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TMI Blog1991 (3) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... 160 of the Act. The result was that those 45 beneficiary trusts would be deemed to be trusts declared by duly executed instrument in writing as laid down in said Explanation. 2. The beneficiaries of each of 44 trusts out of 45 trusts referred to above, were two oral discretionary trusts while the beneficiaries of 45th trust were three oral distretionary trusts. Thus there were 91 beneficiaries of the above 45 trusts. It may be mentioned here that before the ITO and CIT (Appeals) as well as in the course of arguments before us it was represented on behalf of the assessee that the beneficiaries of above 45 trusts were 90 trusts but after the arguments were closed when the assessee was asked to file a list of all the trusts, it was pointed out on behalf of the assessee that the beneficiaries of these 45 trusts were in fact 91 trusts and not 90 trusts as had been stated by the assessee before the lower authorities and also before us. It is stated before us that these 91 trusts were also oral trusts at the initial stage and subsequently statements were filed as laid down in Explanation to section 160 of the Act with the result that they would be deemed to be trusts declared by duly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income should be allocated amongst 45 beneficiaries mentioned in the trust deed, and when the income was so allocated, no income would remain assessable in the case of the assessee-trust and as far as 45 beneficiary trusts were concerned no income was chargeable in their hands because income allocated to each of those trusts was below taxable limit. 6. The ITO did not accept the submissions of the assessee. He examined the entire circumstances in which these trusts came into existence. He held that series of steps have been taken by closed group of persons in creating the above artificial entities with the sole object of avoidance of payment of tax. He applied the principle laid down by the Supreme Court in the case of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148. He held that the assessee-trust was not a genuine trust and that the income declared by the assessee-trust was liable to be assessed in the status of AOP at maximum marginal rate. In the alternative he held that the assessee-trust should be treated as discretionary trust in view of the fact that the shares of ultimate beneficiaries were unknown and hence maximum marginal rate was applicable. He accordingly levied at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied all the conditions under the Indian Trust Act, it was a valid trust under the General Law and It should not be regarded as invalid trust under the Income-tax Act. 9. The learned D. R., on the other hand, relied on the reasons given in the assessment order and in the order of CIT (Appeals). According to him, the principle of decision of Supreme Court in the case of McDowell Co. Ltd. had been rightly applied. According to him, the abovementioned decisions of the Tribunal which are admittedly applicable, had been rightly decided and this Bench should not deviate from the view already taken in those decisions. 10. We have considered the rival submissions. It would be necessary to state the facts in detail in order to appreciate the controversy. The assessee-trust has been created by the settlor Smt. Surajben Chhababhai Patel by an indenture dated 5-7-1979 by settling a sum of Rs. 11001. 45 trusts have been mentioned as beneficiaries of the assessee-trust in the trust deed. The name of each beneficiary trust begins with the word " Ganesh ". Some of the names are ' Ganesh Patel Dipak Trust ', ' Ganesh Hemang Trust ', Ganesh Patel Bimal Trust, Ganesh Shekhar Patel Trust, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is not mentioned in the minutes of this meeting that the shares of these beneficiaries were definite. The shares of beneficiaries are not specified. Consequently it would be assumed that the shares were indeterminate. 14. Subsequently on 30-4-1981 statement in writing as required under Explanation 1 to section 160(1) of the Act was forwarded to the ITO in respect of this trust. Copy of this statement is at page 12 of the paper book. In this statement the names of trusts and names of beneficiaries are mentioned. However, it is not mentioned that the shares of the beneficiaries of this trust were definite or determinate. In fact, it is not mentioned as to what was the share of each of the two beneficiaries. 15. The assessee has then filed copy of minutes of meeting which is said to have taken place on 29-5-1978 of A. Savitaben Patel Trust which was one of the two beneficiaries of Ganesh M. Alka Patel Trust referred to above. In this meeting the settlor of the said trust was present. In the minutes it is mentioned that four minors were beneficiaries of said A. Savitaben Patel Trust. Those four minors were children of S/Shri K. C. Patel, G. C. Patel and J. C. Patel. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the beneficiaries of each of the 45 trusts are oral discretionary trusts which have subsequently been converted into deemed written trusts. The beneficiaries of those trusts are minor children of three brothers viz., Shri K. C. Patel, Shri G. C. Patel and Shri J. C. Patel in different permutations and combinations. Out of those 91 trusts 88 trusts have been created between February 1978 and August 1978. 19. As far as 45 beneficiary trusts of assessee-trust are concerned, 22 of them have been created by one Shri Champaklal S. Shah while 23 have been created by one Shri I. S. Shah. The statements of these two persons as also the statements of the settlor of the assessee-trust have been recorded by the ITO. These two persons have given identical answers. Both of them have admitted in their statements that they had made gifts to those trusts for the benefit of children of S/Shri K. C. Patel, G. C. Patel and J. C. Patel. They were asked as to who had advised them to create those trusts and their reply was that nobody had advised them. They were asked that they had created large number of trusts by settling Rs. 200 each (22 in one case and 23 in other case) for the benefit of childre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneficiary trusts so that the income which would come to the share of each of 45 discretionary trusts would be below taxable limit. By such paper work, any number of trusts could have been created for dividing the income and even if the income happened to run into lacs, tax on such income could be saved by creating an appropriate number of trusts on paper in such a way that the total income divided by number of such trusts would be a figure which was below taxable limit. When such a device is adopted, it could not be said that the trust which was created for carrying on business was a genuine trust. Creation of such trusts does not require any stamp paper nor do they require registration. 22. The submission of the learned Advocate General to the effect that when once it was found that the trust was created in accordance with the provisions of the Indian Trust Act, that trust should be regarded as genuine trust and fact that number of trusts created almost simultaneously was large, would be irrelevant, cannot be accepted. All the surrounding circumstances are required to be taken into account. All tax planning would not be illegitimate. Tax planning would be regarded as legitimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As already stated earlier, it was admitted before us on behalf of the assessee that the decisions of the Tribunal in the cases of B. D. Fibre Enterprises, Atman Trust and Harish (HE) Trust were against the assessee. In those cases series of trusts had been created in similar manner and the Tribunal held that charging of maximum marginal rate was justified. We do not accept the submissions on behalf of the assessee to the effect that those decisions require re-consideration and should not be followed. 26. As already stated, large number of entities have been created on paper with the sole object of avoidance tax. In the circumstances the income is liable to be assessed in the status of AOP. Since the shares of the members of AOP were not determinate the provisions of section 167A would be applicable and the tax would be charged at maximum marginal rate. 27. In the alternative, even if the assessee-trust which is created by a deed in writing is regarded as genuine trust, since 45 beneficiary trusts of the assessee-trust are discretionary trusts, the shares of ultimate and real beneficiaries are unknown or indeterminate and hence the provisions of section 164(1) would be attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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