Law:

Section:

Section 184 of the Income-tax Act, 1961 - Firm - Registration - Entitlement to assessment years 1978-79 to 1980-81 - Assessee-firm consisted of five partners, three of whom were partners in a representative capacity representing three trusts - Each trust had one beneficiary, who were all minors - Tribunal found that amounts were first transferred by settlors to minors by way of gifts and then trusts were constituted - Whether in view of fact that settlors were incompetent to constitute trusts over minors' properties, aforesaid trusts had not been validly created and assessee-firm was not, therefore, entitled to registration - Held, yes FACTS The assessee-firm consisted of five partners, three of whom became partners in a representative capacity representing three trusts. There was only one beneficiary in each trust, and they were all minors. The ITO refused to grant registration to the assessee-firm on the ground that the trusts were formed as a device to avoid tax on the income of the minors which would be taxed along with their parents' income. On appeal, the AAC upheld the order of the ITO and held that the trusts had not been validly created. On second appeal, the Tribunal held that the amounts were first transferred by the settlors to the minors by way of gifts, and after the gifted amounts became the property of the minors, the trusts were constituted. The Tribunal, accordingly, held that the trusts constituted of the minors' properties were invalid and, therefore, there was no valid partnership. On reference: HELD The aforesaid finding of the Tribunal was a finding of fact. Thus, when the amounts were first transferred to the minors and they had become the property of the minors and if a trust was subsequently constituted by the guardians, it would not be valid in law, when considered in the light of section 7 of the Indian Trusts Act, 1882. The settlors could constitute a trust only with regard to property at their disposal. Here the properties were not available at their disposal. It belonged to the minors. The settlors were incompetent to create a trust over the minors' properties. So if the trusts were invalidly constituted the trusts could not be…

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