9911796707
TMI Blog1995 (9) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaring income of Rs. 14,750 for the asst. yr. 1984-85 and it was claimed that the income be charged at the normal rate as applicable to AOPs. The Assessing Officer (AO) found that the only source of the assessee-trust was receipt of 50% share of profits from Sharda Trust which is also a partner/beneficiary of some other main trust/firm. Therefore, the trust of which the assessee-trust is a beneficiary has also no independent source of income. The main trust had 20 beneficiaries consisting of individuals and private limited companies. He further noted from the copies of trust deed of beneficiary trust that it is simply common copy of one proforma drafted by one person. It is a case of a conduit pipe of trust/AOP wherein the assessee is a chain trust created by one person with an intention to reduce real tax payable by group of members of one family and the main trust/firm because all such trusts are not naturally created with the volition of members, beneficiaries, settlors and the trustees to join with for a common purpose to carry out some activities of earnings. The AO, therefore, rejected the assessee's claim that it was a specific trust in view of the ratio decided by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-trust is allocated at Rs. 16,000. The AO was, therefore, not justified to give any finding with regard to Sharda Trust in which the assessee is a beneficiary with 5% share. 3.2 It was further claimed that the assessee is a discretionary trust. None of the beneficiaries of the assessee-trust has any other income chargeable to tax and none of the beneficiaries is a beneficiary under any other trust. This fact has not been disputed by the AO. Accordingly the AO was not justified to tax the income at the maximum marginal rate. 3.3 It was further pointed out that ratio of the decision of the Hon'ble Supreme Court in the case of McDowell & Co. is not applicable to the facts of the present case as there is no colourable device adopted to reduce the tax payable nor the AO has made out such a case by bringing sufficient material on record in support. It was claimed that the main trust was formed by a deed of settlement and the language of the deed is plain and admit of no ambiguity. The shares of the beneficiary trust are determinate and specific. 3.4 On due consideration the first appellate authority directed the AO to charge tax at the normal rate with the following obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Sharda Trust is the main trust which was formed by settlor Shri Ashokkumar Sundardas Vaswani by settling Rs. 5,000 with three trustees. Sharda Trust was doing the business of processing of inferior quality of sarees from grey cloth in the name of M/s S.K. Enterprises. The main trust maintained the regular books of accounts. For the asst. yr. 1984-85 Sharda Trust filed a return declaring total income at Rs. 3,20,000. The AO assessed the income at the amount declared at Rs. 3,20,000 under s. 143(3) and the income so assessed was allocated to its 20 beneficiaries at the rate of 5% which comes to Rs. 16,000 each. The AO thus accepted the genuineness and validity of the main trust and assessed the income under s. 161 of the IT Act. The beneficial share income is, therefore, liable to be assessed in the hands of each beneficiary. He has further made a submission that the beneficial trusts are discretionary trusts as per the settlement deed. As per the trust deed the assessee trust have two beneficiaries Miss Rita and Mrs. Devi. None of these beneficiaries are beneficiary in any other trust and also none of the beneficiaries have any other income exceeding the maximum amount not charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these two beneficiaries are further beneficiary in any other trust and none of them have income exceeding the maximum limit liable to tax. The assessee has thus claimed that as per proviso to s. 164(1) the income declared in the hands of R.D. Trust is liable to be taxed at normal rate. 8. According to the Revenue these trusts have been created as a device to reduce or avoid the tax payable and the ratio of the decision of the Hon'ble Supreme Court in the case of McDowell & Co. cited supra is applicable to the facts of the case. We find that the Revenue has accepted Sharda Trust (main trust) as genuine while completing its assessment. The assessment so made has not been disturbed by taking remedial action. There is rather no finding given by the AO that formation of Sharda Trust is a part of the device to avoid payment of legitimate taxes. The AO has treated it as a specific trust and the income earned by it has been allocated among the beneficiaries as per their share ratio specified in the trust deed. This shows that the Revenue saw no colourable device so far as the formation of Sharda Trust is concerned. 8.1 We further find that in the case of assessee beneficiary trust it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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