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TMI Blog1984 (7) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... ulate all the residue by investing the same in the aforesaid manner. 20. On the beneficiary completing the age of 25 years, the trustee shall transfer and make over to the beneficiary all the trust funds and on so transferring this trust deed shall stand cancelled and be of no effect. 21. If the object for which the trust has been created fails and cannot be fulfilled, the trustee for the time being shall be at liberty to apply the trust property to the benefit of the sons of my son. " It is the claim on behalf of the assessee, therefore, that the benefit to the beneficiaries is a matter of discretion on the part of the trustee and that the beneficiaries are entitled to receive the funds representing the amount settled along with the accretions on them reaching the age of 25 years and that, in the event of the beneficiary predeceasing the determination of the trust (i.e., before the beneficiary reaches 25), the benefit goes to son's sons. It is the assessee's case that there was no claim on behalf of the beneficiary for any payment for any of the purposes listed in the trust deed and that there was no receipt at all from the trust during the years under consideration. The ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegorically expressed a view which gives up the ITO's powers to apply the rate applicable to beneficiary in an assessment, as the trustee. It is because, it is the assessee's case that beneficiary had no right to receive any income during the year and had also not actually received any income. If there was no assessment possible on such income in beneficiary's hands, the question of application of the beneficiary's rate would not arise. 4. To revert to the issue before us, the learned counsel argued that interest of the beneficiaries being discretionary and even otherwise capable of cessation without being an interest in possession in case of deceased prior to 25 (in which case it goes for the benefit of other named beneficiaries), there is no assessment possible. It was argued that the beneficiary's interest is contingent. Neither beneficiary received any income during any of the years, since the trustee had no occasion for exercising discretion during the years. It was also pointed out that the department was content to assess the trustee(s) directly on the income from the trust and that, notwithstanding non-applicability of rules of estoppel and res judicata to tax proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue as on different facts. The case of Mahendra Rambhai Patel v. CED [1967] 63 ITR 645 (SC) rested on the language of estate duty law and also related to a case where there was a vested right to the beneficiary as there was no provision as in this case before us for an alternate beneficiary in the event of failure of the object prior to determination of trust. In the case before the Supreme Court, there was only postponement of possession. Hence, he contended that this decision, on which much reliance was placed by the revenue, cannot support it. He also referred to a common decision of this Tribunal in respect of identically worded trust in this group in WT Appeal Nos. 101 and others (Hyd.) of 1981, dated 28-4-1982, where the interest under consideration was treated as contingent interest. 5. The learned departmental representative, on the other hand, banked his case on Mahendra Rambhai Patel's case, pointing out that it is a Supreme Court decision. He also stated that the decision of this Tribunal holding that the interest under the trust as a 'contingent' interest also suffered from another defect, inasmuch as it allegedly overlooked section 19 of the Transfer of Property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 119 of the Indian Succession Act, 1925] as pointed out by the learned departmental representative, is analogous to the facts of this case : " A fund is bequeathed to A, B and C in equal shares to be paid to them on their attaining the age of 18, respectively, with a proviso, that, if all of them die under the age of 18, the legacy shall devolve upon D. On the death of the testator, the shares vested in interest in A, B and C, subject to be divested in case A, B and C shall die under 18, and, upon the death of any of them (except the last survivor) under the age of 18, his vested interest passes, so subject, to his representatives. " It also stands to reason that the Courts, it has been repeatedly pointed out, should approach the task of construction " with a bias in favour of a vested right unless a contrary intention is definite and clear ". But what has been overlooked by him is that the provision makes creation of trust a transfer of a vested right in the settled property. But as far as first named beneficiary in such cases is concerned, it is only contingent because here the case is not mere postponement of possession, but also the possible failure of the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome which "accrues to him or he has beneficial interest income in the relevant year of account". Though the decision was rendered in the context of section 16(3)(a) and (b) and section 41 of the 1922 Act, we do find that the trust is a similar one and that the inference on similar facts is that the beneficiary has no income accruing to him nor has he any beneficial interest in the relevant year of account. The same view was repeated by the Supreme Court in Col. H.H. Sir Harinder Singh v. CIT [1972] 83 ITR 416, in the same context to the effect that benefit for aggregation should be a benefit in the year of account. Even after the introduction of the words in aggregation provisions to justify inclusion of deferred benefit, the Bombay High Court in the case of Yogindraprasad N. Mafatlal v. CIT [1977] 109 ITR 602 considered the aggregation not possible as the interest was only 'contingent' and not vested in the light of sections 19 and 21. The Gujarat High Court in Addl. CIT v. M.K. Dorhi [1980] 122 ITR 499 held that the aggregation was not possible where the income was accumulated beyond minority though there was a possible discretionary benefit (not actually realised) in this case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted from by the Bombay High Court in the case of H.H. Maharani Shri Vijaykunverba Saheb of Morvi v. CIT [1975] 99 ITR 162, 172, on the ground that the said decision is not in conformity with the decisions of the Supreme Court in Manilal Dhanji's case and Col. H.H. Sir Harinder Singh's case. Even otherwise, the facts in the case before the Calcutta High Court were different from the assessee's case where there is not only accumulation clause but there is also the contingency of the interest failing before it becomes an interest in possession and such interest is also not divisible or transferable inter vivos, or heritable by the legal heirs on death. In any view of the matter, the reliance placed by the learned departmental representative on the decision of the Calcutta High Court cannot help him. 10. We, therefore, hold that in the facts of the assessee's case, the trustee alone is assessable and not the beneficiary inasmuch as the beneficiary has neither received any benefit nor had any right to receive any income during the relevant years and as such no income had accrued to the beneficiary. Hence, no direct assessment is possible in the hands of the beneficiary. In this view, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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