra) and Prem Kumar v. CIT [1980] 121 ITR 347 (All.), were cited in this connection. Even if the alleged blending was ineffective, there was a gift to the family which took away these assets and the income therefrom from the individual.
(3.) FOR the department, it is pointed out that both the gift and the alleged trust in the alternative, were illegal. If the fact of the blending of the properties is, as directed by the Tribunal, ignored, the assessee was the owner of the property. There was no HUF which could transfer this property to joint owners or a HUF for a matter of that. The settlor, according to the trust, is shown to be the assessee, his wife and the minor child. When the first act was ineffective in law in view of the above facts, according to learned counsel for the department, the trust deed itself was illegal and ineffective. It is also pointed out that there cannot be a gift in such circumstances on the lines of Pushpa Devi v. CIT [1977] 109 ITR 730 (SC). Reliance is placed on the decision of the Madras High Court in the case of CIT v. M. Balasubramaniam [1981] 132 ITR 529.;