1968 (8) TMI 46 - HC - Income Tax

Three trust deeds executed by the assessee s father for the benefit of the assessee, his wife, and his children and grand-children - Whether Tribunal was right in taking the view that the assessee was not directly assessable in respect of the income of the three trusts - Held, yes

Summary

Issues Involved:
1. Whether the entire income of the three trusts is includible in the total income of the assessee.
2. Whether only the minimum amount payable to the assessee under the three trusts is includible in the total income of the assessee.

Detailed Analysis:

Issue 1: Inclusion of Entire Income of the Three Trusts in the Assessee's Total Income
The primary issue was whether the entire income of the three trusts should be included in the total income of the assessee for the assessment years 1962-63, 1963-64, and 1964-65. The Income-tax Officer argued that the assessee, being unmarried during the relevant years, was the sole beneficiary under the trust deeds. Consequently, the entire income of the trusts was receivable by the trustees on behalf of or for the benefit of the assessee. Therefore, the assessee was liable to be assessed directly in respect of such income under section 166 of the Income-tax Act, 1961. However, the Appellate Assistant Commissioner disagreed, holding that only the minimum amount of Rs. 650 was receivable by the trustees for the benefit of the assessee. This decision was upheld by the Tribunal, which led to the present reference at the instance of the Commissioner.

Issue 2: Inclusion of Only the Minimum Amount Payable to the Assessee
The court examined the terms of the trust deeds, particularly clauses 7A and 7B, to determine the disposition of the income. Clause 7A specified that the trustees would pay a minimum amount to the assessee and, if married, to his wife, children, and grand-children, with any remaining income being added to the trust funds as capital. Clause 7B outlined the distribution of the trust funds at the end of the 30-year period. The court noted that the assessee was not entitled to the entire income of the trust funds, as the trustees had the discretion to decide the amount to be paid, subject to a minimum annual payment. The balance of the income was to be added to the corpus of the trust funds and distributed at the end of the 30-year period or earlier if the trust was wound up.

The court referred to sections 160, 161, 164, and 166 of the Income-tax Act to clarify the assessment of income received by a representative assessee. Section 160 defines a "representative assessee," and section 161 imposes liability on the representative assessee as if the income were received by them beneficially. Section 164 provides for the assessment of income where the shares of beneficiaries are indeterminate, treating such income as the total income of an association of persons. Section 166 allows for direct assessment of the beneficiary if the income is received on their behalf.

The court concluded that the minimum amounts aggregating to Rs. 650 were specifically receivable for the benefit of the assessee and were therefore directly assessable in his hands. However, the income in excess of the minimum amounts could not be assessed directly in the hands of the assessee, as he was not entitled to receive it either during the relevant years or at any future point. The balance of the income was to be added to the corpus of the trust funds and could be distributed at the trustees' discretion or upon the expiration of the 30-year period.

Conclusion:
The court held that the assessee was not directly assessable for the income of the three trusts in excess of Rs. 650 per year. The Tribunal's view was upheld, answering question (1) in the negative and question (2) in the affirmative. The Commissioner was directed to pay the costs of the reference to the assessee.