A trust that has been extinguished cannot be assessed on its own income and there would be a separate assessment order for this trust.

A.K. Mathur, C.J.

1. This is an income-tax reference at the instance of the Revenue under Section 256(1) of the Income-tax Act, 1961. The Tribunal has referred the following three questions of law for answer by this court :

" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) who directed to make two separate assessments for the periods from January 1, 1981, to June 30, 1981, and July 1, 1981, to December 31, 1981 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) who held that the first trust executed on August 1, 1978, was validly extinguished on July 1, 1981 ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the trust created on July 1, 1981, could not be said to be unlawful not to apply the provisions of Section 161 of the Income-tax Act, 1961 ?"

2. The brief facts giving rise to this reference are that the assessee-trust had filed its return on June 29, 1981, declaring "nil" income. The Assessing Officer rejected the claims of the assessee that two separate assessments were required--one for the period from January 1, 1981, to June 30, 1981, and the other for the period from July 1, 1981, to December 31, 1981, and that the beneficiaries were to be taxed directly under Section 161 of the Income-tax Act, 1961. Against the order of the Assessing Officer, the assessee went in appeal to the Commissioner of Income-tax (Appeals), who considered the claims of the assessee and allowed the appeal. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Department approached the Tribunal and the Tribunal, after hearing the parties, affirmed the finding of the Commissioner of Income-tax (Appeals). Thereafter, the Department approached the Tribunal for referring the aforesaid questions of law to this court for answer. The Tribunal has consequently referred the said questions of law for answer by this court.

3. Truly speaking, questions Nos. (1) and (2) which have been raised by the Department, were nowhere agitated seriously. Before we answer questions Nos. (1) and (2), it is relevant to mention here that the first trust was created on August 1, 1978, in the name and style of Dharampal Family Trust by one Shri R. K. Jindal, son of Bhagwan Das, and the deed of settlement was executed appointing Dharampal and Smt. Karuna Bansal as trustees. The beneficiaries of the trust who had their shares were as under :

(1) Smt. Karuna Bansal, w/o, Dharampal Bansal,

(2) Kumari Sheetal Bansal, and

(3) Master Rajnish Bansal.

4. This trust continued for the assessment year 1981-82. The assessment was duly completed and the beneficiaries were directly taxed under Section 161 of the Act. This trust came to an end on June 30, 1981, and an intimation to this effect was given to the Income-tax Officer, Bhilai, on July 30, 1981. Another trust was created by Bhawarlal Surana on July 1, 1981, under the deed of settlement executed on the same date, in the name and style of Dharampal Family Trust, appointing Dharampal Bansal and Smt. Karuna Bansal as trustees. The beneficiaries of this trust were as under :

(1) Smt. Karuna Bansal, w/o. Shri Dharampal Bansal.

(2) Kumari Sheetal Bansal (minor), d/o. Dharampal Bansal.

(3) Master Rajnish Bansal (minor), son of Dharampal Bansal.

(4) Master Rahul Bansal (minor), son of Dharampal Bansal.

(5) Any other male or female issue of Dharampal Bansal.

(6) Any limited company or association of persons in which any of the family members of Dharampal Bansal is interested as director, or shareholder or member, as the case may be.

(7) Any public charitable trust or institution or scientific research institutions for the time being recognised and enjoying exemption under direct tax laws.

5. Shri V.K. Tankha, learned counsel for the Revenue, submitt