2003 (12) TMI 22 - HC - Income Tax

1. Whether, Tribunal was right in concluding that the resolution and the letter changed the provisions of law, clause 1(i)(a) of the deed of trust, when the deed of trust did not confer authority on the trustees to amend the deed of trust? 2. Whether the provisions of section did not apply to the assessee by reason of the resolution passed by the trustees, even though according to the Tribunal the said section 164 did apply to the deed of trust alone? 3. Whether the Tribunal was right in concluding that the character of the discretionary trust was changed by the resolution passed by the trustees of the trust? - We answer the questions in the negative, i.e., against the assessee and in favour of the Revenue.

Issues:
1. Interpretation of trust deed provisions and authority to amend the deed.
2. Applicability of section 164 of the Income-tax Act to the assessee.
3. Change in character of discretionary trust by resolution.
4. Dismissal of miscellaneous application by the Appellate Tribunal.
5. Validity of resolution and application of tax rate.

Analysis:

Issue 1: Interpretation of trust deed provisions and authority to amend the deed
The court was tasked with determining whether the resolution and letter dated March 31, 1974, altered the trust deed provisions without the authority to do so. The tribunal had to decide if the trustees had the power to amend the deed of trust. The court referred to the law laid down in previous cases and concluded that the trust attempted to convert from discretionary to specific, which was impermissible. Therefore, the Revenue was correct in taxing the income earned by the trust for the assessment year in question.

Issue 2: Applicability of section 164 of the Income-tax Act to the assessee
The question arose whether section 164 of the Act applied to the assessee despite the resolution passed by the trustees. The Income-tax Officer assessed the income in the hands of the trust, considering it a discretionary trust. The Appellate Assistant Commissioner allowed the appeal, but the Tribunal upheld the Income-tax Officer's decision. The court agreed with the Revenue, emphasizing that the trust's attempt to change its nature through the resolution was not valid.

Issue 3: Change in character of discretionary trust by resolution
The court examined whether the character of the discretionary trust was altered by the resolution passed by the trustees. It was established that the trust's resolution aimed to distribute income to a beneficiary, contradicting the discretionary nature of the trust. Relying on legal precedents, the court affirmed that such a change was impermissible, leading to the income being rightfully taxed in the hands of the trust.

Issue 4: Dismissal of miscellaneous application by the Appellate Tribunal
The Appellate Tribunal's dismissal of the Revenue's miscellaneous application, contending that a ground in the appeal was not addressed, was examined. Given the resolution of the primary issues in favor of the Revenue, the court found it unnecessary to address this matter, ultimately declining to answer questions related to the dismissal of the application.

Issue 5: Validity of resolution and application of tax rate
The validity of the resolution dated March 31, 1974, and the application of the tax rate were disputed. The Revenue argued that the income had not been taxed in the beneficiary's hands, justifying the taxation in the trust's hands. Conversely, the respondent asserted that the income had already been taxed in the beneficiary's hands, precluding double taxation. The court sided with the Revenue, emphasizing the impermissibility of altering the trust's nature through the resolution.

In conclusion, the court answered the first three questions against the assessee and in favor of the Revenue. Questions 4 and 5 were not addressed due to the resolution of the primary issues. The reference was disposed of accordingly, with no order as to costs.

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