1994-VIL-250-GAU-DT

Equivalent Citation: [1996] 220 ITR 100, 134 CTR 337, 74 TAXMANN 112

GAUHATI HIGH COURT

Date: 20.01.1994

COMMISSIONER OF INCOME-TAX

Vs

LAKSHMI PRASAD LAHKAR

BENCH

Judge(s)  : S. N. PHUKAN., DR. M. K. SHARMA 

JUDGMENT

The judgment of the court was delivered by

DR. M. K. SHARMA J. --- 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 ?"

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of the case and that the income was assessable in the hands of the managing trustee as the money settled on trust was withdrawn from the fund of the firm, wherein the managing trustee was the major partner holding 45 per cent. share although the amount was withdrawn from the personal account of the settlor who had no credit on the personal account on the relevant date.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 assessee, 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.

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.

Of the three questions referred to this court for opinion, the first question itself, in our opinion, comprehends the third question and as such they are being discussed together while the second question is being dealt with separately.

Before us the Revenue has mainly urged two grounds in respect of the first and third questions referred to us for our opinion, namely, (i) the trust deed is invalid ; and (ii) the beneficiaries in the trust deed are indeterminate and uncertain and as such the trust deed fails for uncertainty of the beneficiaries.

To appreciate the contention urged by the Revenue before us we have perused the terms and conditions of the trust deed including clauses 4, 5 and 8. The contention of the Revenue was that in view of the fact that unborn children of the assessee have been made the beneficiaries from the date of birth the trust was void for uncertainty.

Mr. Talukdar, learned counsel appearing for the Revenue, has further submitted that the beneficiaries of the trust being uncertain the trust should be taken to be invalid.

We have carefully perused the different provisions of the trust deed including the relevant clauses, namely, clauses 4, 5 and 8 of the trust deed and also have given our thoughtful consideration to the submissions made on behalf of the Revenue. It is well-settled that to constitute a valid trust the author of the trust must indicate with reasonable certainty : (a) the intention on his part to create a trust (b) the purpose of the trust ; (c) the beneficiaries ; (d) the trust property ; and (e) transfer of property to the trust. On consideration of the trust deed of the case in hand we are of the opinion that all the five factors indicated above are present in the trust deed in hand. We further find that the intention of the testator as indicated in the trust deed cannot be said to be uncertain, inasmuch as, the trust deed gives the description of the person who is to be benefited. It is also well-established that the trust may be created in favour of an unborn person provided it satisfies the conditions laid down in section 13 of the Transfer of Property Act, even though the coming into existence of such a beneficiary is uncertain. We also cannot accept the submission of learned counsel appearing for the Revenue that the shares of the beneficiaries were indeterminate as per clause 4 of the trust, inasmuch as, clause 8 of the trust deed specifically determines the shares of the beneficiaries which is apparent on a perusal of clause 8 of the trust deed. We are, therefore, of the view that the trust, namely, Lakshmi Prasad 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 hands of the trustee, in his individual capacity.

This takes us to the question as to whether the Income-tax Officer was justified in the instant case in resorting to the provision of section 154 of the Income-tax Act. It is clear that under the provisions of section 154 of the Income-tax Act, the income-tax authorities are empowered to amend any order passed by them under the Act with a view to rectifying any mistake apparent from the record. A " mistake " is an omission made not by design but by mischance. A " mistake apparent " is a mistake that is manifest. In other words, the mistake must be so plain or obvious that it could be realised without a debate or dissertation. The plain meaning of the word " apparent " is that it must be something which appears to be so ex facie that it is incapable of argument or debate. Therefore, a mistake can be regarded as apparent only when it is a glaring, obvious or self-evident mistake and not something which can be established by a longdrawn process of reasoning on points on which there may be two opinions. As the issue in hand is debatable and not obvious or self-evident, therefore, the provisions of section 154 are not applicable to the facts and circumstances of the case.

In view of our aforesaid findings our answer to the questions referred to us are, therefore, as below :

Question in respect of R. A. No. 134/(Gau) of 1988 --Yes.

Question in respect of R. A. No. 135/(Gau) of 1988 --Yes.

Question in respect of R. A. No. 136/(Gau) of 1988 --Yes.

The reference is thus disposed of by answering all the three questions in the affirmative, in favour of the assessee and against the Revenue. We, however, make no order as to costs.

 

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