1980 (1) TMI 64 - HC - Income Tax

Trust business income taxed as per trust deed, not Section 60. Assessee prevails.

KT. Doctor Versus Commissioner Of Income-Tax, Gujarat IV

KT. Doctor Versus Commissioner Of Income-Tax, Gujarat IV - [1980] 124 ITR 501, 15 CTR 43, 4 TAXMANN 208 Issues Involved:1. Whether the Tribunal was justified in law in permitting the revenue to raise the contention that the business in question belonged to the assessee and not to the K.T. Doctor Family Trust independently of section 60 of the Income-tax Act.2. Whether the Tribunal was justified in law in deciding the said contention without remanding the case to the lower authorities.3. Whether the Tribunal was justified in law in holding that the business carried on by the assessee was not carried on for and on behalf of the K.T. Doctor Family Trust.Detailed Analysis:Issue 1: Tribunal's Justification in Raising Contention Independently of Section 60The Tribunal held that even apart from Section 60 of the I.T. Act, 1961, the business of K. T. Doctor Enterprise could not be considered the income of the trust based on the trust deed itself. The Tribunal concluded that the business income should be taxable in the hands of the assessee. The Tribunal's decision to permit the revenue to raise this contention was based on the interpretation of the trust deed, which merely empowered the trustees to carry on the business without obligating them to do so.Issue 2: Tribunal's Decision Without Remanding the CaseThe Tribunal did not find it necessary to remand the case to the lower authorities for further evidence. Instead, it directly concluded that the business income was not the income of the trust. The Tribunal substituted a new paragraph in its order, directing the ITO to reconsider whether the business income was taxable entirely in the hands of the assessee or partly in the hands of the assessee's wife as a partner or member of an association of persons. This decision was based on the Tribunal's interpretation that the business was not carried on by the trust.Issue 3: Tribunal's Conclusion on the Nature of the BusinessThe Tribunal concluded that the business of K. T. Doctor Enterprise was not the business of the trust, as there was no obligation on the trustees to carry on the business. The Tribunal focused on the absence of an obligation in the trust deed to carry on the business and concluded that the business income could not be considered trust income. This approach was found to be erroneous by the High Court, which clarified that business is property and can be vested in trustees. The High Court emphasized that the business carried on by the trustees would be the property of the trust and its income should be distributed according to the trust deed.High Court's Conclusion:The High Court found the Tribunal's approach erroneous, emphasizing that business is property and can be held by trustees. The High Court clarified that the business carried on by the trustees was the business of the trust. The income from such business should be distributed according to the trust deed and taxed in the hands of the beneficiaries per Section 161 of the I.T. Act. The High Court also noted that Section 60 of the I.T. Act was not applicable since the trust was created by the assessee's mother and not by the assessee himself.Final Judgment:The High Court answered the principal question (Issue 3) in the negative, in favor of the assessee and against the revenue. Consequently, it was unnecessary to answer Issues 1 and 2. The Commissioner was directed to pay the costs of the reference to the assessee.