ORDER
N.D. Raghavan, Judicial Member
1. This is an appeal of the assessee challenging the order dated 16-1-1987 of the Commissioner of Income-tax (Appeals) as opposed to facts and law of the case.
2. The facts of the case are briefly these: The assessee, a resident having the status of Hindu undivided family and the accounting period ending with 3-11-1975 for the assessment year 1976-77 filed on 30-8-1976 its return showing an income of Rs. 20,500. The husband settled one-third part of bungalow No. 8, Prithvi Raj Road, New Delhi, by a Trust Deed dated 11-11-1974, executed between him as the settlor or the author of the Trust and the trustees being HUF consisting of himself and his wife, thereby, creating a Trust known as Mahavir Prasad Jaipuria Family Trust, for the benefit of the cestui qui trust, being the two sisters of the settlor, one sister-in-law of the settlor and three Private Limited Companies of which the Settlor is one of the shareholders and directors. In the preceding assessment year 1975-76 as the Assessing Officer opined that the Trust was not an irrevocable one, he referred the issues being vital to the Inspecting Assistant Commissioner under Section 144A for his guidance on the subject. The issues raised were two. The first was as to whether Shri Jaipuria, HUF, was entitled to dispose of the property of the HUF in the manner he liked even if there was one member in the HUF and that is his wife and also he is having married sisters. This issue was answered in affirmative by the Inspecting Assistant Commissioner in favour of the assessee. On the next issue as to whether under Section 63 of the Act, when the assessee has made three companies as beneficiary of which Shri Jaipuria, the karta of the HUF was one of the shareholders, he can be considered as deriving indirect benefit, The latter issue was answered in negative by the Inspecting Assistant Commissioner thus going against the assessee. Both the issues were decided after affording opportunity to the assessee and assigning reasons in his order dated 23-3-1978 under Section 144A of the Act. Accordingly, the Assessing Officer for the assessment year 1975-76, adopted his finding that the transfer should be deemed as revocable because the deed contained in their view the provision for re-transfer of whole or any part of income or asset to the transferee directly or indirectly. On appeal the Appellate Officer found that this finding did not result in any disputed addition of income or imposition of tax and consequently dismissed the same for the preceding assessment year 1975-76. For the succeeding assessment year of 1976-77 in question, the Assessing Officer observed that as he held earlier that the Trust was a revocable one wholly, the income of the property pro tanto has to be added to the total income of the assessee for this assessment year. Thus, the total income was ultimately computed at Rs. 20,642 in the assessment under Section 143(3) of the Act for the year in question resulting thus in an addition of Rs. 4,277. On appeal, this was confirmed. Hence the instant second appeal by the assessee.
3, The learned Counsel for the assessee submitted that Section 63 (a) of the Act does not at all apply to the instant case, as the Trust created is an irrecoverable one. There is no power or right for the settlor to receive any income directly or indirectly. Clauses 4 and 5 of the Deed may be seen. The former clause suggests clearly that this is a discretionary trust and not a specific Trust, the shares are being indeterminate and not specific. The IAC has erred in saying that the shares are determinate and specific. The relevant provisions of the Deed speaks for themselves that nothing comes back to the Settlor at all. Page 24 of the Paper Book may also be seen which is a suitable reply given to the IAC by the assessee. The status of HUF, Trust and company are absolutely separate, different and distinct legal entities under the Act. If re-transfer occurs it must be to the same entity unlike here where it reverts back to the trust when it is declared void. A registered shareholder can never be an HUF. A legal opinion obtained is also enclosed between pages 30 and 34 of the Paper Book which strengthens the stand of the assessee. Though it is admitted that discretion is given to the Trustees, the question is whether it is a revocable or an irrevocable Trust. A perusal of the relevant clauses of the Deed of Trust will speak that it is an irrevocable Trust. No dividend has also been declared till date by the companies. There is also no bar under the Act prohibiting even the Settlor becoming one of the beneficiaries under the Trust Deed and in that event the income vis-a-vis the other beneficiaries cannot be included in the settlor’s total income. On all counts, no case has been made out by the Revenue to stand erect. The Assessing Officer has failed to correctly interpret and appreciate the provisions and requirements of Section 63(a)(i) and other relevant provisions of the Act in effect, on law, in facts and circumstances of the case, the Appellate Officer too erred in upholding the finding of the Assessing Officer that the settlement upon irrecoverable trust by the assessee of a portion of the property at 8, Prithviraj Road, New Delhi was a revocable transfer and thereby in confirming the inclusion of Rs. 4,277 in the assessment.
4. On the other hand, the learned representative for the Revenue countered THAT: Under the Trust Deed, the trustees in their absolute discretion would give the whole or part of the income of the trust to any of the beneficiaries to the entire exclusion of one or more of them and in such manner as thought fit. Under these circumstances, the trustee could transfer any part of the income or corpus of the trust to any one of the three companies in which the assessee was a shareholder and Director. Whatever went to the coffers of the companies was indirectly the property of the shareholders of the companies. The companies could utilise the said income for the purpose of declaring dividend for the benefit of shareholders one among whom is the transferor. The transfer positively, therefore, contained a provision for the re-transfer indirectly of the whole or any part of the income or asset to the transferor. The transfer is revocable for the purposes of Sections 60 to 62 of the Income-tax Act. Hence provisions of Section 63(a)(i) of the Act are attracted.
5.1 We have heard the rival submissions besides going through the facts of the case on record and the orders of the authorities below including the relevant pages of the Paper Book to which our attention was drawn as well as the case laws referred by the parties. After doing so, we are of the opinion that neither the Assessing Officer nor the Appellate Officer appreciated the issue in question correctly and completely. The Appellate Commissioner has barely felt and not asserted that the conclusion of the IAC that the trust deed contained provision for retransfer indirectly of the funds of the Trust has not been rebutted by the learned Counsel just because the counsel could not show as to how the present case was not a case of an indirect retransfer in reply to his question to cite an example therefor. On the other hand, many case laws have been cited in support of the stand of the assessee as listed in para. 2.2 of the order impugned itself, along with brief propositions of law, besides reply dated 3-12-1977 of the assessee to the query of the Assessing Officer and that of 28-1 -1978 to the Inspecting Assistant Commissioner. We are able to find the stand of the Revenue as a weak one for the reasons following.
5.2 The relevant provision of Section 63 of the Act does not contemplate mere possibility of the property or income going back to the transferor but the reservation or provision of a definite right to retransfer or reassume as the original transferor. A perusal of the Deed of Trust shows that there is no provision or reservation that gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets nor for their retransfer to him. Moreover the resumption must be to himself in the same status and capacity. The company is a separate legal entity which is being incorporated under the Companies Act and no part of the assets or income of the company can belong to its shareholders. If the company were to receive any benefit or part of the property on the date of distribution, it would be received so in the company’s own rights and as a separate legal person as distinct from Directors or shareholders. We are unable to find any fallacy in the stand of the assessee that the fact the Settlor is shareholder or a director in the companies does not make him personally a beneficiary of the Trust.
5.3 The concern of the Revenue is of course that no one should be allowed to evade taxation by entering into colorable trust deeds by which in reality the income remains their own, although in name or on paper the income may be shown to be of some one else. We appreciate such anxiety of the Revenue and it is of course the clear object of Section 61 of the Act. Also it is true that though a settlement may be made by two or more persons, if there is a provision for retransfer directly or indirectly of income or asset to any of the settlors, the transfer would be deemed to be revocable transfer. But in the instant case, there are niceties to be appreciated. In our view the ratio decidendi of the judgment in the case of CIT v. Ratilel Nathalal [1954] 25 ITR 426 (SC) strengthens the submissions of the assessee. This decision is the affirmation of the view of the Hon’ble Bombay High Court. It has been held that where a settlement is, however, made by an HUF and there is a retransfer of asset or income to one of the members of the family as individual and in the capacity of the member of the family, the transfer would not be regarded as revocable. In other words, in the case of such a settlement of joint family property, if a member who has executed the settlement as representing the joint family is given a beneficial interest in the income in his individual capacity and for this personal benefit, that would not be a case of retransfer of income to the joint family, the trust would not be a revocable trust within the meaning of the clause and the income received by the coparcener in his individual capacity would not be includible in the total income of the joint family.
5.4 In the instant case it cannot be said there is a re-transfer or reassumption to the settlor just because the settlor happens to be a shareholder or Director of the company. Even assuming that there Is transfer, it is not in the same capacity of the settlor prior to the Trust Deed but in a different capacity as a shareholder or Director of the company, which is one of the beneficiaries under the Trust Deed. Vide: CIT v. Trustees of Sreeram-surajmull Charity Trust [1971] 79 ITR 649 (Cal.) and Income-tax Law by Chaturvedi & Pithisaria Volume-II, page 1024. We are, therefore, unable to see that the trust in question is a revocable Trust. A transfer is deemed to be revocable under Section 63(a)(i) and (it), if it contains any provision (a) for the transfer or (b) for reassumption directly or indirectly of the whole or any part of the income or assets to the transferor. The word ‘re-assumption’ means annulling of the Trust and a right to act in the original capacity which existed prior to the settlement. Vide Income-tax Law by A.C. Sampath lyenger, Volume-II, page 1178. A perusal of the deed convinces us that there is no provision for retransfer or reassumption directly or indirectly of the whole or any part of the income or asset to the transferor, the settlor.
5.5 Even otherwise, the provisions of the Trust are such that the trustees have the discretion whether or not to give any benefit out of the settled property to any particular beneficiary. Indeed there is no specific or definite provision in the Deed giving the transferor a right to reassume power or retransfer to the same effect reserved by the transferor. We further find that the settlor is not included as beneficiary but is only a shareholder or a Director of the Companies having no definite right to get anything but are merely included within the possibility of receiving something. It is also a well-settled proposition of law as laid down in the famous case of Soloman v. Soloman that no part of asset or income of the company belongs to the shareholders even when all or nearly all the shares are owned by a particular individual. Therefore, it is obvious, to hold that the benefit received by the company is the benefit received by the shareholder or that a property belonging to or received by the company belongs to or is received by the shareholders is quite erroneous.
5.6 It is only if the discretion is exercised in favour of the companies in question and, thereafter the companies distribute such amount either on liquidation or otherwise that the settlor might receive that asset yet it can not attract Section 63 of the Act but it can be said as theoretical benefit to the settlor which may arise only under Section 62 of the Act which applies where the trust is revocable and if the trust is not otherwise revocable it is not proper to consider it under Section 62 of the Act. Further Clause 5 of the Trust Deed makes it very clear that in the event of the Trust being held void for any reason whatsoever, there shall be no resulting Trust in favour of the Settlor or his legal representatives and the assets affected thereby shall belong absolutely to the Trustees of the Trust to be held on the same terms of the Trust Deed if the Trust is no longer in existence then the entire Trust Fund and future income shall be held absolutely for such public charitable purpose as the trustees may determine. Accordingly, the intention of the Settlor is confirming that he does not want any interest in the trust and is further affirming that there is no retransfer or reassumption to the original settlor.
6. In this view of the matter, we are of the opinion that the Revenue has no case viewed from any angle on the facts and circumstances of the instant case. We, therefore, set aside the order impugned as it is standing on the weak foundation. Accordingly, we direct deletion of the inclusion of Rs. 4,277 in the assessment by accepting the ground of appeal.
7. In the result, the appeal of the assessee is allowed hereby.