1988 (6) TMI 28 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Appellate Tribunal was justified in holding that only a sum of Rs. 18,000 could be brought to tax under section 160(1) of the Income-tax Act, 1961.
2. Whether the balance of income from the share fund could not be taxed.

Issue-wise Detailed Analysis:

Issue 1: Justification of Rs. 18,000 Taxable Amount
The Tribunal held that only Rs. 1,500 per month (Rs. 18,000 per year) received by the beneficiary, Sahebzadi Anwar Begum, could be taxed. The Income-tax Officer had assessed the trustees as "representative assessees" for the entire income from the share fund under section 160(1)(iv) of the Income-tax Act, arguing that the beneficiary was entitled to the entire income. The Tribunal, however, concluded that only the specified amount of Rs. 1,500 per month was taxable.

Issue 2: Taxability of Balance Income from Share Fund
The Revenue contended that the entire income, including any additional amounts paid for unforeseen emergencies or necessary expenses, should be taxable. Clause 5(a) of the trust deed specified that the balance of the income was to be accumulated, with trustees having absolute discretion to spend it for unforeseen emergencies or necessary expenses of the beneficiary. The Tribunal's decision was based on the interpretation that the beneficiary was only entitled to the specified Rs. 1,500 per month, and not the entire income, thus making only this amount taxable.

Analysis of Arguments:

Revenue's Argument:
The Revenue argued that the entire income from the share fund should be taxable as per section 160(1)(iv) of the Income-tax Act, citing the beneficiary's entitlement to the entire income for emergencies and necessary expenses. They referenced an earlier decision in CWT v. Nizam's Sahebzadi Anwar Begum Trust [1981] 129 ITR 796, which discussed the beneficiary's interest in the entire share fund for wealth-tax purposes. However, the court noted that this decision was under a different law (Wealth-tax Act) and context, and thus not directly applicable.

Trustees' Discretion:
The court examined sub-clauses (a) and (b) of clause 5 of the trust deed, which outlined the beneficiary's entitlement to Rs. 1,500 per month and the trustees' discretion to grant additional sums for emergencies or necessary expenses. The court concluded that while the trustees had absolute discretion, the beneficiary was not entitled to the entire income of the share fund. Therefore, the argument that the entire income was taxable was not tenable.

Definition of "Income":
The court also considered section 2(24)(iva) of the Income-tax Act, which includes the value of any benefit or perquisite obtained by a representative assessee. However, this definition was effective from April 1, 1980, and the assessment years in question were 1977-78 and 1978-79, rendering this argument irrelevant.

Actual Amounts Received:
The court found substance in the argument that the trustees should be assessed for the actual amounts received by the beneficiary, including any additional sums for emergencies or necessary expenses. The court held that the amounts received by the beneficiary, apart from the specified Rs. 18,000 per year, were also exigible to tax under section 160(1)(iv).

Reliance on Case Law:
The court distinguished the present case from CIT v. Hemant Bhagubhai Mafatlal [1982] 135 ITR 768 and Maharani Shri Vijaykunverba Saheb of Morvi v. CIT [1975] 99 ITR 162, noting that the terms of the trust deed in those cases were different, particularly regarding the trustees' discretion and the specified amounts.

Conclusion:
The court concluded that apart from Rs. 18,000 per year, any additional amounts received by the beneficiary in each assessment year were also liable to be assessed to tax under section 160(1)(iv) of the Income-tax Act, 1961. The reference was answered accordingly, with no costs awarded.