2004 (2) TMI 277 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of section 164(1) of the Income-tax Act, 1961.
2. Whether the income of the trust is specifically receivable on behalf of the sole beneficiary, Miss Sheetal Sundar.

Issue-wise Detailed Analysis:

1. Applicability of Section 164(1) of the Income-tax Act, 1961:
The primary issue in these appeals is whether the provisions of section 164(1) of the Income-tax Act, 1961, are applicable to the income generated by the Sheetal Sunder Trust. The Income-tax Officer argued that due to the potential for the trust income and corpus to be transferred to another trust if the sole beneficiary, Miss Sheetal Sundar, did not survive until the age of majority, the income should be assessed under section 164(1). This section applies when the income is not specifically receivable by or on behalf of any one person or where the individual shares of the beneficiaries are indeterminate or unknown.

The Dy. Commissioner of Income-tax (Appeals) disagreed, stating that since Miss Sheetal Sundar was alive on the last day of the relevant accounting years, the income should be considered as received on her behalf. Therefore, section 164(1) was not applicable, and the protective assessments were canceled.

2. Whether the Income of the Trust is Specifically Receivable on Behalf of the Sole Beneficiary, Miss Sheetal Sundar:
The revenue contended that due to the provisions in the trust deed, specifically clause 13, which allowed the trustee to transfer the income and corpus to another trust if Miss Sheetal Sundar did not survive until the age of majority, there was an element of uncertainty. This uncertainty meant that the income was not specifically receivable on behalf of Miss Sheetal Sundar during her minority, invoking section 164(1).

The assessee argued that since Miss Sheetal Sundar was alive during the relevant accounting years, the income should be considered as received on her behalf, and the contingency of her death before attaining majority did not alter this fact. They relied on precedents from the Bombay High Court (CWT v. Trustees of Mrs. Hansabai Tribhuwandas Trust) and the Gujarat High Court (Padmavati Jaykrishna Trust v. CWT), which supported their stance that the possibility of a future contingency did not affect the assessment for the relevant years.

Separate Judgments Delivered by the Judges:

Judicial Member's View:
The Judicial Member agreed with the Dy. Commissioner of Income-tax (Appeals), holding that the income was received on behalf of the sole beneficiary, Miss Sheetal Sundar, as she was alive on the last day of the relevant accounting years. Therefore, section 164(1) was not applicable, and the protective assessments were rightly set aside.

Accountant Member's Dissenting View:
The Accountant Member disagreed, emphasizing that the income was not specifically receivable on behalf of Miss Sheetal Sundar due to the contingent nature of her interest in the trust. Since the trustee had the discretion to transfer the income and corpus to another trust if she did not survive until majority, it could not be said that the income was received on her behalf during the relevant years. Thus, section 164(1) was applicable.

Third Member's Decision:
The Third Member, agreeing with the Accountant Member, concluded that the income was not specifically receivable on behalf of Miss Sheetal Sundar due to the contingent nature of her interest. Therefore, the provisions of section 164(1) were applicable, and the revenue's appeals were allowed.

Conclusion:
In light of the majority view, the appeals by the revenue were allowed, and it was held that the Assessing Officer was justified in holding that section 164(1) of the Income-tax Act, 1961, was attracted.