Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

Income Tax Appellate Tribunal - Bangalore Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004 Equivalent citations: 2005 279 ITR 183 Bang Bench: G Veerabhadrappa, P Mohanarajan, J Member, D R Shah, A Balasubramanyam, R Puri, N Krishnamurthy, A Satyanarayana ORDER G.E. Veerabhadrappa, Accountant Member 1. The following point of difference was referred to the Third Member by the Hon'ble President, Income-tax Appellate Tribunal: "Whether on the facts and in the circumstances of the case the Assessing Officer is justified in holding that Section 164(1) of the Income-tax Act, 1961 (the Act) is attracted?" 2. The Third Member has agreed with the view expressed by the Accountant Member and has held the issue in favour of the Revenue. In the light of the majority view, the Revenue's appeals are treated as allowed. Deepak R. Shah, Accountant Member 1. These appeals came before me as a third member to express my opinion on the following question : "Whether, on the facts and in the circumstances of the case, the Assessing Officer is justified in holding that Section 164(1) of the Income Tax Act, 1961 (the Act) is attracted ?" 2. I have heard the counsels on both the sides. Since the facts are succinctly brought out in the order of both the members. I do not propose to repeat the same. However, for the purpose of present disposal as a third member, the following clauses of the Trust Deed not brought out are reproduced herewith : Clause 6 : During the minority of the beneficiary, the trustee shall make arrangements to deposit the net surplus of the trust in a separate bank account to be handed over to the beneficiary on her attaining majority. Clause 11 : The income of each year as fully certified by the Chartered Accountant shall be credited to a separate account in the books of the Trust to be passed on to the beneficiary on her attaining majority. Clause 12 : This Trust shall stand determinate on the date when the beneficiary Ms. Sheetal Sundar attains majority and on the determination of the Trust, the assets of the Trust shall be transferred to her by the trustees, inter alia. Interpreting the above clauses in the Trust deed read with Clause 13, the assessee did not offer any income in its hands as the sole beneficiary Ms. Sheetal Sundar does not get right during the relevant previous years as she was minor during the year. As per the assessee since the trust is liable to be taxed under Section 161 in the like manner and to the same extent as is leviable upon the beneficiary and since the beneficiary is not entitled to any income, the trust consequently would also not be liable to pay any tax on income accruing to the trusts. The Assessing Officer held that Section 154 (1) is applicable and accordingly taxed income in the hands of the trustees of the trust at maximum marginal rate. Learned Dy. Commissioner of Income Tax (Appeals) held that since there was only one beneficiary, the first limb of Section 164 (1) will apply. He further held as under : "I cannot be said that no income was specifically receivable on behalf of or for the benefit of her. Hence the appellant trust is not caught by the mischief of Section 164 at all."

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Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

In appeal before the Tribunal, Hon'ble J.M. agreed with the view of learned DCIT(A). Learned A.M. held that Section 164(1) is applicable. Learned J.M. have opined that since on the last day of the relevant previous years the sole beneficiary Ms. Sheetal Sundar was alive, mere fact that under the terms of trust deed income could not be transferred to the beneficiary before she attains age of 18 years, still the trustees have received the income for sole benefit of the beneficiary. Learned A.M. has held that when it is not certain whether the beneficiary will at all receive the income or not, it cannot be said that income has been received on behalf of beneficiary. 3. Learned D.R. Sri A. Lahari submitted that when the assessee himself treats the income as not receivable on behalf of beneficiary before the age of maturity, it is a case of Section 164 and hence the order of learned A.M. should be upheld. 3.1 Learned counsel for assessee Sri J. J. Madan Submitted that the Trust had only one beneficiary who is determinate and known and whose 100% share in the income of Trust is known and determinate as at the end of the accounting year, considering which the Trust is a Specific Trust. Where the year to year income is to be accumulated during the beneficiaries minority and handed over to her only on her attaining majority - during the period of minority, the interest of the beneficiary was a contingent interest and not a vested interest and as such no income accrued to the beneficiary during the tenure of her minority as long as she was alive. The Trust income was therefore NIL - in a Specific Trust the income from the Trust was to the assessed either in the hands of the beneficiary or in the hands the Trustee as if that was the only income of the beneficiary, at the option of the Assessing Officer. The Trust had only one beneficially. It is enough if the beneficiary and her hand is known as at the end of the previous year i.e. Miss Sheetal Sundar with 100% share as per the Supreme Court decision in the case of C.W.T v. H.E.H. Nizam's Family (Remainder Wealth) Trust 1977 (103 ITR 555). As Miss Sheetal Sundar, the beneficiary was alive as at the end of the relevant previous years with a 100% share, dearly indicated that the beneficiary and her share were both determinate and known, as a consequence of which the Trust should have been assessed under Section 161 (i) of the Income Tax Act, 1961 (the Act), as a Specific Trust. Further reliance was placed on the decision of Yogindra Prasad N. Mafatlal v. CIT (109 ITR 602) (Bom) (610 & 625 pages) wherein it was held that : "The benefit or interest which the minor daughter were to get was not a vested one but was contingent upon each of the daughters attaining majority." "Where on a transfer of property, an interest therein is created in favour of the Act person to take effect only on the happening of a specified uncertain event or if a specified uncertain event shall not happen, such person thereby acquires a contingent interest in the property. Such interest becomes a vested interest in the former case on the happening of the event, in the latter, when the happening of the event becomes impossible." 3.2 Relying on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT v. Karelal Kundanlal (148 ITR 415), it was submitted that either the assessment should be made on the representative assessee i.e. a trustee, or directly on the beneficiary, but it is clear that it would only be with regard to the income to which the beneficiary is entitled and the liability will only be to that extent. Reliance was also placed on the decisions of Income Tax Appellate Tribunal, Hyderabad in Sitaratnam Family v. ITO, 22 ITD 126 & Would-be Wife of T. Senthil Kumaran v. ITO, 37 ITD 269 for the proposition that the change of beneficiary in subsequent year before date of distribution does not affect the characteristic of trust as a specific trust, following passage of the decision of Hyderabad Tribunal was "It is not at all relevant whether the beneficiaries may change in subsequent years before the date of distribution depending upon contingencies which may come to pass in future. So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of Section 21(1). The position has to be seen on the relevant valuation date as If the preceding life interest had come to an end on that date and if on that hypothesis, it is possible to determine
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Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

who precisely would be the beneficiaries and on what determinate shares Section 21(1) must apply and it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being... we have to determine who are all the beneficiaries at the end of previous assessment year. If on that date the beneficiaries are ascertainable with certainty the Section 160(1)(iii) applies." 4. I have carefully considered the relevant facts, rival submission in the light of material placed and the precedents relied upon. Section 164(1) & Explanation 1 at the relevant time read as under: 164 (1) : Subject to the provisions of Sub-sections (2) and (3), where any income in respect of which the persons mentioned in Clauses (iii) and (iv) of Sub-section (1) of Section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "part of relevant income" and "beneficiaries", respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. Provided that in a case where -i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or ii) the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent or, the settlor for their support and maintenance; or the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons. Explanation 1. For the purposes of this section, -any income in respect of which the persons mentioned in Clause (iii) and Clause (iv) of Sub-section (1) of Section 160 are liable as representative assessee or any part thereof shall be deemed as being not 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 instrument of trust or wakf deed, as the case may be, and is identifiable as such on the date of such order, instrument or deed; the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is received shall be deemed to be indeterminate or unknown unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in the order of the court or the instrument of trust or wakf deed, as the case may be, and are ascertainable as such on the date of such order, instrument or deed."
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Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

4.2 It is true that first limb of Section 164(1) is applicable, if at all Section 164(1) is applicable since this is a case of a trust where there is a sole beneficiary. What is to be examined is whether the trustees are receiving the income specifically on behalf of or for the benefit of one person. It is not in dispute that the income has accrued to the trustees during the relevant financial year. It is also admitted position that during the relevant financial years, the beneficiary was minor. As per Clauses 6 & 11 of the Trust Deed, during the minority of the beneficiary the trustees are to deposit the net corpus in a separate bank account. This amount is not held for the beneficiary since she has not attained majority status during the relevant financial years. The beneficiary is entitled to the whole of income as well as corpus only on attaining majority and not earlier. As per Clause 13 if the beneficiary expires before the determination of trust, the income is not to be paid to the beneficiary or her legal heir but is left to the discretion or choice of the trustees. Thus it can be said that during the relevant financial years the interest of the beneficiary was contingent. The words "contingent interest" or "vested interest" are not defined in the Income Tax Act, 1961 (the Act). However, Section 10 of the Transfer of Property Act deals with what are vested interests. Section 21 of the Transfer of Property Act deals with the word 'contingent interest.' Section 120 of the Indian Succession Act corresponds to Section 21 of the Transfer of Property Act Section 19 & Section 21 of Transfer of Property Act runs "Where, on a transfer of property, an interest therein is created in favour of a person without specifying the time when it is to take effect or in terms specifying that it is to take effect forthwith or on the happening of an event which must happen, such interest is vested, unless a contrary intention appears from the terms of the transfer. A vested interest is not defeated by the death of the transferee before he obtains possession. Explanation - An intention that an interest shall not be vested is not tobe inferred merely from a provision whereby the enjoyment thereof is postponed, or whereby a prior interest in the same property is given or reserved to some other person, or whereby income arising from the property is directed to be accumulated until the time of enjoyment arrives, or from a provision that if a particular event shall happen the interest shall pass to another person." Where, on a transfer of property, an interest therein is created in favour or a person to take effect only on the happening of a specified uncertain event, or if a specified uncertain event shall not happen, such person thereby acquires a contingent interest in the property. Such interest becomes a vested interest, in the former case, on the happening of the event, in the latter, when the happening of the event becomes impossible. Explanation - Where, under a transfer of property, a person becomes transferor also gives to him absolutely the income to arise from such interest before he reaches that age, or directs the income or so much thereof as may be necessary to be applied for his benefit, such interest is not contingent." It is necessary to set out the previsions of Section 120 of the Indian Succession Act which corresponds to Section 21 of the Transfer of Property Act. Illustration (ii) given under Section 120 of the Succession Act is as follows : "(ii) A sum of money is bequeathed to A 'in case he shall attain the age of 18' or 'when he shall attain the age of 13'. A's interest in the legacy is contingent until the condition is fulfilled by his attaining that age." 4.3 Reading the aforesaid provision it is clear that the income of the Trust is not specifically receivable on behalf of or for the benefit of the sole beneficiary Ms. Sheetal Sundar during the relevant financial years. The same was contingent upon her attaining majority. The illustration given below Section 120 of Indian Succession Act clearly fits in the above case. For the very same reason that the above income has not accrued to the beneficiary before her attaining majority, the trustees have not offered the income in the hands of Trust. If that is the case it can be concluded that the income is not specifically receivable on behalf of or for the benefit of any one person i.e. the present beneficiary. Accordingly the tax is to be charged on the relevant income of the Trust as per provision of Section 164(1) of the Act.
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Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

4.4 Let me deal with the decision relied upon by learned counsel for assessee. Sri Madan relied upon the decision of Hon'ble Bombay High Court in Yogindra Prasad N Mafatlal case (supra). In the said case, the question was dubbing of the income of beneficiary in the hands of the parents invoking provision of Section 64(v) of the Act. Hon'ble Bombay High Court held that since the beneficiary who was minor was not to receive the income during the relevant financial year but was deferred beyond the minority of the child, the interest during the relevant year was contingent. Accordingly it was held that the Section 64 (v) is not applicable. It is pertinent to note that the decision of Hon'ble Bombay High Court in Yogindra Prasad N Mafatlal case (supra) has been approved by Hon'ble Supreme Court in CIT v. M.R. Doshi (211 ITR 1). This case instead of supporting the case of assessee, on the contrary supports the case of revenue. In the present case also since the beneficiary is minor during the year and was to receive the income only after attaining majority it can be held that the income is not specifically receivable on behalf of the minor during the year. The interest of beneficiary is not only deferred but is also contingent. Accordingly the said decision do not help the case of assessee. 4.5 The decision of Karelal Kundanlal Trust (supra) is not dealing with the provision of Section 164(1) of the Act. In the said case the share of each of three beneficiaries were specific. Accordingly Hon'ble Madhya Pradesh High Court held that income of the Trust is to be taxed in the hands of Trustee in the representative capacity under Section 161 and not as an Association of Persons (AOP). This decision is on different facts and also do not answer the question before us. Accordingly the same do not help the case of assessee. The decision of ITAT, Ahmedabad in the case of Kasiba Family Trust (15 ITD 383) also do not apply to the present set of facts. In the said case it is specifically mentioned that there were 21 beneficiaries whose shares were determinate and specific. In the present case there is a sole beneficiary and her interest is contingent upon attaining majority. Thus the said case do not support the case of assessee. The decision of Income Tax Appellate Tribunal, Hyderabad in Sitaratnam Family Trust v. ITO (22 ITD 117) also do not support the case of assessee. In the said case there is a specific finding that at the end of relevant previous year, all beneficiaries were ascertainable with certainty. Similarly the decision of Income Tax Appellate Tribunal, Madras in Would-be Wife of T. Senthil Kumaran v. ITO (37 ITD 265) is also not applicable. In the said case, the beneficiaries were identifiable, the eventualities regarding disposal of share of would be spouses if they do not marry were provided in the Trust Deed. In the present case in the event that if the beneficiary do not attain the age of majority, to whom the income will be paid is uncertain or is at the discretion of the Trustee. Thus the said case also do not help the contention of the assessee. Finally the decision of Hon'ble Supreme Court in H E H Nizam's Family (Remainder Wealth) Trust (Supra) is also of no help to the assessee. Hon'ble Supreme Court in the said case held that so long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility of beneficiaries may change by reason of subsequent event would not take the case out of the ambit of Sub-clause (1) of Section 21 of the Wealth Tax Act (analogous to Section 161 of the Act). In the present case, since the share of beneficiary is not specifically receivable by her before attaining the majority during the relevant previous year it cannot be said to be specifically receivable by her. 4.6 In this regard the decision of Hon'ble Calcutta High Court in Nirmalabala Sarkar v. CIT (74 ITR 268) is referred. The head-note and the ratio laid down in the said case read as under: "The settlor transferred some properties to trustees by a deed of trust dated Dec. 9, 1944, under which the trustees were directed to sell the land and the trust fund was to consist of all the rents and profits of the sate land and sale once thereof. The trustees were directed to spend a sum not exceeding Rs. 10,000 for the marriage expenses of the settlor's daughter, D, and to set apart a sum of Rs. 15,000 for the construction of a building on the land settled for her benefit by a deed dated July 17, 1941. The trustees were also directed to construct a building on a part of the plot of land settled for the benefit of the settlor's daughter, S, at a cost of about Rs. 20,000 and to spend a sum not exceeding Rs. 10,000 for the marriage expenses of the said S. The trustees were directed further to spend a similar amount of Rs. 10,000 for the marriage and Rs. 20,000 for construction of house for the third daughter, J, and to provide for the marriage expenses and maintenance of another daughter, Asoka. If the total sale proceeds exceeded or fell below the sum of Rs. 80,000 the trustees
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Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

were to reduce or enhance the amounts for marriage or for construction of house as the case may be. The funds in the hands of trustees were directed to be invested. Term No. 10 provided that "should any fund be left with the trustees after providing for all the daughters of the settlor and meeting their marriage expenditure, such fund shall be equally divided by the trustees between all the daughters of the settlor then living", and term No. 11 provided that if any of the daughters of the settlor for whom provisions have been made by the trustees in terms of this deed or in terms of the deeds dated the 17th July, 1941, die unmarried or childless, her properties or funds shall devolve upon the sons and the male heirs of the settler absolutely according to law. During the years 1945-46 the land referred to in the deed of trust was sold for Rs. 1,50,000, and out of that money Rs. 10,000 was given to D for her marriage expenditure and Rs. 15,000 was given to her for completing the construction of her house, and some further amount was spent for putting up the structures on the land of J and the remaining sum of about Rs. 1,00,000 was invested by the trustees at an interest of 6 per cent. Tax was sought to be assessed with respect to the aforesaid income. The Appellate Tribunal held that it could not be said that any or all the three daughters who were then living would be entitled to receive or enjoy any specific part of the income, and the shares being indeterminate, the maximum rates should be applied. The question whether, on the facts and in the circumstances of the case, and on a proper construction of the deed of settlement the Tribunal was right in holding that the first proviso to Section 41(1) of the Indian Income Tax Act, 1922, was applicable to the income of the trust was referred to the High Court: Held, that term No. 10 created a contingent grant and during the years in question, it could not be stated who would satisfy the terms of the contingency and who would get a share in the balance of the fund, because any of the daughters who was alive during the years in question might have died before the balance of the fund became distributable. It could not be said, therefore, that any of the daughters of the settlor living during the years of assessment had a vested light to get the income in any defined share. A beneficiary having a contingent interest in property cannot be said to have any defined share before the contingency arises. Till then she had only a chance to have a share in the balance of the fund but that share is indeterminate and unknown until the contingency arose. In this case the contingency did not arise during any of the assessment years in question and, as it did not, the shares of the daughters in the income was not determinate and the Tribunal was right in holding that the first proviso to Section 41(1) was applicable." 4.7 The first proviso to Section 41(1) of the 1922 Act is analogous to Section 164 of the Act. In the present case before me it is seen that the interest of beneficiary is contingent upon her attaining majority. Though she was alive during the relevant financial year but since she has not attained majority the interest of the beneficiary can be considered as contingent and not vested. Relying on the aforesaid decision it can be held that the interest is not specifically receivable on behalf of or for the benefit of the said minor Ms. Sheetal Sundar. Accordingly Section 164(1) is applicable. Though the beneficiary Ms. Sheetal Sundar was alive during the relevant financial years but since her interest was contingent and since no eventualities are provided as to the accrual of income during the contingency to any other person, it can be held that, the income in respect of which the trustees are liable is not specifically receivable on behalf of or for the benefit of any person. Thus Section 164(i) is applicable. In view of the above I concur with the view of learned Accountant Member. The matter will now go before the regular bench for deciding the appeal in accordance with the opinion of the majority. A.V. Balasubramanyam, Judicial Member 1. These appeals, all by the revenue, raise a common question for our determination. The assessments are for the years 1984-85, 1985-86 and 1986-87.

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Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

2. The assessee is a Trust by name "Sheetal Sunder Trust". The trustee had filed a return in deference to a notice issued under Section 148 declaring 'nil' income. The trustee had conducted business utilising the Trust fund which had generated income. The said income was brought to charge in the impugned assessments made in the status of AGP. 3. Sheetal Sunder Trust was constituted by the settlor by an indenture dated 4.2.1979. The beneficiary specified in Clause 5 of the deed is one Miss. Sheetal Sundar who was aged six months at the time of constitution of the Trust. The entire trust property and the income arising therefrom would go to the beneficiary Sheetal Sundar on the day she attains majority. According to Clause 12, the Trust gets determined and the assets of the Trust re directed to be transferred to her by the trustee. Clause 13 of the deed reads : "In the event of the Beneficiary expiring before the determination of the Trust, the Trustee shall have the powers to transfer the income as well as the Corpus of the Trust to any other Trust of his choice, either private or public, but it shall not be handed over to the Donor or appropriated by the Trustee himself." According to assessee, the provisions of Section 161(1) would apply since the beneficiary is known and certain. The Income-tax Officer was of the view that during the minority of Sheetal Sundar there was an element of uncertainty, for, if she did not live upto the age of eighteen, the trustee would have the power of transferring the income as well as the corpus of the Trust to any other Trust of his choice and, therefore, the provisions of Section 164(1) would apply. He accordingly made a "protective assessment" and brought the income to charge under Section 164(1). 4. There were appeals, by the assessee, which were disposed of by the Dy. Commissioner of Income-tax (Appeals), by a consolidated order, dated 28.2.1989. In his view, the provisions of Section 164(1) were not attracted. Since there was only one beneficiary, the income should be taken to have been received by the trustee for and on behalf of that beneficiary as she was alive on the last day of the accounting years relevant to these assessments. He, therefore, cancelled the protective assessments made for these years. 5. The revenue is in appeal and the grounds raised define only one question. That is, whether the provisions of Section 164 were attracted having regard to Clause 13 of the Trust Deed. The learned departmental representative, Shri Narayana Rao, formulated the matter in this way. First, that Sheetal sunder, though named as the sole beneficiary of the Trust, may or may not live upto the age of eighteen; and that the trustee may have to transfer the income as well as, the corpus of the Trust to some other Trust as directed by the settlor in Clause 13 of the deed. He also invited our attention to Clause 6 of the document which directs the trustee to deposit the net surplus of the Trust income in a separate bank account to be handedover to the beneficiary Sheetal Sundar upon attaining majority. The thrust of his argument was that Sheetal Sundar would not have any right to participate in the income of the Trust till she attains majority and if at all she should live upto the age of eighteen she would be entitled to the corpus as well as the accumulated income, for otherwise, the trustee would have the power of transferring the income of the Trust as well as the corpus of the Trust to some other Trust vide Clause 13 of the deed. 6. The learned representative of the assessee, Shri Rangarathnam, stated that the sole beneficiary named in the document was alive on the last day of the previous years relevant to these assessments and as such there is no question of any uncertainty. It was further his argument that the contingency of the Trust property being transferred to some other Trust vide Clause 13 on the happening of the death of the beneficiary Sheetal Sundar during her minority did not alter the situation and in this behalf he relied upon the decision of the Bombay High Court in the case of Trustees of Mrs. Hansabai Tribhuwandas Trust (69 ITR 527) and the decision of the Gujarat High Court in the case of Padmavati Jaykrishna Trust and another (61 ITR 66). 7. It is true that in the event of the sole beneficiary Sheetal Sundar not living upto the date of majority may empower the trustee to transfer the Trust fund together with accumulated Income to some other Trust. But that is only on the happening of an event on which no one can predicate at this point of time. Sheetal Sundar was
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Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

alive on the last day of the previous years relevant to these assessments. Vide Clause 8(r) the trustee could incur any expenditure for the welfare, maintenance, residence, advancement and education of the beneficiary in India and/or abroad by charging the same to the current or savings accounts of the beneficiary in the bank. Therefore, the trustee is empowered to spend on the sole beneficiary Sheetal Sundar for the purposes just mentioned above out of the income of the Trust derived in these years. It is only the surplus that has to be deposited in savings bank account vide Clause 6 of the document. 8. Reliance was placed upon the decision of the Bangalore Bench of the Tribunal in the case of B.A. Sindhu (ITA No. 1078/Bang/1985, dated 4.3.1988). As we find, the facts we are different. In the case of the Trust of which B.A. Sindhu was the beneficiary there was a clause similar to Clause 13 found in the Trust deed brought out by the settlor for the benefit of Sheetal Sundar. The Tribunal did not consider the question of eventual contingency because upto the end of the relevant accounting year that contingency had not arisen. Because of certain other facts and circumstances which are not pertinent to the appeals on hand the Tribunal felt the need of considering the effect of amendment to Section 164 brought about by Finance Act, 1980. But the order does not answer the question posed before us. 9. The provisions of Section 164(1) would apply to a case where a representative assessee, or part thereof, receiving the income not specifically receivable by or on behalf of any other one person or where the individual scares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown. As pointed out by the Bombay High Court in the case of Trustees of Mrs. Hansabai Tribhuwandas Trust (supra), the question whether the beneficiaries are known and their shares are certain has to be Judged as on the relevant date in each respective year of taxation. As Their Lordships have pointed out, whatever may be the position as on any future date, the question has to be decided in reference to the terms of the trust deed and in reference to the facts as existed on the relevant date in each year. This principle has been pointed out in reference to Section 21(4) of the Wealth-tax Act and the rule applies equally to a similar situation arising in an assessment under the Income-tax Act. In the case of Padmavati Jaykrishna Trust (supra). Their Lordships of the Gujarat High Court have pointed out that the possibility of a variation in the constitution of the beneficiaries in future was immaterial for the purpose of Section 21(4), WT Act. 10. The first limb of Section 164(1) would apply. In this case the trustee must have received the income for and on behalf of the sole beneficiary Sheetal Sundar. As on the last day of the accounting years relevant to these assessments Sheetal Sundar was alive. Therefore, for the purpose of assessment one must be judged by the facts which stood as on the last day of the relevant accounting year. The mere fact that under the terms of Trust Deed, the trust property could be transferred to some other Trust vide Clause 13 in the event of Sheetal Sundar not living upto the age of eighteen did not alter the situation. Still, the trustee, during the relevant accounting years, would have received the income for the sole benefit of Sheetal Sundar. Consequently, the provisions of Section 164(1) would not apply and the Dy. Commissioner (Appeals) rightly set aside the assessments. 11. In the result, the appeals by the revenue fail. They are dismissed. R.N. Puri, Accountant Member 1. I have given my utmost consideration to the order written by my esteemed brother. I am unable to persuade myself to agree with the views of my learned brother. Hence, I proceed to write a dissenting order, as under: 2. Smt. K.R. Susheelamma created a trust called "Sheethal Sundar Trust" by an indenture executed on 4-2-1979. Shri P.S. Sundararmurthy was appointed as the Managing Trustee. The trust was to determine on the date on which Miss. Sheetal Sundar were to attain majority. Miss. Sheetal Sundar was aged about six months at the time of the constitution of the trust. The trustee was to accumulate the income of the trust till the date of the determination of the trust. On the determination of the trust, the accumulated income and the other
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Income-Tax Officer vs Sheetal Sundar Trust on 5 July, 2004

assets of the trust were to be transferred to Miss. Sheetal Sundar and in case she were not alive on that day, then the trustee was to transfer the income and the corpus of the trust to any other trust of his choice. Clause 13 of the trust deed had stated as under: "In the event of the Beneficiary expiring before the determination of the Trust, the Trustee shall have the powers to transfer the income as well as the Corpus of the Trust to any ether Trust of his choice, either private or public, but it shall not be handed over to Donor or appropriated by the trustee himself". 3. The department had brought the income of the trust to tax, in the hands of the trustee, under the provisions of Section 164(1). My learned brother has accepted the contention of the trustee that the provisions of Section 164(1) did not become applicable. I am, however, of the view that the provisions of Section 164(1) are applicable in the facts of the case. In the case under consideration, income is not specifically receivable on behalf of or for the benefit of Miss. Sheetal Sundar. The trustee is to accumulate the income. The trust is to determine on the date when Miss Sheetal Sundar were to attain majority. On the determination of the trust, the accumulated income as well as the corpus of the trust are to be handed over to Miss Sheetal Sundar. In case she is not alive on that date, the trustee has the power to transfer the accumulated income as well as the corpus of the trust to any other trust of his choice. Under the circumstances, it cannot be said that the trustee had received income specifically on behalf of or for the benefit of Miss Sheetal Sundar. Whether Miss Sheetal Sundar would at all get the income depended on whether she survived the age of minority. It is noteworthy that in case Miss Sheetal Sundar died before attaining majority, the trustee had the discretion to transfer the accumulated income to any other trust of his choice. The accumulated income was, thus, not to go to the legal successors of Miss. Sheetal Sundar. According to me, in such a case, it is not at all possible to say that the trustee had during the years under consideration received income on behalf of Miss. Sheetal Sundar. It is, thus, obvious that the provisions of Section 164(1) do become applicable in the facts of the case. 4. According to my learned brother, since during the years under consideration Miss. Sheetal Sundar was alive, it could be said that the trustee had received income on behalf of Miss. Sheetal Sundar. According to my learned brother, it seems to be of no consequence that Miss. Sheetal Sundar (SIC) later, before attaining the age of majority according to me, only then it could be said that the (SIC) had received the income on behalf of Miss Sheetal Sundar, when there was no contingency (SIC) Miss. Sheetal Sundar's getting the income. (SIC) is received on behalf of someone, then it is (SIC) that sooner or later, some day, the income (SIC) received will be handed over to the person on (SIC) behalf it has been received. It may not be (SIC)diately given. It may be given after a lapse of time. There may be postponment of the handing over of the income, but there should be no contingency about that person getting the income. In case it is not certain whether the person or his successor is going to get the income, then how can it be said that the income has been received on his behalf. Under the circumstances, it cannot be said that the income was received by the trustee on behalf of any specified person. Hence, my conclusion is that the provision of Section 164(1) were applicable. 1. Since there is a difference on the point at issue, the following question is referred to the President for reference to a Third Member as laid down in Section 255(4):Whether, on the facts and in the circumstances of the case, the Assessing Officer is justified in holding that Section 164(1) of the Income-tax Act, 1961 is attracted?

Indian Kanoon - http://indiankanoon.org/doc/969916/