Law:

Section:

Section 160, read with section 184, of the Income-tax Act, 1961 - Trustees - Assessment of - Assessment years 1976-77 to 1980-81 - Assessee, a partner in a firm, created a trust by a registered document for benefit of ten beneficiaries of whom nine were minors - Assessee's share in said firm was constituted as trust property - Subsequently, firm was dissolved and trust took over dissolved firm's business and became sole proprietor of same - Deed of trust provided for adjustment of loss debited to beneficiaries' account against income credited in earlier periods - Assessing Officer held that trust itself was void and that assessee's income prior to constitution of trust was to be assessed in his hands - Whether trust having continued to exist, there was no illegality in trustee being a partner, and in trust taking over business of dissolved firm and continuing it as proprietary business of trust - Held, yes - Whether, therefore, share income from firm could not be assessed in hands of assessee personally - Held, yes FACTS The assessee, who was a partner in a firm, created a trust on 5-3-1976 by a registered document for the benefit of ten beneficiaries of whom nine were minors. The assessee's share in the firm was constituted as the trust property under the deed. The firm was dissolved with effect from 1-4-1979 and the trust took over the business of the dissolved firm and became the sole proprietor of the same. The trust deed was further rectified on 22-3-1980 by incorporating therein a clause to the effect that the share of the loss debited to the account of any beneficiaries was to be adjusted against income credited in the earlier periods, and that loss adjusted, if any, was to be deducted out of the capital fund upon the dissolution of the trust, and, further, that the beneficiaries were not to be held personally liable for the loss. The Assessing Officer, however, held that the trust itself was void and the income from the share that had been held in the firm by the assessee prior to the constitution of trust was to be assessed in his hands. On appeal, the AAC and the Tribunal upheld the validity of the trust. On reference : HELD It is well-settled that…

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