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Interpretation of section 164 Explanation 1(ii) of the Income-tax Act, 1961 in relation to first level trust and second level trust beneficiaries. Detailed Analysis: The judgment delivered by the High Court of Gujarat involved a case where the matters related to first level trust and second level trust beneficiaries. The petitioner, represented by a senior advocate, argued that the Assessing Officer, Commissioner (Appeals), and Tribunal had not properly considered the provisions of section 164 of the Income-tax Act, 1961, specifically Explanation 1(ii), while assessing tax liabilities. The petitioner contended that the original trust had determinate beneficiaries with fixed shares, and any act of selling or assigning their rights would not change the nature of the trust to a discretionary one. The petitioner relied on legal precedents to support the argument that tax should not be charged at the maximum marginal rate based on the specific provisions of the law. On the other hand, the counsel for the Revenue argued that the thrust of the matter lies in the concept of "specifically receivable" under section 164, highlighting that the assignment of rights by beneficiaries altered the determination of shares, justifying the tax treatment by the authorities. The second level trust, considered as a body of individuals, was believed to ultimately benefit from the income, leading to decisions against the assessee's interest. The Tribunal's orders were examined by the High Court, which found that the Tribunal had not properly considered the application of section 164 Explanation 1(ii) in the case. The Tribunal's focus on assignments and intentions of the parties, rather than the legal provisions, was deemed incorrect. The High Court emphasized that the individual shares of beneficiaries should have been explicitly stated in the trust deed, as required by the law, which the Tribunal failed to address. Consequently, the High Court concluded that the Tribunal's decision was not based on a proper interpretation and application of the law, leading to an unfavorable outcome for the assessee. The matter was remanded back to the Tribunal for a reconsideration of the liabilities of the first level trust beneficiary. The Tribunal was directed to reevaluate the case in light of relevant legal judgments, without making any prejudicial observations that could impact the rights of either party. The High Court refused to comment on the merits of the case to ensure a fair reassessment by the Tribunal.
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