TMI Blog1990 (12) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... ran (on his attaining the age of majority). Clause 7 of the deed provided that the income of the trust was to be received by all the seven beneficiaries in definite shares mentioned therein as follows : (i) Mr. Thyagarajan (Son-in-law) 25% share of benefit (ii) Mrs. Anuradha wife (i) above 20% do (iii) Senthil Kumaran, minor son of (i) and (ii) above. 15% do (iv) Shanmuga Priya, minor daughter of (i) and (ii) above. 15% do (v) Would-be wife of Senthil Kumaran (iii) above 10% do (vi) Would be husband of Shanmuga Priya (iv) above. 10% do (vii) Trustees of Senthil Charitable Trust 5% do ------------- 100% ------------- It also provided that the net income was to be divided among the above beneficiaries or credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he marriage takes place and the accumulated benefit was to be paid under section 13 within six months from the date of benefit payable to such beneficiary ceases as per the terms of the deed. The duration of the trust was a period of 20 years or until it was determined by the trustees. 3. On these facts, in the case of the would-be husband of Shanmuga Priya, while making the assessment for the year 1984-85 corresponding to the previous year ended 31-12-1983, the ITO came to the conclusion that the assessee beneficiary was not identifiable as such as on the date of the trust deed in view of the Explanation 1(i) to section 164 and therefore the income of Rs. 68,188 was to be charged to tax at the maximum marginal rate. On appeal, the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese findings could be given because the income was receivable on behalf of several persons whose shares were specifically stated in the document and thus determinate and known. 7. The Revenue relied on Explanation 1(i) to this section which is as follows : " (i) any income in respect of which the persons mentioned in clause (iii) and clause (iv) of sub-section (1) of section 160 are liable as representative assessee or any part thereof shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previous year is expressly stated in the order of the court or the instrument of trust or wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and beneficiaries were able to manipulate the arrangements in such a manner that a discretionary trust was converted into a specific trust whenever it suited them tax-wise. In order to prevent such manipulation, the Finance Act has inserted Explanation 1 in section 164 to provide as under : a. any income in respect of which the court of wards, the administrator-general, the official trustee, receiver, manager, trustee or mutawalli appointed under a wakf deed was liable as a representative assessee or any part thereof shall be regarded as as not being specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut only a specific trust because no discretion has to be given to the trustees either to choose the beneficiary or to vary their interest. The cases relied on by the Revenue relate to the discretionary trusts and are not applicable to the present case. Secondly, it has been held by the Supreme Court in the case of CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 that it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming in to being and as long as it impossible to determine who precisely would be the beneficiaries on what determined shares, it cannot be said the beneficiaries ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,, of the view that once a trust is created for charitable purposes, even if the details of the charitable purpose are not mentioned, the trust will have to be taken as valid." In the present case also the deed provides for every eventuality and there is no uncertainty about the vesting of the income. Since the beneficiary is identifiable as the would-be wife or the husband and is not required to be un-named as mentioned in the memorandum explaining the provision, we are satisfied that the shares cannot be treated as indeterminate or unknown within the Explanation 1(i). Consequently the tax at the maximum marginal rate cannot be imposed in respect of these two assessees. The ITO is therefore directed to levy the tax at the normal rates. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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