1992 (6) TMI 3 - HC - Income Tax

Summary

Issues:
1. Whether the Tribunal was correct in allocating income between beneficiaries and a charitable trust?
2. Whether the case involves diversion of income at source or application of income?

Detailed Analysis:

Issue 1:
The case involved a trust created for the benefit of three granddaughters, with income and corpus to be equally shared among them until a specified age. The beneficiaries later assigned their rights in the income to a charitable trust. The court examined the deed of trust, where beneficiaries were competent to transfer their interest in the trust properties or income. By assigning a portion of the income to the charitable trust, the beneficiaries divested themselves of that part of the income at the source. Citing the Indian Trusts Act, the court held that the income assigned to the charitable trust cannot be taxed in the hands of the beneficiaries as it did not accrue to them.

Issue 2:
The court referred to the case of CIT v. Smt. Kasturbai Walchand Trust, where a beneficiary surrendered her right under the trust for charitable purposes, extinguishing her entitlement to the income. Drawing a parallel, the court found that the beneficiaries in the present case, by assigning their income to the charitable trust, relinquished their right to receive that portion of the income. The court distinguished between the application of income after accrual and diversion of income by overriding title, following the principle laid down in Moti Lal Chhadami Lal Jain v. CIT. Ultimately, the court concluded that no referable question of law arose, leading to the dismissal of the petition and discharge of the rule with costs.