1987 (2) TMI 121 - AT - Income Tax

Summary

Issues Involved:
1. Whether the amounts made over to the trustees amount to oral trust.
2. Whether the maximum marginal rate is to be applied to the income derived from out of the oral trust funds.
3. Whether the beneficiaries under the trust are identifiable and determinate.
4. Whether the gifts made by subsequent donors to the trusts are governed by the same terms and conditions as the original trust deeds.

Detailed Analysis:

1. Oral Trust Determination:
The primary issue is whether the amounts made over to the trustees constitute an oral trust. The Commissioner held that if the donors intended the amounts to be spent for the same purposes as the original trust, they should have executed separate trust deeds. The Commissioner argued that the lack of separate trust deeds or statements in writing signed by the trustees setting out the trust particulars within the stipulated time frame means these amounts should be treated as oral trusts under Explanation 2 to Section 160(1). The Tribunal disagreed, finding that the donors made gifts to the trusts after knowing the terms of the respective trust deeds and beneficiaries. The Tribunal held that the gifts were not oral trusts but were governed by the terms of the existing trust deeds.

2. Application of Maximum Marginal Rate:
The Commissioner applied the maximum marginal rate of tax to the trust income, arguing that the income was not specifically receivable on behalf of any one person and the shares of the beneficiaries were indeterminate. The Tribunal found this objection untenable, stating that the beneficiaries were identifiable at the end of each previous year. The Tribunal referenced the Supreme Court's decision in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust, which held that if beneficiaries are ascertainable with certainty at the end of the relevant previous year, the trust should be considered specified, and the normal tax rates should apply.

3. Identifiability and Determinacy of Beneficiaries:
The Commissioner argued that the beneficiaries were not identifiable at the time of income accrual due to potential future changes in the number of beneficiaries. The Tribunal countered this by stating that the existing beneficiaries were identifiable, and future changes did not affect the determinacy of the beneficiaries at the relevant time. The Tribunal cited several cases, including Suhashini Karuri v. WTO and Padmavati Jaykrishna Trust v. CWT, to support the view that the determinacy of beneficiaries should be assessed based on the relevant accounting period.

4. Terms and Conditions Governing Gifts:
The Tribunal examined whether the gifts made by subsequent donors to the trusts were governed by the same terms and conditions as the original trust deeds. The Tribunal found that the trust deeds contemplated additions to the trust fund and did not prohibit the receipt of gifts. The Tribunal referenced the Supreme Court decision in Sardar Bahadur S. Indra Singh Trust v. CIT, which held that trustees could accept gifts to further the objectives of the trust as long as the trust deed did not prohibit it. The Tribunal also cited the Andhra Pradesh High Court decision in CIT v. Trustees of H.E.H. the Nizam's Dependants & Khanazads Trust, which held that subsequent gifts to an existing trust should be governed by the same terms and conditions as the original trust.

Conclusion:
The Tribunal concluded that the gifts made to the trusts were not oral trusts and were governed by the terms of the existing trust deeds. The beneficiaries were identifiable and determinate at the relevant times, and the income should be taxed at normal rates, not the maximum marginal rate. The Tribunal allowed the appeals, set aside the Commissioner's orders, and restored the Income-tax Officer's assessments.