9911796707
TMI Blog1995 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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. There are two sets of beneficiaries. The first category comprises three individuals, viz., (1) Sri Gosar Devashi Jakharia, (2) Smt. Lakhmaben Gosar Jakharia, and (3) Sri Mukesh Gosar Jakharia. (Nos. 2 and 3 are wife and son, respectively, of No. 1). The second category of beneficiaries are : (1) Smt. Lakhmaben Gosar Jakharia, (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 contemplates charging of tax at the maximum marginal rate in two situations, viz., (a) where any income, in respect of which the trustees (omitting unnecessary categories of persons) are liable to be assessed as representative assessees, is not specifically receivable on behalf or for the benefit of any one person, and (b) where the individual sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accumulate it for eventual distribution. The trustees were entitled to receive the income under this trust on behalf of or for the benefit of the entire class of beneficiaries notwithstanding the fact that they had a discretion to bestow the benefit to one beneficiary or one set of beneficiaries at the cost of the others. The fact that the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 need not pay a single pie to any of the beneficiaries in the first category at any time during the currency of the trust ; they are entitled to accumulate the whole income which will then pass to the second category beneficiaries as and when the trust comes to an end. In other words, the first category beneficiaries have no right to receive the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 beneficiaries and beneficiaries--nor is the said expression defined in the Act. It would, therefore, be reasonable to construe and understand the expression "beneficiaries" in its ordinary and normal sense, which means that both categories are beneficiaries. The situation could probably have been different if there had been an obligation upon the trus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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