Validity of orally created trust upheld, not an AOP; assessment order unsustainable. Inconsistent tax treatment renders trust assessment redundant.

The Tribunal upheld the validity of the orally created trust, rejected its assessment as an Association of Persons (AOP), and deemed the assessment order unsustainable. The inconsistent tax treatment by the Income Tax Officer on beneficiaries individually rendered the trust assessment redundant. The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross objection challenging the trust's AOP status for statistical purposes.

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Issues: Validity of orally created trust, assessment of trust as AOP, applicability of tax provisions, sustainability of assessment order, cross objection by assessee.

Analysis:

1. The main issue in this case is the validity of an orally created trust by a deceased settler. The deceased expressed his desire to transfer his business to a trust verbally before his death, with subsequent correspondence between trustees confirming the trust's creation. The tax authorities assessed the trust's income and beneficiaries individually, leading to a dispute over the trust's validity. The CIT(A) upheld the trust's creation based on the open declaration by the settler and correspondence between trustees, directing regular assessment of the trust's income.

2. The second issue involves the assessment of the trust as an Association of Persons (AOP). The assessee contended that the trust should not be treated as an AOP, citing a precedent from the Tribunal Hyderabad Bench. The Tribunal found merit in the assessee's argument, noting that the trust's status as an AOP was not appropriate. The assessment order quantified the trust's income but did not result in any tax demand, rendering it unsustainable even as a protective measure.

3. Another issue pertains to the applicability of tax provisions in the assessment of the trust. The Tribunal highlighted the inconsistency in the Income Tax Officer's (ITO) approach, where taxes were levied on beneficiaries individually despite the trust assessment. The Tribunal ruled that the assessment, having been made on beneficiaries, rendered the trust assessment redundant. The Tribunal dismissed the Revenue's appeal due to the flawed assessment and allowed the assessee's cross objection challenging the trust's AOP status for statistical purposes.

In conclusion, the Tribunal upheld the validity of the orally created trust, rejected the AOP assessment, and deemed the assessment order unsustainable. The inconsistent tax treatment by the ITO led to the dismissal of the Revenue's appeal and the allowance of the assessee's cross objection on the AOP status.

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