TMI Blog2004 (2) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the maximum amount not chargeable to tax and none of the individual beneficiaries is a beneficiary under any other trust – Thus, both questions are answered in the affirmative, i.e., in favour of the assessee and against the Revenue - - - - - Dated:- 11-2-2004 - Judge(s) : M. S. SHAH., A. M. KAPADIA. JUDGMENT The judgment of the court was delivered by M.S. SHAH J.-In these references at the instance of the Revenue under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the following questions have been referred for our opinion for the assessment years 1984-85 and 1985-86: "1. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to charge tax at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 16,000 in each case. Taking the case of RD Trust as an illustrative case, the Tribunal found that RD Trust is one of the beneficiaries of Sharda Trust. As per its trust deed, there are two beneficiaries - Miss Rita and Mrs. Devi and as per the claim of the assessee, none of these two beneficiaries are further beneficiary in any other trust and none of them have income exceeding the maximum limit not liable to tax. The assessee has thus claimed that as per the proviso to section 164(1) the income declared in the hands of RD Trust is liable to be taxed at the normal rate. According to the Revenue, these trusts have been created as a device to reduce or avoid the tax payable and the ratio of the decision of the Hon'ble Supreme Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment on the beneficiary trusts was made on protective basis without prejudice to the decision that may be taken in the case of the main trust. In the case of the main trust, the income declared has not been taxed. The assessment on the income of the beneficiaries has not been made in substantive capacity in the hands of any other entity. The income is treated to have been taxed substantively in the case of the assessee-trust. The Tribunal, therefore, held that there was no evidence to show that the beneficiary trusts were formed as a device to avoid tax so as to fall within the ambit of the ratio of the Supreme Court in the case of McDowell and Co. Ltd. [1985] 154 ITR 148. Since the Tribunal did not find any infirmity with the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any steps to have the said proposed question No.2 referred to this court under section 256(2) of the Act. In this view of the matter, we have not permitted learned counsel for the Revenue to raise any contention based on the plea that the arrangement was a colourable device to avoid tax liability. Apart from the above aspect, we have also noted the finding given by the Tribunal that the Assessing Officer found the formation of the main trust, i.e., Sharda Trust, a genuine one and since the assessment of the Sharda Trust has not been disturbed in any manner and since the income of the Sharda Trust was allocated amongst the 20 beneficiaries with determinate shares at 5 per cent. each, i.e., at Rs. 16,000 each, for the assessment year 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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