1987 (9) TMI 120 - AT - Income Tax

Summary

Issues Involved:
1. Rate at which the assessee trust is assessable.
2. Existence and execution of multiple trusts as per the Will.
3. Validity and impact of resolutions passed by executors and trustees.
4. Interpretation of the Will and its provisions.
5. Applicability of Section 164(1)(ii) of the Income Tax Act.

Detailed Analysis:

1. Rate at which the assessee trust is assessable:
The primary issue in the appeal is the rate at which the assessee trust is assessable. The Income Tax Officer (ITO) assessed the income at the maximum rate, rejecting the assessee's claim for assessment at the appropriate rate.

2. Existence and execution of multiple trusts as per the Will:
The Will executed by Smt. Taramati Bafna on 4-1-1979 provided for the creation of seven trusts, each with a specified corpus of Rs. 10,000 and a share in the residuary estate. The ITO and the Appellate Assistant Commissioner (AAC) found that all seven trusts came into existence as per the Will. The trustees' subsequent resolutions to consolidate the assets into a single trust (Sapna Benefit Trust) did not negate the initial creation of multiple trusts.

3. Validity and impact of resolutions passed by executors and trustees:
On 17-7-1979, the executors and trustees passed resolutions to consolidate the assets of the six other trusts into the Sapna Benefit Trust. The ITO and AAC rejected this consolidation, stating that the resolutions did not reflect the true state of affairs and that the trusts had already come into existence as per the Will. The authorities noted that the resolutions were signed by both executors and trustees, but this did not alter the fact that multiple trusts were created.

4. Interpretation of the Will and its provisions:
The assessee argued that the Will should be interpreted to allow for the consolidation of trusts to maximize benefits for the beneficiaries. The AAC and ITO held that the Will's provisions were clear in creating seven separate trusts, and any interpretation by the executors that diverged from this was not permissible. The authorities emphasized that the executors and trustees could not override the clear intentions of the testatrix, especially when minor beneficiaries were involved.

5. Applicability of Section 164(1)(ii) of the Income Tax Act:
Section 164(1)(ii) provides for a concessional tax rate if the income is receivable under a trust declared by Will and such trust is the only trust so declared. The authorities concluded that since seven trusts were declared in the Will, the assessee did not qualify for this concessional rate. The AAC noted that the residuary estate's distribution was not completed, and the trusts were not fully wound up, further supporting the decision to deny the concessional rate.

Conclusion:
The Tribunal upheld the decisions of the ITO and AAC, confirming that:
- Multiple trusts were created as per the Will.
- The resolutions to consolidate the trusts did not negate their existence.
- The clear provisions of the Will could not be overridden by the executors' interpretations.
- The conditions for concessional tax treatment under Section 164(1)(ii) were not met.

Final Judgment:
The appeals were dismissed, and the income was to be assessed at the maximum rate as determined by the ITO.