1973 (2) TMI 24 - HC - Income Tax

Assessee in this case are the trustees to the estate of late Tarun Kumar Roy - Portion of the income was payable to one beneficiary and the balance was payable to more than one beneficiary - whether the shares can said to be indeterminate - whether maximum marginal rate will have to be applied - Whether on a correct construction of the trust deed the Tribunal was right in holding that the maximum rate of tax could not be applied in this case under the 1st proviso to section 41(1) of the Indian Income-tax Act, 1922

Issues Involved:
1. Applicability of the maximum rate of tax under the 1st proviso to section 41(1) of the Indian Income-tax Act, 1922.
2. Determination of whether the income received by trustees was on behalf of specific persons with known and determinate shares.
3. Interpretation of the trust deed dated 19th July 1957, particularly regarding specific payments and ultimate distribution of trust income.

Detailed Analysis:

Issue 1: Applicability of the Maximum Rate of Tax
The central question was whether the maximum rate of tax could be applied under the 1st proviso to section 41(1) of the Indian Income-tax Act, 1922. The Tribunal initially held that the maximum rate could not be applied because the income was receivable on behalf of specific persons with determinate shares. However, the High Court concluded that the maximum rate could be applied to the income, except for the monthly payment of Rs. 500 to the settlor's wife, Smt. Surama Sundari Roy. The Court stated, "the maximum rate would be applicable under section 41(1) of the Indian Income-tax Act, 1922, so far as the rest of the income in the hands of the trustees is concerned."

Issue 2: Determination of Income on Behalf of Specific Persons
The Court analyzed whether the income was received on behalf of specific persons whose shares were determinate and known. The Court noted that Rs. 500 was specifically receivable by the trustees on behalf of Smt. Surama Sundari Roy, thus making it a known and determinate share. The judgment stated, "Therefore, it appears to us that so far as the said sum of Rs. 500 is concerned this sum was specifically receivable by the trustees on behalf of Smt. Surama Sundari Roy and this sum should be deducted from the total income of the trustees."

However, for the other income, the Court found that the shares were not determinate or known during the relevant assessment years. The Court explained, "Until that contingency happens it cannot be said that the sons or the beneficiaries on whose behalf the income in the years in question was received by the trustees had definite shares."

Issue 3: Interpretation of the Trust Deed
The trust deed dated 19th July 1957, was scrutinized to determine the distribution of income and the specific instructions for payments. The deed provided for monthly payments to the settlor's wife and specified amounts for the marriage expenses of the settlor's children. The Court noted that the trust deed directed the trustees to pay Rs. 500 to Smt. Surama Sundari Roy without any abatement, deduction, or diminution, which was a specific and determinate share. The judgment stated, "the clause is specific in the sense that it directs the trustees to pay Smt. Surama Sundari Roy Rs. 500 during her life without any abatement, deduction or diminution."

For the remaining income, the trust deed provided for accumulation and eventual distribution among the settlor's sons, but the exact shares were not determinate until the occurrence of specific contingencies. The Court observed, "Therefore, in the years in question the shares that were received by the trustees in question on behalf of the sons or other beneficiaries could not be said to be determinate or known."

Conclusion
The High Court concluded that the maximum rate of tax under the 1st proviso to section 41(1) of the Indian Income-tax Act, 1922, could not be applied to the monthly payment of Rs. 500 to Smt. Surama Sundari Roy. However, it could be applied to the rest of the income in the hands of the trustees. The judgment stated, "The Tribunal was not right, on the facts and circumstances of this case, and on the correct construction of the trust deed dated 19th July, 1957, in holding that the maximum rate of tax could not be applied in this case on the 1st proviso to section 41(1), Indian Income-tax Act, 1922."

Each party was ordered to pay and bear its own costs.

← Previous Next →