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TMI Blog1987 (1) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed the assessee-trust at maximum rate with the following observations : "The assessee has claimed that the income of the trust is chargeable at the normal rate as per first proviso to section 164(1) as none of the beneficiary is the beneficiary in other trust. The claim of the assessee under proviso to section 164(1) fails as one of the beneficiaries, namely, Deviayaniben has got taxable income. Regarding the alternative claim of the assessee under second proviso to section 164(1), the basic condition to be satisfied is that the relevant income is receivable under the trust declared by a 'will' and that trust is the only trust so declared. In this case the settlor had settled two trusts, viz., Pranlal Thakordas Trust and Rajnikant Gulabdas Trust. It is contended that the other trust, i.e., Pranlal Thakordas Trust was dissolved with effect from 1-5-1979 would not make any difference, so far as the creation of two trusts at the earlier stage. Further the trustees had no authority under the Indian Trusts Act, 1882 to dissolve the trust. Considering the above facts, claim of the assessee to tax the income at the normal rate is rejected and tax is charged at the maximum rate." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) it is necessary that both the conditions are fulfilled. Since one of the beneficiaries had a taxable income, the trust could not be entitled to benefit under proviso (i). According to proviso (ii), the 'income is to be taxed at the normal progressive rate if it is a sole-discretionary trust declared under the will. In this case settlor had declared two trusts as per his will dated 10-3-1977. The trust came into existence after death of the settlor on 17-3-1977. On 1-5-1979, Pranlal Thakordas Trust was dissolved and the assets were distributed amongst the beneficiaries. The second proviso was modified by the Finance (No. 2) Act, 1980. It restricts the benefit of concessional rate of tax only to a trust which is the only discretionary trust created under the will. In this case two trusts were declared under the will much before this amendment came into force. Since the appellant expired long before and he had made provision for two trusts, the benefit under proviso (ii) could not be denied for all the time to come. Since one trust had been dissolved by the trustees who were so empowered under clause 9(a) of the will and only one trust declared under the will was in existence i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the revenue. Under the proposed amendment, the income received by the trustees of a discretionary trust would be chargeable at the rate of income-tax, including surcharge, applicable to the highest slab of income of an association of persons, as specified in the Finance Act of the relevant assessment year. Sub-clause (a)(ii) seeks to amend the proviso to sub-section (1) of section 164. The first amendment seeks to provide that the provisions of sub-section (1) will not apply to a discretionary trust in which none of the beneficiaries has any other income chargeable to income-tax and none of them is a beneficiary, in any other trust. For this purpose, none of the beneficiaries should have income assessable under the Income-tax Act exceeding the exemption limit for the relevant assessment year. The second amendment seeks to amend clause (ii) of the proviso to section 164(1). Under the existing provisions, where a discretionary trust is declared under a will, the income of the discretionary trust is charged to tax at the rates applicable to an association of persons and not at the flat rate of 65 per cent. Under the proposed amendment, the benefit of concessional tax treatment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly proposed to withdraw the benefit of concessional tax treatment in the cases where a person has created more than one discretionary trusts by will." 10. He, therefore, urged that keeping the aforesaid background in proper perspective, the AAC was fully justified in accepting the assessee's submission that during the relevant time, there was only one discretionary trust created by the will. 11. In support of his aforesaid submissions, he also relied on certain observations made by the Hon'ble Supreme Court in the following cases : 1. CIT v. J.H. Gotla [1985] 156 ITR 323 : "Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nikant Shah, had a taxable income. However, he hastened to state that since the said beneficiary was not a beneficiary under any other trust, the assessee would be entitled to claim that its income should be taxed at normal rate. He, therefore, urged that the AAC was not justified in holding otherwise. 13. We have carefully considered the rival submissions of the parties. At this juncture, it would be necessary to reproduce below the relevant portion of section 164 : "(1) Subject to the provisions of sub-sections (2) and (3), where any income in respect 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 in ..... 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