COMMISSIONER OF INCOME TAX vs. TANVI SAJNI FAMILY TRUST

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ITR/4/1985HC GujaratGJHC24012137198509 August 2000Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE2 pages
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What did the High Court hold?

The High Court, following its previous decision in CIT v. Tanvi Sajni Family Trust (209 ITR 497) for Assessment Year 1975-76, answered both referred questions in the affirmative, against the revenue and in favour of the assessee. In the prior decision, the Court had held that the Trust Deed stipulated determinate shares for the beneficiaries, thus the provisions of Section 164 of the Income-tax Act, 1961, were not applicable. Consequently, the Tribunal was correct in holding that the trust was entitled to a deduction for interest paid to beneficiaries on income that the beneficiaries had kept with the trust as a loan. The deletion of interest charged under Section 217 was upheld based on this reasoning. The reference was disposed of accordingly, with no order as to costs.

What were the facts?

This case involves an Income Tax Reference filed by the Commissioner of Income Tax (Revenue) against Tanvi Sajni Family Trust (Assessee) for the Assessment Year 1980-81. The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'B', had referred two questions of law for the opinion of the High Court. The High Court noted that similar questions concerning the same assessee had already been decided by it in CIT v. Tanvi Sajni Family Trust, reported in 209 ITR 497, for the Assessment Year 1975-76. The present reference pertains to the Assessment Year 1980-81.

What were the issues?

The High Court was asked to decide the following questions: 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has not erred in law and on facts in holding that the assessee trust is a non-discretionary trust and the income is liable to be allocated amongst the beneficiaries for the purpose of taxing the same in their hands? This question turns on the interpretation of the Trust Deed and the applicability of provisions related to the taxation of trust income. 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has not erred in law and on facts in deleting the interest of Rs. 18,676/- charged under section 217 of the Income-tax Act, 1961? This question concerns the deductibility of interest paid to beneficiaries. The Revenue contended that the trust was discretionary and the income should be taxed in the hands of the trust. The Assessee argued that the trust was non-discretionary, and the income was taxable in the hands of the beneficiaries. The judgment does not explicitly record arguments for each side on the second issue, but the context implies the Revenue sought to charge interest and the Tribunal deleted it.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 217,Section 164

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 4 of 1985

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and Hon'ble MR.JUSTICE A.R.DAVE

============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO 1 Yes 2 to 5 No -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus TANVI SAJNI FAMILY TRUST -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner SERVED BY RPAD - (N) for Respondent No. 1 --------------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE

Date of decision: 09/08/2000

ORAL JUDGEMENT (per R.K. Abichandani, J.)

The Income Tax Appellate Tribunal, Ahmedabad Bench 'B', has referred the following questions for the opinion of this Court under sec. 256(1) of the Income-tax Act, 1961. 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has not erred in law and on facts in holding that the assessee trust is a non-discretionary trust and the income is liable to be allocated amongst the beneficiaries for the purpose of taxing the same in their hands?

2.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has not erred in law and on facts in deleting the interest of Rs. 18,676/- charged under section 217 of the Income-tax Act, 1961?

2.

When this reference is called out for hearing, it is pointed out that in case of this very assessee these questions are already decided by this Court in C.I.T. v. Tanvi Sajni Family Trust reported in 209 ITR 497 for the Assessment Year 1975-76. The present reference relates to Assessment Year 1980-81. In the said decision it was held that under the Trust Deed the shares of the beneficiaries were determinate and that the provisions of sec. 164 of the Income-tax Act did not apply in the instant case. It was held that the Tribunal was right in holding that the trust was entitled to deduction of interest paid to beneficiaries on the income from the trust which was kept by the beneficiaries as a loan.

3.

Following the said decision, we answer both the questions referred to us in the affirmative, against the revenue and in favour of the assessee.

4.

The reference stands disposed of accordingly with no order as to costs. ______ (R.K. Abichandani, J.)

(A.R. Dave, J.) (hn)

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