TMI Blog1995 (1) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the abovementioned order of the ITO to be erroneous and prejudicial to the interests of revenue. Firstly, he was of the view that inasmuch as the assessee-trust, under the provisions of the Trust Deed, was carrying on business, it must be held that the said business was being done by the trustees on behalf of and for the benefit of the beneficiaries only. He thus came to the conclusion that the trustees, in such a case, were required to be treated as an association of persons representing the group of the beneficiaries and not the individual beneficiary. He furthermore stated that the charge would be attracted to the totality of the income accruing to the person carrying on the business. He discussed that in this type of case, excepting the case of minors, it cannot be said that there was no consent implied and it would, therefore, be imperative to take the view that the beneficiaries forming an Association of Persons jointly received the income. In this connection, he relied on the decision of the Supreme Court in the case of N.V. Shanmugham Co. v. CIT [1971] 81 ITR 310 and discussed that it had been held by the Supreme Court in that case that where the beneficiaries receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Persons bringing to charge the totality of the income accruing to the persons carrying on the business jointly. 3.2 It may be mentioned in this connection that actually the CIT passed a combined order under section 263 in the same line for assessment years 1981-82 and 1982-83. In the appeal before it however, the Tribunal cancelled the order of the assessee under section 263 for assessment year 1981-82 basing on the " merger theory " without going into the merits of the case for that year. 4. The facts of the case are that one Shri Edward Maurice Rego created the present assessee-trust on 15-6-1979 by a written Trust Deed and by donating an amount of Rs. 1,000 to the trust as its corpus. The objects of the Trust were to provide ways and means for general welfare and well-being including maintenance and education of the six children of Shri C.J. Pinto (also called Bertie Pinto) who was the brother-in-law of the author of the Trust. Out of six children, five were boys whereas the last one was a girl. Originally these six children were the beneficiaries of the trust fund as well as its income in equal shares. The trust was authorised to carry on business on behalf of the benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of the trust in each year was to be expended for the purpose of the object of the trust or to be distributed to each of the beneficiaries. 3/4th of the income was however required to be accumulated and to be finally distributed amongst the beneficiaries according to the respective shares as at that time on termination of the trust which was to take effect after 30th June, 2001. 7. So far as the first objection raised by the assessee in his impugned order under section 263 about the trustees joining to carry on business on behalf of the beneficiaries is concerned, the decision of the Karnataka High Court in the case of CIT v. K. Shyamaraju (Trustees) [1991] 189 ITR 392 squarely takes care of the matter. The Karnataka High Court held in that case : " In order to be an association of persons, there must be a common purpose to venture and produce income on the part of the persons so venturing into business with the intention of making profits and gains from such business. In the making of a trust, the beneficiary is not required to consent to the maker's wish ....... Where a business is carried on under the provisions of a trust deed, it cannot be said that the beneficiari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of sub-section (1) of section 21 of the Wealth Tax Act. The Supreme Court furthermore commented that it is no answer to the applicability of sub-section (1) of section 21 (of the Wealth-tax Act) to say that the beneficiaries are indeterminate and unknown because it cannot be predicted who would be the beneficiaries in respect of the remainder on the death of the owner of the life interest. The position has to be seen on the relevant valuation date only. Although the abovementioned decision was given by the Supreme Court in respect of matter arising out of the Wealth-tax Act, yet the ratio of the Supreme Court would hold with regard to income-tax matters also viz., that indeterminacy of the beneficiaries and their respective shares will have to be judged at the end of each accounting year relevant to different tax assessment years and not at the time of creation of the trust merely. In this connection, one would be tempted to have a look at the Explanation 1 inserted to section 164 by the Finance (No. 2) Act, 1980 with effect from 1-4-1980 which reads as bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the beneficial interests or shares in the income of the trust can also be ascertained in the same manner. This view has been taken by the ITAT, Pune Bench, in the case of Mirje Family Trust v. ITO [1986] 18 ITD 25. The Tribunal discussed in that case that although specification of the shares for all times to come, in the trust deed, is contemplated, yet the shares may vary depending upon the vicissitudes through which beneficiaries go (death, marriage, renunciation, etc.) but if such contingencies are mentioned in the deed, the shares would still remain specific and ascertainable. 9. The learned counsel for the assessee also relied on the decision of the ITAT, Nagpur Bench in the case of Premraj Rakesh Gupta Trust v. ITO [1984] 10 ITD 442 and also of the Calcutta Bench of ITAT in the case of the ITO v. C.L Sadani Family Trust [1982] 1 ITD 223 in support of his contention that if it be possible to ascertain the beneficiaries and their beneficial interests the trust during each previous year, it would be sufficient to come to conclusion that the shares of the beneficiaries are neither unknown nor indeterminate. Although the abovementioned two decisions of the Tribunal re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA Nos. 26 to 33 and 59 60 (Bang.) of 1989 in the case of beneficiaries like Master D. Vijaykumar, Smt. D. Meenakshi etc., of exactly a similar trust, the Tribunal held that because of the accumulation clause, 3/4th income of the assessee-trust cannot be assessed in the hands of the beneficiaries directly in year to year manner inasmuch as the beneficiary does not become entitled to such income in the respective years and furthermore that at the time of distribution of the accumulated income on determination of the trust, beneficiary may not at all be entitled to this income on account of his death. Following the aforesaid decision of the ITAT, Bangalore Bench, therefore, we are of the view that it would not be possible to assess the income of the assessee-trust directly in the hands of its beneficiaries in respect of more than 1/4th of the trust income inasmuch as the beneficiaries get benefits in the respective years only with regard to the said 1/4th of their portions of the trust income. The balance 3/4th of their respective shares of income is accumulated till the date of determination of the trust. There is no doubt about the fact that the constitution of the beneficiar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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