1994 (2) TMI 34 - HC - Income Tax

Summary

Issues involved:
The judgment addresses three main issues:
1. Determination of shares of beneficiaries under the trust deed.
2. Assessment requirement under section 164 of the Income-tax Act, 1961.
3. Entitlement of the trust to allowances of interest paid to beneficiaries.

Determination of shares of beneficiaries under the trust deed:
The case involved the "Tanvi Sajni Family Trust" for the assessment year 1975-76. The Income-tax Officer initially treated the shares of the beneficiaries as determinate and definite. However, the Commissioner of Income-tax (Appeals) set aside the assessment directing a fresh assessment under section 164 of the Act. The Tribunal, upon appeal, determined that the shares of the beneficiaries were indeed determinate based on the trust deed provisions. The deed clearly outlined fixed shares for beneficiaries Kum. Tanvi and Kum. Sajni, with a duty on trustees to distribute 50% of the net income to them until March 31, 1997. The Tribunal's decision was upheld, stating that the shares were determinate, thus negating the application of section 164 for assessment.

Assessment requirement under section 164 of the Income-tax Act, 1961:
Section 164 of the Act specifies conditions where tax shall be charged differently if the individual shares of beneficiaries are indeterminate or unknown. In this case, as the shares of beneficiaries were found to be determinate based on the trust deed, the provisions of section 164(1) were deemed inapplicable. The Tribunal's decision was supported, concluding that the assessment need not be made under section 164 of the Act due to the determinate nature of the beneficiaries' shares.

Entitlement of the trust to allowances of interest paid to beneficiaries:
Regarding the interest paid by the trust to beneficiaries, it was found that the interest was paid on loans shown in the beneficiaries' credit in the trust's books. The Tribunal correctly determined that the trust was entitled to deduct the interest paid to beneficiaries on the income kept by them as a loan. The judgment affirmed that the trust, as a distinct legal entity from the beneficiaries, could claim the deduction for interest paid. Therefore, the trust was entitled to the allowances of interest paid to beneficiaries.

The judgment resolved all issues in favor of the assessee, ruling that the shares of beneficiaries were determinate, assessment under section 164 was not required, and the trust was entitled to the deduction of interest paid to beneficiaries.