Bombay High Court
Mehta Jaising Construction, Through ... vs The Asst. Commissioner Of Income-Tax ... on 3 April, 2025
Author: M. S. Karnik
Bench: M. S. Karnik
2025:BHC-OS:6264-DB
401-ITXA-3838-09.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL (IT) NO.3838 OF 2009
Mehta Jaising Construction ...Appellant
Versus
The Asst. Commissioner of Income-tax,
Circle-19(1), Mumbai ...Respondent
Mr. Vipul B. Joshi a/w. D. H. Hariya, Mr. Prashant Ghumare for the
Appellant.
Ms. Mamta Omle for the Respondent.
CORAM: ALOK ARADHE, CJ. &
M. S. KARNIK, J.
DATE: 3rd APRIL, 2025
ORAL JUDGMENT: (PER CHIEF JUSTICE)
1. This Appeal under Section 260A of the Income Tax Act, 1961
(the Act) has been filed by the Assessee. The subject matter of the
Appeal pertains to the Assessment Year 2003-2004. The Appeal was
admitted on the following substantial question of law:
"Whether on the facts and in the circumstances of the case,
the Tribunal was justified in law in holding that the status of
the Appellant Trust was that of Association of Persons and
thus the lower authorities were justified in disallowing
interest of Rs.9,40,686/- paid to the beneficiaries under
Section 40(b) of the Income Tax Act, 1961 ?
2. The facts giving rise to filing of this Appeal, in nutshell, are that
during the material time Mehta Jaising Construction was constituted as
a Private Specific Trust which was settled on 24/1/2000 by Ms. Indira
B. Jaising. Six trustees were entrusted to execute the object of the Trust
for the benefit of 34 beneficiaries, which included minor beneficiaries,
401-ITXA-3838-09.doc
whose legal guardians were not the trustees. The assessee has been
filing the return of income regularly in the status of an Association of
Persons. The assessee, for the Assessment Year 2003-2004, filed the
income as an Association of Persons and declared the income of the
assessee as "Nil", as the current year's income was set off against the
forwarded losses.
3. The Assessing Officer, by an order dated 27/3/1998, inter alia by
applying the test laid down by the Supreme Court judgment in CIT v.
INDIRA BALKRISHNA,1 held that the beneficiaries have come together
voluntarily by pooling their monies in the trust with clear knowledge
that the funds shall be utilized by the trust for the business of the
project undertaken by them. The Assessing Officer further held that the
trust, through the trustees, is assessable as an Association of Persons
under Section 161 of the Act.
4. Being aggrieved by the aforesaid order, the assessee preferred an
Appeal. The Commissioner of Income Tax (Appeal), by an order dated
15/7/1999, dismissed the Appeal preferred by the assessee. Thereupon
the assessee filed an Appeal before the Income Tax Appellate Tribunal.
The Appellate Tribunal, by an order dated 3/1/2003, has dismissed the
Appeal preferred by the assessee. Hence this Appeal.
5. Learned counsel for the assessee has submitted that fundamental
1(1960) 39 ITR 546 (SC)
401-ITXA-3838-09.doc
requirement of the concept of Association of Persons is that there has to
be a common purpose of common action with the object of producing
income, profits or gains. It is further submitted that mere fact that there
exists a common source of income in which two or more persons are
interested as members or otherwise is neither conclusive nor
determinative of the status of a person. It is also submitted that a
Private Specific Trust, even if doing business, cannot be treated as an
Association of Persons. It is further submitted that neither the trustees
nor beneficiaries have come together with a common purpose or
common action with the object of producing income, profits or gains. In
support of the aforesaid submissions, reliance has been placed on the
decision of the Supreme Court in the case of CIT VS. Indira balkrishna
(supra) and on a division bench decision of this Court in CIT v.
MARSONS BENEFICIARY TRUST2
6. It is urged that the expression "individual" includes a group of
individuals and provisions of Section 161(1A) of the Act do not have
the effect of changing the status of assessee, as it pertains to the rate of
taxation. It is submitted that in the facts and circumstances of the case,
the provisions of Section 164(1) are applicable, as in case of a
discretionary trust where the shares of beneficiaries are indeterminate
or unknown. In support of the aforesaid submissions, reliance has been
placed on a division bench decision of this court in L. R. PATEL FAMILY
2 (1991) 188 ITR 253 (Bombay).
401-ITXA-3838-09.doc
TRUST VS. ITO3
7. On the other hand learned counsel for the revenue submits that
the findings that the trust is an Association of Persons has been
recorded by the Income Tax Officer on the touchstone of law laid down
by the Supreme Court in CIT VS. INDIRA BALKRISHNA (supra). It is
further submitted that the order passed by the Income Tax Officer has
been upheld in Appeal by the Commissioner of Income Tax (Appeals) as
well as the Income Tax Appellate Tribunal. It is further submitted that
the findings recorded by the Authorities by no stretch of imagination
can be termed as perverse. It is, therefore, contended that no case for
interference, with finding of fact which is based on meticulous
appreciation is called for, in this Appeal under Section 268 of the Act.
8. Heard rival submissions made on behalf of both sides and have
perused the record.
9. Before proceeding further, it is necessary to take note of Section
40 (ba) of the Act which is extracted below for the facility of reference:
"40. Notwithstanding anything to the contrary to section
40 to 48 the following amounts shall not be deducted in
computing the income chargeable under head "the
Profits and gains of business or profession.
(ba) In the case of an Association of Persons or body
of individuals (other than a company or co-operative
society or a society registered under the Societies
3 (2003) 262 ITR 520 (Bombay)
401-ITXA-3838-09.doc
Registration Act, 1860 (2A of 1860) or under any law
corresponding to that Act in force in any part of (India),
any payment of interest, salary, bonus, commission or
remuneration, by whatever name called, made by such
association or body to a member of such association or
body."
10. The Supreme Court in INDIRA BALKRISHNA (supra) has held
that an association of persons must be one in which two or more
persons jointly held common purpose or common action and as the
word occurs in a section which imposes tax on income, the association
must be one which produces income, profits or gains.
11. The scope of Appeal under Section 260A of the Act is well settled.
This Court, in an Appeal under Section 260A, can interfere with the
finding of fact only if when the same is shown to be perverse. [See :
SYEDA RAHIMUNNISA VS. MALAN BI BY L.RS. AND ORS.4 and
PRINCIPAL COMMISSIONER OF INCOME TAX, BANGALORE & ORS.
VS. SOFTBRANDS INDIA P. LTD.]5 The Assessing Officer, by applying
the aforesaid criteria to the facts of the case, has held that the
beneficiaries have come together voluntarily by pooling their money in
the trust with clear knowledge that the funds will be utilized by the
trust for the business of project work undertaken and would result in
profits for the trust and consequently for the beneficiaries. Thus, the
Assessing Officer has recorded a finding that the Trust is an Association
4 (2016) 10 SCC 315
5 (2018) 406 ITR 513
401-ITXA-3838-09.doc
of Persons. Accordingly, the interest claim of Rs.9,40,686/- to the
beneficiaries has been disallowed. The aforesaid findings recorded by
the Income Tax Officer as Assessing Officer, has been upheld in Appeal.
The Income Tax Appellate Tribunal has held that the assessee himself
has declared the status as an association of persons and on that basis,
the Assessing Officer has passed the order. It has further held that
declaration by assessee is not a mistake which has been erroneously
made, as no attempt has been made to rectify the aforesaid mistake. It
is also pertinent to note that the assessee, while filing the return, had
described itself as an Association of Persons for which neither any
attempt has been made to correct the so called mistake nor any
explanation has been offered for making such a mistake.
12. The order passed by the Assessing Officer as well as the
Commissioner of Income Tax (Appeals) and the Income Tax Appellate
Tribunal is based on meticulous appreciation of evidence. The finding
of fact recorded therein by no stretch of imagination can be said to be
perverse.
13. For the aforementioned reasons, the substantial question of law is
answered in the affirmative. In the result, the Appeal fails and is hereby
dismissed.
(M. S. KARNIK, J.) (CHIEF JUSTICE)
