TMI Blog1994 (11) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... nchholdlal Virchandbhai Patel executed a written non-testamentary instrument of trust (trust deed) on 31st Dec., 1979 appointing three persons, viz., (i) Shri Karsanbhai Khodidas Patel, (ii) Shri Khodidas Vandas Patel and (iii) Shri Joitaram Kachrabhai Patel as trustees to hold the trust fund including the initial corpus of Rs. 1,000 for the benefit of two sets of beneficiaries enumerated in Schedules I and II to the said trust deed which is placed from pages 49 to 68 of assessee's paper book filed in this appeal. The trust created has been styled and called as "Bharat Trust" by the settlor. The Schedule I of the various beneficiaries is found at pages 67 of the paper book and Schedule II of the beneficiaries is placed at page 68 of the paper book. In order to make the facts fully and properly appreciable we deem it useful to extract the same as below: BENEFICIARIES OF SCHEDULE-I Sr. No. Name of Beneficiaries Share 1. Karsanbhai Khodidas Patel 4.0% 2. Khodidas Vandas Patel 4.0% 3. Virchanddas Vandas Patel, HUF 4.0% 4. Manjulaben Pramodkumar Patel 2.5% 5. Joitaram Kachrabha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shantaben Karsanbhai Kachrabhai Patel Oral. Spec. (Defe.) Family Trust 4.5% 7. Udaykumar Kalidas Baraiya Trustee and representative beneficiary for and on behalf of Jamnaban U.B. Baraiya Oral Spec. (Defe.) Family Trust 5.0% 8. Karsanbhai Kachrabhai Patel Trustee and representative beneficiary for and on behalf of J.K. Patel Oral. Spec. (Defe.) Family Trust 6.0% 9 Karsanbhai Khodidas Patel Trustee and representative beneficiary for and on behalf of Shantaben K. Kachrabhai Oral. Spec. (Defe.) Family Trust 4.0% . . 38.5% 4. As could be seen from Schedule I the beneficiaries of Sr. Nos. 1 to 7 are individuals, the beneficiaries from Sr. Nos. 8 to 13 are also individuals but they represent oral discretionary family trusts and beneficiaries at Srl. Nos. 14 and 15 are also individuals but representing specific (non-discretionary) trusts. The beneficiaries of Schedule II are all individuals but representing various oral specific deferred trusts. As could be observed and seen, the share of each of the beneficiaries of both the Schedules I and II are specified, fixed and determined by the settlor. The settlo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arginal rate. After exchange of letters between the trustees and the Assessing Officer on the subject, which we do not deem it necessary to narrate in detail, the Assessing Officer came to the conclusion that the income of the trust earned by the trustees should be taxed at maximum marginal rate by applying the provisions of s. 164(1) r/w Expln. I(i) and (ii) of the IT Act, 1961 which was inserted in the statute book from 1st April, 1980. Though the Assessing Officer has passed a very lengthy order the gist of his conclusions can be summed up as under: (A) A trust is not a person and, therefore, cannot be made a beneficiary under s. 9 of the Indian Trusts Act. The settlor by making various trusts in Schedule I and Schedule II has violated this vital provision of the Indian Trusts Act. (B) Since the trust is not a person it cannot hold, possess or transfer any property as per s. 5 of the Transfer of Property Act. (C) Since the trustees of various oral discretionary trusts from Sr. Nos. 8 to 13 of Schedule I of the trust deed had absolute discretion to distribute the income derived by them from this trust and income will not reach the real living beneficiaries of those oral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rate. The Revenue is, therefore, aggrieved with this decision of the AAC and, hence, the present appeal lies before this Tribunal. 10. On being asked by us the assessee's authorised representative Shri K.C. Patel informed that the settlor of this trust Shri Ranchhodlal Virchandbhai has not created any of the trusts from Sr. Nos. 8 to 15 of the Schedule I or any trust mentioned in Schedule II of the trust deed dt. 31st Dec., 1979. We were further informed upon enquiry that the beneficiaries of this trust have filed their IT returns and have also been assessed by the respective Assessing Officer and that a sum of Rs. 10.85 lakhs has been paid as taxes for asst. yr. 1981-82 and Rs. 23.27 lakhs for asst. yr. 1982-83. A letter dt. 5th Aug., 1994 has also been filed after hearing was concluded upon direction issued by us during the course of hearing and the same is placed on record. 11. Both sides were heard by us at great length who supported their respective cases with relevant case laws. The Departmental representative relied on the reasons given by the Assessing Officer while the assessee's authorised representative heavily relied on the reasons given by the AAC which we hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments and so on and so forth and, therefore, the orders passed by the Revenue authorities in all those/such cases were upheld by different Benches of this Tribunal. In the case of B.D. Enterprises the Tribunal did not pronounce any opinion on the argument advanced as to whether a trustee can be beneficiary or not nor and moreover the point raised by the Departmental representative as to whether the master trust was a discretionary trust or not was also not adjudicated. We reiterate that this is not the case here and we, therefore, wish to refrain from embarking upon any discussion on the merits and/or demerits of those cases vis-a-vis the facts of this case and burden our this order any further. However, if we are confronted with similar issues about the trust being bogus in some other appropriate appeals in future, and if need be, we shall refer, discuss and advert to all those Tribunal decisions relied on by the Departmental representative and discuss the merits and reasaning of those cases. But in so far as this case is concerned, we do not wish to dilate much, on the applicability or otherwise of those decisions. 13. As stated by us above the Assessing Officer has accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared by a duly executed instrument in writing (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913) and which is not deemed under Expln. 1 to be a trust declared by a duly executed instrument in writing." It is thus abundantly clear from a reading of the above provision that the trustee should be one who has been appointed under a duly executed instrument in writing. In the instant case neither the execution of the instrument (trust deed) nor the appointment of any trustee is doubted. The assessment, therefore, has to be made, and rightly and legally so made, by the Assessing Officer on the trustees as and in a representative capacity. In respect of the oral trust mentioned in the Schedule of the trust deed it is discernible from the impugned order that the trustees of respective oral trusts have complied with the requirements of Explns. 1 and 2 to s. 160(1)(iv) of the Act. There is no dispute in this regard. 15. As rightly stated by the Assessing Officer, a trust is an obligation cast by the settlor upon the trustees which they have to carry out, discharge and perform scrupulously in terms of the trust deed and as per the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are similar to those found under the IT Act which are contained in s. 161(1) and 164(1) of the Act. Hence, by the parity of reasoning whenever an assessment has to be made on a trustee in representative capacity the same has necessarily and essentially to be made under s. 161(1) of the Act if the beneficiaries and their shares are known and determinate. Otherwise, it should fail under s. 164(1) of IT Act which as stated by us above and observed by the Hon'ble Supreme Court in Nizam's case is analogous to s. 31(4) of the WT Act. 18. The Bombay High Court in the case of CIT vs. Marson's Beneficiary Trust Ors. (1990) 87 CTR (Bom) 71 : (1991) 188 ITR 224 (Bom) at page 228 has laid down that under s. 161 of the Act, "the tax shall be levied upon and recovered from a trustee in a like manner and to the same extent as it would be leviable and recoverable from the person represented by him", that is to say, the income which goes to the share of a beneficiary has to be assessed as if it were the income of the beneficiaries and tax has to be levied accordingly. Observing further in the said case, Their Lordships of Bombay High Court held that all kinds of income of a trust have to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a trustee can enter into a partnership on behalf of a trust. Again, the Allahabad High Court in the case of Seth Kishori Lal Babulal vs. CIT (1988) 73 CTR (All) 216 : (1988) 174 ITR 502 (All) have held that a trustee is representative qua the beneficiaries. From the above decisions, we can safely say that the Assessing Officer has confused himself by misreading and misconstruing the intention of the settlor conveyed in the Schedules which form part of the trust deed. 21. We must also make a mention of the Calcutta High Court decision rendered in the year 1963 in the case of A. Razzak vs. CIT (1963) 48 ITR 276 (Cal) wherein it is held that when the shares of the persons on whose behalf or for whose benefit the income is received by an assessee as a trustee where all such persons are known and their shares determinate, then the assessment on the assessee should be made as a separate assessment for each of the persons on whose behalf or for whose benefit the income is received by the assessee-trustee. Similar is the view expressed by the Mysore High Court in the same year in the case of J.N.A. Hobbs vs. Dy. Commr. of Agrl. IT (1963) 49 ITR 811 (Mys). The Hon'ble Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant trust or its trustees at maximum marginal rate under s. 164(1) of the Act is also not justified because, as narrated and recorded by us elsewhere above, the beneficiaries have been assessed in respect of the beneficial income from this trust and a total sum of Rs. 36.22 lakhs has been paid by way of tax by them for the two assessment years namely; 1981-82 and 1982-83 and this would, therefore, amount to double taxation of the same income; once in the hands of the trustees at maximum marginal rate under s. 164(1) of the Act and again in the hands of the beneficiaries in their individual assessments. 23. Further, the Supreme Court in the case of State of U.P. vs. Raza Bulund Sugar Co. Ltd. (1979) 118 ITR 50 (SC) have held that the trust income cannot be taxed in the hands of the settlor and also in the hands of the trustee or beneficiary or in the hands of both, the trustee as well as the beneficiary. 24. It is by now a trite law by the judgments of (a) the Supreme Court in the case of C.R. Nagappa vs. CIT (1964) 73 ITR 626, 631 (SC) (b) the Gujarat High Court in the case of CWT vs. Smt. Arundhati Balkrishna Trust Ors. and (c) the Andhra Pradesh High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relied upon by the assessee's authorised representative and has been narrated and recorded by us elsewhere. Our learned Brothers in those cases were also confronted with the same key controversy with similar set of facts, circumstances and submissions as we are in this appeal. The reasons given by them besides being elaborate are very cogent and worthy and do support this assessee's case. 29. Before ending we would like to say a few words about the two judgments of the Gujarat High Court and Calcutta High Court relied upon by the Departmental representative and which have been reported in CIT vs. Gosar Family Trust (1990) 89 CTR (Guj) 266 : (1991) 189 ITR 18 (Guj) and CIT vs. Shri Krishna Bandar Trust (1993) 201 ITR 989 (Cal). Those two decisions have no relevance to facts of the case on hand before us nor to the controversy with which we are involved. The Gujarat High Court in the case of Gosar Family Trust was concerned with two categories of beneficiaries and absolute discretion being given to the trustees. We are not concerned with this situation here. The Calcutta High Court was dealing with the case wherein the question of determination of status of discretionary trust w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d detailed and elaborate discussions. I would accordingly discuss them hereafter. One Shri Ranchhodlal Virchandbhai Patel created the assessee-trust by settling an amount of Rs. 1,000 as per trust deed executed on 31st Dec., 1979 with the following three trustees: 1. Shri Karsanbhai K. Patel 2. Shri Khodidas V. Patel 3. Shri Joitaram K. Patel For the purpose of the trust, 61.5% of the income of the trust was required to be received by the trustees for and on behalf of and for the benefit of persons named in Schedule I to the trust deed and the said beneficiaries were required to have beneficial interest and right to have income to be divided amongst them as per the share ratio mentioned against each in Schedule I. Balance 38.5% income was receivable for and on behalf of and for the benefit of the beneficiaries listed in Schedule II to the trust deed and the same was to be divided as per share ratio specified against each of the said beneficiaries but it was specifically made known that the beneficiaries shall have no right, title or interest either vested or contingent in the said income and the income receivable was required to be accumulated to form part of the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made common trustees in these trusts. Two of the oral discretionary family trusts out of 12 trusts created on 9th Dec., 1979 were made beneficiaries in each of the trusts created on 28th Dec., 1979. These fall in category 2 above. 5. On 28th Dec., 1979, two oral specific family trusts were formed by Shri Pramodbhai K. Patel by settling Rs. 500, 250 in each of them after the names of Joitram K. Patel and Mohanlal Baraiya and their three family members were made beneficiaries in each of the respective trusts. Further, each trust has three trustees from respective families. These trusts are also made beneficiaries in the assessee trust and the same fall in category 3 above. 6. Again on 28th Dec., 1979, Shri Pramodbhai K. Patel created 7 oral specific deferred family trusts by settling Rs. 100, Rs. 500 in each. Shri Jagdishchandra also created one more oral specific deferred family trust on 28th Dec., 1979 by settling Rs. 100. Thus in all 8 oral specific deferred family trusts were created on 28th Dec., 1979. Seven of these trusts were named after each of the individual beneficiaries of the assessee trust and they are also made individual beneficiaries in each trust. 8th tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y trusts has been distributed to real beneficiaries and the tax has been paid in the hands of ultimate beneficiaries at appropriate rate of tax. 10. The Revenue has, however, assessed the individual beneficiaries at normal rate and the beneficiary trusts at the maximum marginal rate on protective basis. The assessments so made in the cases of beneficiaries are also under dispute. 11. The Revenue has not disputed genuineness and validity of the assessee trust. The Assessing Officer has, however, brought out that formation of various beneficiary discretionary trusts is part of scheme of tax planning to bring the income of beneficiary trusts formed on 28th Dec., 1979 within the purview of proviso (i) to s. 164(1) of the IT Act. It has further been pointed out that trustees of these oral trusts have not distributed the income in their discretion to their so-called beneficiary trusts having no other source of income and as such it is claimed that they are not chargeable to the maximum marginal rate of tax as per proviso (i) to s. 164(1). 12. I would now examine and consider the question of applicability of provisions of s. 164(1) to the income receivable for and on behalf of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of 28th Dec., 1979 and then 12 discretionary trusts of 9th Dec., 1979. The income receivable for and on behalf of the said 6 oral discretionary trusts was allocated to them as per the share ratio provided in the trust deed. The said 6 oral discretionary trusts did not further distribute the income to the beneficiaries so as to reach the ultimate individual beneficiaries. Those 6 oral discretionary trusts, however, filed returns through their trustees and paid tax at the appropriate rate availing the benefit of proviso (i) to s. 164(1) instead of paying the tax at maximum marginal rate under s. 164(1). The said 12 oral discretionary trusts formed on 9th Dec., 1979 have no other income to benefit the ultimate 10 individual beneficiaries. It so appears that the very object of forming the said 12 oral discretionary trusts on 9th Dec., 1979 was to enable the said 6 oral discretionary trusts to pay tax at appropriate rate instead of maximum marginal rate by availing concession as per proviso (i) to s. 164(1) which provides that in case where none of the beneficiaries has any other income chargeable under the Act exceeding the maximum amount not chargeable to tax in the case of an AOP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me receivable for and on behalf of such trusts at the maximum marginal rate. Here also the assessments have been made directly on the beneficiary trusts. 13. It would be seen from the facts given that the assessee-trust has been accepted as genuine and valid trust and the income receivable for and on behalf or for the benefit of beneficiaries has been allocated to various categories of beneficiaries in the share ratio specified in the trust deed at the close of the year. The Assessing Officer has assessed the income so allocated directly in the hands of beneficiaries and levied tax at appropriate rate. The assessments so made are in conformity with the provisions of s. 166 and recent decision of the Hon'ble Supreme Court in the case of CIT vs. Smt. Kamalini Khatau (1994) 119 CTR (SC) 169. 13.1. The question that aroses is whether on the facts and in the circumstances of the case, income receivable for and on behalf of beneficiaries and allocated to them as per share ratio specified in the trust deed at the close of the year could be assessed as one unit in the hands of the assessee trust at the maximum marginal rate under s. 164(1) of the IT Act? So far as the beneficiaries d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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