1990 (12) TMI 185 - AT - Income Tax

Summary

Issues:
Assessment of beneficial interest arising from a private family trust.

Analysis:
The judgment pertains to appeals concerning the assessment of beneficial interest from a private family trust. The trust in question, named 'Anuradha Family Trust,' was declared by Shri K. Purushotaman for the benefit of family members, with specific shares allocated to seven beneficiaries. The trust deed outlined the distribution of income among the beneficiaries, including provisions for contingencies such as marriage and death. The trust's duration was set for 20 years or until determined by the trustees.

In the assessment for the year 1984-85, the Income Tax Officer (ITO) concluded that the beneficiaries were not identifiable under Explanation 1(i) to section 164 of the Income-tax Act, resulting in the income being taxed at the maximum marginal rate. However, the Appellate Assistant Commissioner disagreed, stating that the income was clearly receivable for specific individuals as per the trust deed.

The Revenue appealed the decision in one case, arguing for the restoration of the assessment order, while the assessee appealed in another case seeking the cancellation of the assessment. The key issue revolved around the applicability of section 164, which mandates the maximum marginal rate for income not specifically receivable for any individual or with indeterminate shares.

Upon review, the Appellate Tribunal found that the trust deed clearly specified the beneficiaries and their shares, making the income determinate and known. The Tribunal rejected the Revenue's argument that the beneficiaries were not identifiable due to future events like marriage, citing precedents and the legislative intent behind Explanation 1(i) to section 164. The Tribunal emphasized that the purpose of the provision was to prevent manipulation of discretionary trusts, which was not the case here.

Ultimately, the Tribunal allowed one appeal and dismissed the other, directing the ITO to levy tax at normal rates instead of the maximum marginal rate. The judgment clarifies the interpretation of section 164 in the context of specific trusts and the identification of beneficiaries, ensuring that income distribution from the trust is taxed appropriately based on the deed's provisions.