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TMI Blog1995 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... he High Court has answered the following two questions referred to it, at the instance of the Revenue, under section 256(2) of the Income-tax Act, 1961, in favour of the Revenue and against the assessee : " (1) Whether, in law and on facts and having regard to the provisions of sub-section (1) of section 164 of the Income-tax Act, 1961, the assessee is entitled to the concessional rate of tax ? (2) Whether, in law and on facts and in view of the provisions of the trust deed, the trust cannot be subjected to maximum marginal rate of tax ? " By a deed dated October 3, 1981, Sri Hirji Pethraj Shah created a private trust known as "Gosar Family Trust". S/Sri Devchand Shamji Shah, (2) Sri Deepak Devchand Shah, (3) Smt. Ladhiben Shamji Shah and (4) Smt. Sunanda Rajesh Shah were named as trustees. The trust was created with a sum of rupees five hundred. Clause (7) of the trust deed, however, permitted the trustees to accept from any person desirous of making contributions to the trust fund such amounts or properties and upon such terms and conditions as they may think fit subject, of course, that the objects of the contributions are not inconsistent with the objects of the trust. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as ' relevant income', 'part of relevant income' and 'beneficiaries', respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate : Provided that in a case where-- (i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust, or . . . . (Clauses (ii), (iii) and (iv) omitted as unnecessary) tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons :" (Rest of the section omitted as unnecessary). The sub-section contemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution is not warranted by the wording of the provision which includes the entire class of beneficiaries on whose behalf or for whose benefit the income is receivable by the trustee. The trustees receive or are entitled to receive the income (under the deed) on behalf of or for the benefit of both the sets of beneficiaries and are their representative assessees under section 160(1)(iv). It cannot be said that they do not receive the income for the benefit of the second set or 'tier' of beneficiaries (described as corpus beneficiaries). The trustees are empowered to accumulate the income for the benefit of the second set of beneficiaries and, therefore, they receive or are entitled to receive the income on behalf of or for the benefit of such second set of beneficiaries also notwithstanding the existence of the first set of beneficiaries to whom they may distribute the income if they so choose to do. The existence of the authority of the trustees to disburse the income they receive under the trust to the first set of beneficiaries does not militate against their entitlement to receive the income on behalf of or for the benefit of the other set for whom they can legitimately acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate it, it forms part of the corpus which is distributed among the second category beneficiaries at the end of eighteen years or earlier whenever the trust is put an end to by the trustees in their discretion. Strong reliance is placed upon the decision of the Bombay High Court in CIT v. B. A. Sanghrajka Trust [1990] 181 ITR 484, where construing similar terms of a trust deed, the Bombay High Court held that the second category beneficiaries cannot be treated as beneficiaries within the meaning of the proviso (i). It is brought to our notice that the said decision has been followed later by the same High Court in CIT v. Mrs. Pushpaben Family Trust [1994] 207 ITR 587. We must say that the trust deed in question is rather a curious one. It is effective only for a limited period which can be as short as two years. If, in case, the trustees do not choose to put an end to the trust, even then the maximum life of the trust is eighteen years only. One beneficiary is common to both the first and second categories, viz., Smt. Lakhmaben Gosar Jakharia. The trustees are not obliged to disburse or distribute the income among the first category beneficiaries in the year they receive it. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust. If so, how is it being said that income is being received on their behalf. The second category beneficiaries too have no right to the income but yet they may get whole of it or such part of it as may not have been distributed or paid to first category. Thus, neither category has a right but only an expectation to receive income. In this sense, the members of the second category are as much beneficiaries as the members of the first category. The trustees are entitled to choose not to pay a pie out of the income to any one but invest the whole of it in their own concerns. They were also under no obligation to disburse or distribute the income received in an year in that year or in the following year. For the purpose of section 164(1) what is relevant is that the income is receivable on behalf of the beneficiaries. It is not necessary that the income is received by the beneficiaries. It is, therefore difficult to say in the light of the recitals of the trust deed that the income is receivable only on behalf of the first category but not on behalf of the second category beneficiaries. Indeed, section 164(1) or proviso (i) thereto does not make any distinction between bene ..... X X X X Extracts X X X X X X X X Extracts X X X X
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