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TMI Blog1993 (5) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... usts in turn had body of individuals (BOIs) as beneficiaries and the inter se shares of the individuals constituting these BOIs were not specified. The departmental authorities held that after the said assignments on 13-3-1984 since the ultimate beneficiaries were the members of the BOIs and their individual shares were indeterminate the assessee-trust should be assessed as discretionary trust liable to be taxed at the maximum marginal rate. The assessee is in appeal. 3. The learned advocate for the assessee, in all fairness, first explained the background of the case by giving Information in tabular form and stated that the family comprising of Shri Fakirbhai alias Purshottamdas B. Patel was owning a limited company which was manufacturing submersible pumps. Nine specific family trusts were created (four in the year 1976, three in the year 1980 and two in the year 1982) for doing business as traders in the said submersible pumps. For the facility of exposition those nine trusts may be categorised as main trusts. Assessee-trust is one of them. The beneficiaries in those nine trusts--including the assessee trusts--were 24 individuals being the family members or the daughter's chi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the trust deeds of the main trusts remained unchanged and therefore, they continued to be specific family trusts for assessment year 1984-85 as they were rightly held to be up to assessment year 1983-84. He submitted that the trustees of the main trusts had no discretionary powers at all. They were bound by the terms of the original trust deeds of those main trusts and for deciding the status of those trusts the enquiry should terminate at that. He attacked the order of the CIT (Appeals) for the latter invoking the observations in the Hon'ble Supreme Court decision in McDowell Co. Ltd. v. CTO [1985] 154 ITR 148. He submitted firstly that in regard to the trust, veil cannot be pierced in view of the Hon'ble Gujarat High Court decision in the case of K.T. Doctor v. CIT [1980] 124 ITR 501 (on page 512) and also submitted that the validity of the observations of the Hon'ble Supreme Court in McDowell Co. Ltd.'s case stands diluted in view of the subsequently rendered decisions by the Supreme Court in the case of CWT v. Arvind Narottam [1988] 173 ITR 479 and Union of India v. Playworld Electronics (P.) Ltd. [1990] 184 ITR 308. He also referred to the decision in M. V. Valliappan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even double taxation is to be avoided, what to say of multiple taxation ? 8. Referring to the detailed discussion in the order of the CIT (Appeals) in the case of Vibha Family Trust (one of the six second-level trusts), he pleaded that if the second level trusts were non est where was the question of tax being levied on them ? He then submitted that in the second level trusts all the ingredients of a trust are there viz. settlor, trustees and beneficiaries. So, according to him, second level trusts were genuinely specific trusts. When it was pointed out to him that in the light of the Tribunal's decision in Neo Trust v. IAC [1992] 41 ITD 412 (Ahd.) the second level trusts were required to be treated as discretionary trusts he pleaded that in view of the Hon'ble Gujarat High Court decision in K.T. Doctor's case, there was no question of piercing the veil in the context of trusts. He further pleaded that the case of Neo Trust was distinguishable in so far as in the cited decision other discretionary trusts were beneficiaries while in the second level trusts of the group before us BOIs were beneficiaries. He submitted that in the discretionary trusts income was not owned by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquired into is as to who are the real beneficiaries of the assessee-trust. In order to decide the point in controversy we were entitled to make enquiry and record a finding thereon." He referred to earlier part of that very para (viz., 13.4) in regard to the learned advocate's submission about the dilution of the observations of the Supreme Court in McDowell Co. Ltd.'s case. He submitted that in the six decisions cited by him and noted above the principle of McDowell was applied. He proceeded to argue that why stop with the contents of the trust deed of the main trusts. Actually, all the connected documents should be read as a whole and then the legal effect of the same should be considered. On facts, he referred us again to the fact that all the 60 BOIs came into effect on 9-3-1984 and vide paras marked C1 and D1 of the deeds gave discretion to distribute or pay as the persons concerned pleased. He further submitted that the assignments were effected on 13-3-1984 by the guardians on behalf of the minors and it was clearly specified that the position of assignments was being intimated to the trustees of the main trusts also. Then he referred us to the assessment orders in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il in a trust case was duly considered as is obvious from the extracts reproduced hereinabove from para 13.4 of that decision (on page 425 of the reports viz., 41 ITD). 12. This leaves the learned advocate's argument that in the present case BOIs are the beneficiaries of second level trusts and not the discretionary trusts. In our considered opinion, this is a distinction without making any difference. The position is that the income payable to the BOIs was payable for the benefit of such individuals whose shares were indeterminate and discretion was specifically given to the persons concerned even in the documents creating the BOIs vide paras C1 and D1. We further agree with the learned D.R. that the dates being 9-3-1984 for the creation of 60 BOIs ; 13-3-1984 for the creation of 6 second level trusts and 13-3-1984 for effecting the assignments, are indicative of a design. He is further right in mentioning that the whole control and management is with the five male adult members of the family although the entities created are so many. We further agree with the learned D.R. that there is no necessity orjustification for stopping at the contents of the trusts for main trusts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suffer double taxation. So, in the cases of second level trusts tax would not be levied on that income or part thereof which is shown to have been actually taxed at the maximum marginal rate in the hands of the relevant main trust(s). In other words, the second level trusts are discretionary trusts and are liable to be taxed at the maximum marginal rate but due to the cardinal principle of avoiding double taxation the amounts, if any, which have suffered taxation at maximum marginal rate in the hands of the main trusts would not be again brought to tax in the hands of the second level trusts. 15. This brings us to the assessment of the BOIs and we have held by explaining the principle enunciated above in the immediately preceding para regarding the necessity of avoiding double or multiple taxation, it has to be held that the incomes or parts of income which have been brought to tax in the hands of main trusts or the second level trusts at the maximum marginal rate would not be again taxed in the hands of BOIs. 16. For the cases of individuals again the principle of the immediately preceding two paras needs to be further extended for holding that the said assigned incomes broug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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