Law:

Section:

Section 160 of Income-tax Act, 1961 - Trust/Trustees - Assessment of - Assessment years 1986-87 and 1987-88 Where respondent-trust was created in year 1981 when sole beneficiary was a minor aged 14 years, trust was to be operative until beneficiary became 21 years of age and, thereafter, trust property was to be transferred to beneficiary but on becoming major on 13-11-1984, sole beneficiary revoked trust and took over assets and business of trust and started carrying on business as proprietor with effect from 1-4-1985, as sole beneficiary opted to revoke trust in exercise of his authority under section 78 of Trusts Act, Department could not insist and hold that trust would continue in force till duration as stated in trust deed; hence, assessment of trust for assessment years in question was not permissible [In favour of assessee] The respondent-trust was created in the year 1981 when the sole beneficiary was a minor aged 14 years. The trust was to be operative until the beneficiary became 21 years of age and thereafter, the trust property was to be transferred to the beneficiary. However, on becoming major on 13-11-1984, the sole beneficiary revoked the trust and took over the assets and business of the trust and started carrying on business as the proprietor, with effect from 1-4-1985. Relying on clause 2 of the trust deed, the Assessing Officer held that the trust was continuing business and consequently, the respondent was assessed as a trust, even though the beneficiary was also assessed in his individual capacity on the same income. Held that, as the sole beneficiary opted to revoke the trust in exercise of his authority under section 78 of the Trusts Act, the Department could not insist and hold that the trust would continue in force till the duration as stated in the trust deed. The trust did not survive beyond 1-4-1985, and, thereafter, no assessment on trust was permissible. JUDGMENT C.N. Ramachandran Nair, J. - In these connected cases, the question raised is whether the sole beneficiary of the trust can revoke the trust before the duration of the trust. The respondent trust was created in the year 1981 when the sole beneficiary Mr. Nelson was a…

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