TMI Blog1984 (6) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the trust funds. (i) From and after the date hereof and during the periods mentioned in this clause the trustees may either accumulate the net income of the trust funds or at their discretion pay the same to the persons as hereinafter mentioned or to anyone or more of them to the exclusion of others or any of them for their, his or her absolute use and benefit, in such proportions and in such manner as the trustees may in their absolute discretion think fit, provided however, that the whole or any part of the net income of the trust funds as may not have been distributed by the trustees in any year shall at the end of the year be added to and held as accretion to capital and form part of the corpus of the trust funds and shall be dealt with accordingly. (ii) The powers and discretions exercisable by the trustees under this clause shall be exercised unanimously by the trustees and failing unanimity amongst the trustees by the majority for the time being of the trustees and in case of difference of opinion the chairman of the trustees shall have casting vote in addition to his own. The unanimous opinion or decision of the trustees or the majority of the trustees, as the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibution of the corpus of the trust funds in terms of clause 1 of the trust deed." 6. On the aforesaid facts, the assessee filed its return of income for the year under consideration declaring total income at nil as, according to the assessee, the net surplus income of Rs. 14,577 was to be included in the total income of the beneficiary, Smt. Bharatidevi Sarabhai, and the assessment should be framed as contemplated under section 161 of the Act. The assessee took up a stand that since the beneficiary was known and her share was determinate, the provisions of section 164, as they stood at the relevant time, would not be attracted. The ITO, however, for the reasons stated in his order, came to the conclusion that 'the trust has all the characteristics of a discretionary trust and as such liable to be taxed under section 164'. He, therefore, assessed the income in the hands of the assessee at the flat rate of 65 per cent as provided in section 164. In appeal, following his appellate order in the case of Smt. Gira Sarabhai (G-12) D-Trust [IT Appeal No. 948 (Ahd.) of 1982 dated 24-4-1984] wherein similar point had arisen, the AAC upheld the action of the ITO. 7. Being aggrieved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment made in the relevant provisions of the Act, by the Finance (No. 2) Act, 1980. The Tribunal has found that there was a lacuna in the relevant provisions of the Act, which was plugged by amendment made by the Finance (No. 2) Act, 1980. In this view of the matter, the questions sought to be raised are of academic interest only. We, therefore, decline to draw up a statement of the case and refer the aforesaid questions to the Hon'ble High Court as desired by the revenue." Further, in the case of Hiren Kiren Jagruti Hina Trust, the Tribunal has observed as under: "13. Reference to the notes on clauses to the Finance (No. 2) Bill, 1980, and clause (ii) to Explanation 1 to section 164(1), also does not advance the assessee's case further. We are not laying down in the present case any general proposition to the effect that a discretionary trust could never be made into a non-discretionary one by the act of the trustees or the author of the trust or by the exercise of a specific power given to the trustees by the trust deed. We have confined our observations to the facts of the present case and held on their basis that the present trust was a discretionary trust to begin with and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust before it is earned and they have to administer the income, as provided in the deed of trust, only after it is earned. Thereafter, be referred to section 4 of the Indian Trusts Act, 1882, and urged that since by passing the resolution on 24-1-1976, the trustees had exploited the loopholes in section 164 as they stood during the relevant time, such act of the trustees was not lawful and, therefore, the trust was void in law. In this connection, he invited my attention to pages 121 and 362 of the Commentary on The Indian Trusts Act, 1972 edn. by Shri I.V. Rangacharya. He, therefore, urged that the action of the income-tax authorities should be upheld. 11. The learned counsel for the assessee, in his reply invited my attention to the Finance Minister's speech, notes on clauses of Finance (No. 2) Bill, 1980, as well as paras 48 to 50 of the memorandum explaining the provisions of the said Bill and highlighted the fact that the amendment brought in section 164, was with a view to plug the loopholes for tax avoidance through medium of private trust. Under these circumstances, it is not worth-arguing that the Tribunal should not take judicial notice of the said amendment. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai (B-11) D-Trust, the Division Bench of the Tribunal itself had an occasion to consider its order in the case of Hiren Kiren Jagruti Hina Trust. I have gone through the said order of the Tribunal in the case of Smt. Saraladevi Sarabhai (B-11) D-Trust and I fully concur with the conclusion arrived at by it to the effect that its order in the case of Hiren Trust would not be applicable on the facts and circumstances obtaining in the case of Smt. Saraladevi Sarabhai (B-11) D-Trust. It may be mentioned that both the parties had stated that the facts and circumstances obtaining in the instant case are exactly identical with the facts and circumstances considered by the Tribunal in the case of Smt. Saraladevi Sarabhai (B-11) D-Trust. In this view of the matter, following the order of the Tribunal in the case of Smt. Saraladevi Sarabhai (B-11) D-Trust, the assessee must succeed in the present appeal. 13. However, since both the parties had advanced arguments on the amendment made in section 164 as well as the provisions of the Indian Trusts Act, I would now deal with the same. 14. It is by now well settled principle of interpretation that in construing the provisions of a statute, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument of trust or the wakf deed and is identifiable on the date of the order, instrument of trust or the wakf deed. Further, the individual shares of the beneficiaries will be deemed to be indeterminate or unknown unless the individual shares of such beneficiaries are expressly stated in the order of the Court or an instrument of trust or the wakf deed and are ascertainable on the date of such order, instrument or deed. New Explanation 2 defines the expression 'maximum marginal rate' to mean the rate of income-tax including surcharge, if any, applicable to the highest slab of income of an association of persons as specified in the Finance Act of the relevant year. These amendments will take effect from 1st April, 1980 and will accordingly apply in relation to assessment year 1980-81, and subsequent years."--- Paragraphs 48 to 51 of the memorandum explaining the provisions in the Finance (No. 2) Bill, deal with the amendment proposed in section 164. The relevant extract from these paras are reproduced below:--- "48. Measures to plug loopholes for tax avoidance through the medium of private trusts.---Under section 164 of the Income-tax Act, the income received by the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the beneficiaries and their shares are known in the previous year although such beneficiaries or their shares have not been specified in the relevant instrument of trust, order of the Court or wakf deed. This provision was misused in some cases by giving discretion to the trustees to decide the allocation of income every year and in several other ways. In such a situation, the trustees 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 is liable as a representative assessee or any part thereof shall be regarded 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 previous year is expressly stated in the order of the Court or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 27-3-1961 along with the resolution dated 24-1-1976 and the communication dated 25-1-1976, it cannot be held otherwise than that the only beneficiary under the said deed of settlement would be Smt. Bharatidevi Sarabhai. In other words, the discretionary trust became a specific trust as not only the beneficiary was known but her share was also determined. Under these circumstances, it is difficult to uphold the orders of the income-tax authorities treating the assessee as a discretionary trust and applying the provisions of section 164 to it. 16. It may be mentioned that in deciding the appeal in the case of Hiren Kiren Jagruti Hina Trust, even though the Tribunal's attention was invited to the notes on clauses to the Finance (No. 2) Act, without dwelling much thereon, the Tribunal simply observed that 'reference to the notes on clauses..., also does not advance the assessee's case further'. The Tribunal, however, decided the appeal in favour of the revenue in that case mainly on the ground that the trustees were required to distribute the income on the last date of the relevant previous year. In doing so, the Tribunal did not consider it necessary to deal with other submis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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