Per Shri R.L. Sangani Judicial Member - These two appeals by the assessee relating to assessment years 1981-82 and 1982-83 are directed against two separate orders passed by the learned CIT, Gujarat-III, Ahmedabad on 20-3-1985 in exercise of powers under section 263 of the IT Act, 1961.

ITA No. 1174/Ahd./1985 :

2. A business of manufacture of soap detergent power used for washing clothes was being carried on by a firm in the trade name of M/s. Neo Detergent since 1-4-1979 in which there were seven partners as follows :

(1) Udaykumar K. Baraiya as trustee of Udaykumar Baraiya Family Trust;

(2) Udaykumar K. Baraiya, as an Individual;

(3) Jethiben Khodidas Patel;

(4) Bhikhiben R. Patel;

(5) Virchanddas Vandas Patel;

(6) Pramodkumar Kanjibhai Patel; and

(7) Smt. Maniben Kantilal Patel.

The last named partner viz., Smt. Maniben K. Patel retired from partnership with effect from 31-12-1979. With effect from that date the said firm was reconstituted. A deed of partnership dated 3-1-1980 was executed. Smt. Maniben retired from partnership and Shri Karsanbhai Kacharabhai Patel as trustee of the assessee-trust (Neo Trust) joined the partnership as partner. This reconstituted firm commenced business from 1-1-1980 and was dissolved with effect from 31-1-1980 by a deed of dissolution dated 7-2-1980. The business of the erstwhile firm was taken over by the assessee-trust as running business. From 1-2-1980 the said business was carried on by the assessee-trust. The accounting year of the assessee-trust for Assessment Year 1981-82 ended on 30-9-1980.

2.1 The ITO completed assessment for Assessment Year 1981-82 under section 143(3) read with section 161 of the IT Act, 1961 on 14-3-1983. In the assessment order the ITO determined (i) the income of the old firm for three months from 1-10-1979 to 31-12-1979 (Rs. 3,91,542), (ii) the income of the reconstituted firm in which the assessee-trust had joined as partner for period from 1-1-1980 to 31-1-1980 (Rs. 1,30,514); and (iii) the income of the assessee trust as proprietor of said business for eight months from 1-2-1980 to 30-9-1980 (Rs. 10,44,112). The income of the old firm and the reconstituted firm mentioned above was allocated amongst the concerned partners in accordance with the provisions of section 158 of the Act. As far as the income of the assessee trust as proprietor of the business was concerned, the ITO treated the assessee trust as specific trust and allocated the income amongst the beneficiaries of the assessee trust in accordance with the provisions of section 161 of the Act and raised no demand against the assessee-trust.

3. It is now necessary to state material facts relating to formation of the assessee-trust and other trusts who have been mentioned as beneficiaries of the assessee-trust.

3.1 On or about 9-12-1979 a discretionary trust was created in the name of Jayesh Hargovandas and Rakesh Karsanbhai Oral Discretionary Trust by Shri Manilal Kesurbhai Patel by settling Rs. 50 on the trustees. The beneficiaries of this discretionary trust were three minor children of the family. On 28-12-1979 another oral discretionary trust was created by Shri Pramod Kanjibhai Patel by settling Rs. 500 on the trustees. There were two beneficiaries of this oral discretionary trust created on 28-12-1979 one of which was oral discretionary trust mentioned above viz. Jayesh Hargovandas and Rakesh Karsanbhai Oral Discretionary Family Trust and the other was Sanjay Hargovandas and Rakesh Karsanbhai Oral Discretionary Family Trust. This second Oral Discretionary Family Trust had been created in the same manner as the first oral discretionary trust on or about 9-12-1979 and there were three beneficiaries in said trust who were minors named Rakesh K. Patel Hitesh J. Patel and Jayesh H. Patel.

3.2 In similar manner the following oral dicretionary trusts were created on or about 28-12-1979. Their names are as under :

(1) Rakesh Karsanbhai Oral Discretionary Family Trust.

(2) R.K. Oral Discretionary Family Trust.

(3