COMMISSIONER OF INCOME-TAX VS MANGALDAS BECHARDAS FAMILY TRUST, 2000 PTD-GUJARAT-HIGH-COURT-INDIA 2356 (1998)

Income-tax---

----Representative assessee---Assessment---Trustee---Trust deed authorising trustee to do business as a proprietor or partner---Trustee becoming partner in a firm in a representative capacity---Assessment could not be made on protective basis. on trustee in his individual capacity---Share received by trustee was assessable in the hands of trust---Indian Income Tax Act, 1961.

The assessee was a discretionary trust. The trust was a partner in the firm of J. Admittedly, under the trust deed, the trust could join as partner in a partnership firm. The trustees were authorised specifically to carry on business as proprietor or as a partner in a firm. The Income-tax Officer rejected the claim of the assessee that the partner who had joined the firm, had joined it in a representative capacity for the trust and not in his individual capacity. The Commissioner of Income-tax (Appeals) disagreed with the Income-tax Officer and held that the share of the income from the firm of was assessable in the hands of the assessee-trust for both the assessment years 1976-77 and 1977-78. The view of the Commissioner of Income-tax (Appeals) was upheld by the Tribunal. On a reference:

Held, that the trustee can join a partnership firm in a representative capacity. It is also an admitted fact that in the partnership deed, it was clearly mentioned that the partner had joined as partner in his representative capacity for and on behalf of the trust. It was also an admitted fact that the trust deed did authorise trustees to do business either' as proprietors or as partners. In this background, there was no case for making any assessment on protective basis against the trustee in his individual capacity. The Tribunal was right in law in cancelling the assessment made on a protective basis.

B. B. Naik for Manish R. Bhatt for the Commissioner.

Manish Shah for J. P. Shah for the Assessee.

JUDGMENT

R. K. ABICHANDANI, J.---Both these matters involve similar questions and have been argued together by learned counsel for both the sides.

In Income-tax Reference No.412 of 1983, the Tribunal has referred the following question for the opinion of this Court under section 256(1) of the Income tax Act; 1961:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the protective assessment made by the Income-tax Officer on the assessee-trust was liable to be cancelled?"

In Income-tax Reference No.408 of 1983, the questions referred by the Tribunal are as follows:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the income from the partnership firm, Jayshankar B. Upadhyaya, was the income of the assessee?

(2) Whether, on 'the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the income from the firm, Jayshankar B. Upadhyay, in the name of the assessee was not the income of Shri, Jayshankar B, Upadhyay?

(3) 'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the protective assessment made by the Income-tax Officer was liable to be set aside?"

Both the reference pertain to the assessment years 1976-77 and 1977-78. Income-tax Reference No.412 of 1983 is argued as a lead matter by both the sides with a request to treat their contentions to be the same in Income-tax Reference No.408 of 1983.

In both the references, the assessees are discretionary trusts. These trusts were partners in the firm of Jayshankar B. Upadhyay. Admittedly, under the trust deeds, the trust could join as partner in a partnership firm. The trustees were authorised specifically to carry on business as proprietor or as a partner in a firm.

The Income-tax Officer rejected the claim of the assessee that the partner who had joined the firm, had joined it in a representative capacity for the trust and not in his individual capacity. The Commissioner of Income-tax (Appeals) disagreed with the Income-tax Officer and held that the share of the income from the firm of Jayshankar B. Upadhyay was assessable in the hands of the assessee-trust for both the assessment years. .The Tribunal found that the view which was taken by the Income-tax Officer was contrary to the settled legal position, because a trustee can join a partnership firm in a representative capacity.

The factual position which was not in dispute was summarised by the Tribunal and it was held that Jayshankar B. Upadhyay was a genuine firm -which was duly registered. It was also found that the partnership deed of the firm clearly mentioned the fact that the said partner had joined the firm in his capacity as a trustee of the assessee-trust and was representing the trust in the firm. It was, therefore, held that the assessee-trust was entitled to the share of income from the firm of Jayshankar B. Upadhyay in which Mr. S.T. Joshi was representing the trust in both the assessment years. On these findings, it was held that the Income-tax Officer was wrong in making the assessments on protective basis and holding that the income belonged to these partners who were the trustees (S.T. Joshi and J. B. Upadhyay), in- their individual capacity.

There is no dispute about the proposition of law that a trustee can join a partnership firm in a representative capacity. It is also an admitted fact that in the partnership deed, it was clearly mentioned that these two partners had joined as partners in their representative capacity for and on behalf of these two trusts. It is also an admitted fact that the trust deed did authorise the trustees to do business either as proprietors or as partners. In this background; we are of the view that the Tribunal was fully justified in holding that there was no case for making any assessment on protective basis against these persons in their individual capacity. The questions referred to us are, therefore, answered in the affirmative, against the Revenue and in favour of the assessee. Both the references stand disposed of accordingly with no order as to costs.

M.B.A./4148/FCOrder accordingly.