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2009 (4) TMI 38 - HC - Income TaxWhether Tribunal was right in holding that in the case of the assessee-Trust, the beneficiaries and their shares are determinate and, therefore, the trustees could not be assessed for tax and the provisions of section 164 of the Income Tax Act are not attracted Having regard to the terms contained in the trust deed that shares of the beneficiaries in a given particular accounting year are specific and determinable in the ratio, as provided, it could not be said that the beneficiaries are not identifiable on the date of the Trust deed and the share of the beneficiaries were unknown, there is no infirmity in decision of Tribunal above question of law has necessarily to be answered in favour of the assessee and against the revenue
Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in holding that the beneficiaries and their shares in the assessee Trust are determinate, thereby exempting the trustees from being assessed for tax under section 164 of the Income Tax Act. 2. Whether the Income Tax Appellate Tribunal was justified in following the decision in Advance Ruling reported in 224 ITR 473 (AAR) which does not have binding effect on the assessee's case. Detailed Analysis: Issue 1: Determinacy of Beneficiaries and Their Shares The primary issue revolves around whether the beneficiaries of the Trust and their shares are determinate, which would exempt the trustees from tax assessment under section 164 of the Income Tax Act. The Trust Deed provided clear terms regarding the beneficiaries and their respective shares. Initially, the beneficiaries were five in number with specific sharing ratios. From 01.04.1989 onwards, the beneficiaries increased to seven, all with equal shares. The Trust Deed also specified conditions under which new beneficiaries would be added, such as marriage and birth of children, and how the shares would adjust accordingly. The Tribunal, after examining the Trust Deed, concluded that the beneficiaries were identifiable and their shares were determinate. This was supported by the fact that the Trust Deed explicitly outlined the beneficiaries and their respective shares, even accommodating future changes in the number of beneficiaries due to marriage or birth of children. The Tribunal's decision was further supported by the precedent set in the case of CIT v. Muthukrishnan (2003) 260 ITR 526, where the Court held that the shares of the beneficiaries were clearly known and determinate. The Court reiterated that section 164 of the Income Tax Act applies only when the shares of the beneficiaries are indeterminate or unknown. Given that the Trust Deed provided specific details about the beneficiaries and their shares, the Court held that section 164 was not applicable. The Court also referenced several other judgments, including CIT v. Balwantrai Jethalal Vaidya (1958) 34 ITR 187 and CIT v. Kamalini Khatau (1994) 209 ITR 101, to support its conclusion that the liability of the trustee should be co-extensive with that of the beneficiaries. Issue 2: Reliance on Advance Ruling The second issue was whether the Tribunal was justified in following the decision in Advance Ruling reported in 224 ITR 473 (AAR), which does not have binding effect on the assessee's case. The Tribunal had referred to the Advance Ruling Authority's decision to support its view that the beneficiaries were ascertainable and their shares determinable based on the Trust Deed. The Court clarified that while the ruling of the Advance Ruling Authority is not binding on others as per section 245S of the Income Tax Act, there is no bar for the Tribunal to take a view that is in consonance with the reasoning of the Advance Ruling Authority. The Tribunal's decision was primarily based on the provisions of the Trust Deed and supported by the relevant case law, rather than solely relying on the Advance Ruling Authority's decision. Conclusion The Court concluded that the beneficiaries and their shares in the Trust were determinate and identifiable, thereby exempting the trustees from being assessed for tax under section 164 of the Income Tax Act. The Court also held that the Tribunal was justified in its reasoning, which was in line with the Advance Ruling Authority, even though it was not binding. Consequently, the appeals were dismissed, and the questions of law were answered in favor of the assessee.
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