TMI Blog1984 (4) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... d possessed of the trust fund and of any additions or accretions thereto upon the following trusts : (a) The trustees shall subject to the provisions of sub-clauses (b), (c), (d) and (e) hereof, from time to time and for a period of 30 years from the date hereof invest and accumulate all and every part of the income out of trust fund by investing the same and the resulting income thereof in or upon any investments hereby authorised which shall thereupon become part of and subject to the trusts effecting the trust funds. (b) During the periods aforesaid, but subject to the provisions of sub-clauses (c) and (d) hereof, the trustees shall set apart in every year an amount equal to 10 per cent (ten per cent) of the income of the trust fund in that year and shall hold and stand possessed of the same for the benefit of Smt. Jagdamba Bai, widow of Late Shyam Sunder Khandelwal, residing at 22, Alipore Road, Calcutta-27 and shall pay over the same to her. (c) If until expiry of the period referred to in sub-clause (a) above the said Jagdamba Bai dies then in such an event the trust contained in sub-clause (b) shall determine from such date and notwithstanding anything contained in sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxed the income of the trust at 65 per cent on the ground that the shares of the beneficiaries were indeterminate after, however, excluding 10 per cent of the total income allotted to Jagdamba Bai by virtue of sub-clause (b) of clause 3 of the trust deed. 4. The assessee filed appeals both against the application of section 64(1)(vii) and inclusion of the income of the trust in the hands of the settlor, as also against the assessment of the trust income at the maximum rate of 65 per cent. While dealing with the first contention, the AAC held that the minors were not in receipt of any tangible benefits during the years under consideration, they did not have any vested interest in the income of the trust or corpus thereof, reliance placed by the ITO on clause 3(a) of the trust deed, by virtue of which, the trustees could allow the beneficiaries to reside from time to time in the property owned or taken on lease by the trust was irrelevant, inasmuch as, the trust had not acquired any house property which was allowed to be used by the beneficiaries during the relevant previous years, the trust could not be held as a sham transaction merely on the strength of certain surmises based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs or he died without having so married during that period, then in such an event, the trust would be determined, respectively either on the date of the expiry of the aforesaid period of 30 years or the date of such death within the period of 30 years, as the case may be, and the accumulated income and the corpus would be distributed amongst the minor sons of the settlors, Rajeev and Udayan, in equal shares or to their legal heirs in the event of their death. On the basis of the above elucidation of the relevant clauses of the trust deed, it was contended that the beneficiaries of the trust were clearly indicated in the trust deed and there was not a single contingency which was not provided for in the trust deed. It was submitted that the trustees had no discretion to change the beneficiaries during the relevant previous years and the trust funds were to be distributed if Rakesh Gupta died at any time during the previous year. Attention was drawn to clause 3(e) of the trust deed, which provided that the trust would determine on the death of Rakesh Gupta and it further provided that in the event of such a happening, the trust fund and the balance of the accumulated income should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der consideration, the AAC was bound to follow the same and in not doing so, he was flouting judicial precedent of a higher Tribunal. Accordingly, it was finally submitted that following the Special Bench's decision, it should be held, that the provisions of section 164 have no application to the trust under consideration. The departmental representative relied on the order of the AAC. 8. We have considered the submissions on either side and also the authorities cited in this behalf. A comparative study of the facts in the assessee's case and those in the case of C.L. Sadani Family Trust decided by the Special Bench reveals the identical nature of the same in all relevant respects. In the case of C.L. Sadani Family Trust, the trust was for 21 years, whereas in the assessee's case, it is for 30 years. In the case of C.L. Sadani Family Trust, 5 per cent of the income from the trust fund was to be paid to one Smt. Laxmi Devi, wife of the settlor, every year, the balance of the income and corpus being held for the benefit of the unborn son of Smt. Laxmi Devi on whose birth, the trust would be determined, resulting in the accumulated income and corpus being paid to him or his legal gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry is not known. We do not think that the proposition canvassed can be accepted. The beneficiary, according to us, is known and his interest is specified. There is no uncertainty about the beneficiary or his share. But the learned departmental representative pointing out clause 3(d) states that the interest of the beneficiary is only contingent upon happening of the event mentioned therein. There is no vested interest in favour of a particular beneficiary, the learned departmental representative argued. The learned counsel for the assessee pointed out that what is to be seen is the position as on 31-3-1976 as laid down by various authorities culminating in the decision of the Supreme Court in the Nizam's case. This at once leads us to a careful perusal of the judgment of their Lordships of the Supreme Court. Their Lordships were no doubt considering the provisions of section 21(4) of the Wealth-tax Act but those provisions are analogous to the provisions under the Income-tax Act and they have full force at page 598 the dictum laid down can be better understood by quoting their Lordships : ' . . . The Wealth-tax Officer has to determine who are the beneficiaries in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneficiaries were not having any vested right on the date of the execution of the trust. In fact, in the case also there were beneficiaries who are not born. From what their Lordships have enunciated it is clear that so far as the applicability of section 164 is concerned one has to look to the position as at the end of the accounting year. It is to be found out as to who are the beneficiaries in case the trust is determined on that date. In other words, one has to assume and proceed on the hypothesis that the trust has come to an end. Now if we apply the above principles to the facts of the case the position that emerges is as follows : ' On 31-3-1976 Smt. Laxmi Devi Sadani was entitled to 5 per cent of the income. In respect of the balance of 95 per cent the beneficiary would be the daughter of Smt. Laxmi Devi Sadani in terms of clause 3(d) of the trust deed. On 31-3-1975, as indicated earlier, we have to see who are the beneficiaries on the hypothesis that the trust is determined. Admittedly no son was born. If the son is not born the income would go to the heirs of Laxmi Devi Sadani in equal shares. There is only one heir as on 31-3-1976 and that is the daughter. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries and on what determinate shares, sub-section (1) of section 21 must apply and 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 into being. " In that case also, the beneficiaries depended on the happening of various contingencies. They were not having vested rights on the date of execution of the trust. There were also beneficiaries who were not born. As held by the Tribunal, in the Special Bench's decision in C.L. Sadani Family Trust's case that so far as the applicability of section 164 is concerned, " one has to look to the position as at the end of the accounting year. It is to be found out as to who are the beneficiaries in case the trust is determined on that date. In other words, one has to assume and proceed on the hypothesis that the trust has come to an end. " If the above principles are applied to the facts of the present case, the following position emerges : Jagdamba Bai was entitled to 10 per cent of the income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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