The trust was not created by or on behalf of the minors, and the income from business activities was subject to assessment under S.161 (1) of the Income-tax Act, 1961.

1. At the instance of the Revenue, the following common question in respect of the two assessment years 1973-74 and 1974-75 has been referred to this Court:

"Whether, ob the facts and in the circumstances of the case, the assessee is entitled to be assessed under S.161 (1) of the Income-tax Act, 1961?"

2. The facts leading to the reference are as follows: The firm 'Messers. V. S. Kumaraswamy Reddiar' had been engaged in business in piece goods. The constitution of the firm had undergone changes from time to time. As on 16-8-1971, the firm, constituted under the partnership deed executed on that day, consisted of four partners, Kumara Swamy Reddiar, Nagaraja Reddiar, Radhakrishna Reddiar and Kannan.

3. It appears that some time in 1972 the partners had discussions regarding the manner in which the business should be conducted in future. The result of such discussions is evidenced by the agreement dated 30-3-1972 which is Annexure B to the reference. H recites an agreement for the transfer of the business of Messrs. V. S. Kumaraswamy Reddiar to Sri V. S. Kumaraswamy Reddiar and Sri. K. Nagaraja Reddiar "who have agreed to constitute a trust effective from the 1st day of April 1972" for the benefit of the 9 persons referred to therein. After providing that Kumaraswamy Reddiar and Nagaraja Reddiar shall be the trustees, the agreement further provides that Sri. V. S. Kumaraswamy Reddiar shall be possessed of all the assets as on 31-3-1972. Clause.5 of the agreement states that "a trust deed shall be made out and

registered constituting the trust on 1-4-1972 " The agreement further provides for the execution of an agreement of sale in respect of the assignment of the business to the trust. In accordance with the terms of Annexure B agreement, entries were made in the books of the firm, which evidence the transfer of various amounts to the trust fund. As envisaged under the agreement a trust-deed was executed on 1-4-1972. This is Annexure D to the reference. Para.2 of the trust-deed deals with the appointment of Nagaraja Reddiar as one of the trustees along with the founder trustee. Clause (b) of that paragraph deals with the name of the trust and details relating to the Head Office and Branch offices Under Para.6 (d) the Trust is empowered "to acquire and deal with the business property, assets and the liabilities of any Trust, Firm, Company or person carrying on any business within the objects of the Trust". It is not necessary to refer to all the paragraphs in the trust-deed for a consideration of the question referred to us for decision. On 1 4 1972, an agreement of sale relating to the business of Messrs. V. S. Kumaraswamy Reddiar and Sons was executed in favour of the Trust and this is evidenced by Annexure E.

4. In the course of the assessment proceedings relating to the assessment year 1973-74, the assessee claimed that it should be assessed under S 161 (1) as a representative assessee coming within the provisions of S.160 (1) (iv) of the Income-tax Act, 1961. This request was declined by the income-tax Officer for the reason that 'minors also' were 'the authors of the trust', and that the requisite permission of a Principal Civil Court for the creation of a trust by or on behalf of minors, as contemplated in S.7 of the Indian Trust Act, 1822 had not been obtained. In so doing, the Income-tax Officer principally relied on Para.2 and 17 of the trust-deed. Consequently, the assessment was made assigning to the assessee, the status of an association of persons.

5. The appeal preferred by the assessee was allowed by the Appellate Assistant Commissioner by bis order dated 1 3 1976. The Appellate Assistant Commissioner noted that the Income-tax Officer was not correct in assuming that Para.2 of the trust-deed related to an agreement by the minors to transfer sums of money to the trustees. (The Appellate Assistant Commissioner is correct in his observation, for, Para.2, as noticed earlier, related to the trustees, the name of