TMI Blog2006 (9) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... on under Section 256(1) of the Indian Income Tax Act, 1961 ("the Act") for the opinion of this Court: "Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the interest paid to the beneficiaries was the income of the applicant-Trust and the applicant-Trust was not entitled to a deduction of the same?" 2. The short facts giving rise to the present matter are that during the assessment proceedings for the Assessment Year 1985-86, the Assessing Officer observed that the Assessee-Trust had credited an amount of Rs.44,030/- on account of interest to the account of the beneficiaries and claimed deduction thereof. He called for the explanation and after rejecting the same, added the said amount of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as deduction because there was no loan transaction between the parties. The Tribunal also held that there was no privity of contract amongst the beneficiaries and the Trust so far as the transaction of borrowing is concerned as the beneficiaries were not having any control over their income till it was absolutely transferred to them. The Tribunal also held that the Trust cannot be allowed to allocate interest to the beneficiaries when they have not actually paid any amount to the beneficiaries except making a book entry which was not going to vest any right in the beneficiaries for utilisation of the amount so far as so passed under those book entries. 4. Shri Talati, learned Counsel for the Assessee, placing his strong reliance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd collect all the annual and other income of the said Trust fund and shall from out of the same in the first place pay all the costs, charges and expenses of and incidental to the management, administration and execution of the Trust and powers hereof including any income-tax, wealth-tax or other taxes, dues, duties, impositions imposed by the Central Government, the State Government, the Municipal Corporation or any other competent authority and costs of ordinary repairs to the immovable property, if any forming part of the Trust fund. And subject thereto, the Trustees shall distribute or treat as distributed without actually distributing the same (by crediting to their respective accounts) the balance of the annual or other income or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /or any other money requiring investment (for which purpose the Trustees may even borrow money from any source including the Beneficiary of this Trust, at such rate of interest as they deem fit, with or without giving security of the Trust fund and on such other terms and conditions as they deem fit." 8. From the terms and conditions incorporated in the Trust Deed, it would clearly appear that the money can be paid in cash and loan thereafter can be taken or a book entry can be made and the money in cash can be paid to the beneficiaries at any later time. The Trust Deed does not say that any book entry in favour of the beneficiaries, on non-payment of the amount in cash, would be treated to be a loan from the side of the beneficiaries in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation to refund the money with interest as agreed between the parties. 10. In the present case, money by fiction would be deemed to have been paid though it was not so paid. Money continuous to be with the Trust. In absence of a loan transaction or a loan agreement between the beneficiaries and the trustees, the trustees would be treated to be the depositee for and on behalf of the beneficiaries. If the money to be paid is deemed to be paid, but, is actually not received by the depositor, then, the liability of the Trust would come to an end and as a Depositee, it would be answerable to refund and payment in cash. In this case, credit entry was one of the modes of distribution of the profits and that was not the only mode of payment. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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