Commissioner Of Income-Tax vs Devshi Trust
2005 Latest Caselaw 808 Bom

JUDGMENT

V.C. Daga, J.

1. This is a reference under Section 256(1) of the Income-tax Act, 1961, made by the Income-tax Appellate Tribunal ("the Tribunal" for short). The question referred by the Tribunal is arising out of its order passed in I. T. A. No. 3053 (Bom) of 1985 for the assessment year 1982-83. The same reads as under :

"Whether, on the facts and in the circumstances of the case, the assessee-trust was a non-discretionary trust for the purposes of the applicability of appropriate rate of tax ?"

2. The factual matrix reveals that the respondent (assessee) was assessed in the status of an association of persons. On May 25, 1979, one Pushpa F. Shah created a trust by handing over Rs. 5,000 to two trustees, viz., Shri Bipin Amritlal Kothari and Smt. Bharati Bipin Kothari, in the presence of one Shri Hasmukhlal Panachand Sheth. It may be mentioned that Pushpa F. Shah is a sister of Shri Bipin, while Smt. Bharati is a wife of Bipin A. Kothari.

3. On May 25, 1979, each of the two trustees and the witnesses swore an affidavit wherein they have given full details as to the purpose of the trust, powers of the trustees, the name of the beneficiaries, etc.

4. Exercising the powers given to the trustees, the board of the trustees passed the resolution on June 28, 1980, resolving to pay a sum of Rs. 20,000 to the beneficiaries in the ratio of 50 : 50. They have resolved that the income of the trust and the balance in surplus reserve fund after paying the amount as mentioned hereinabove be held on behalf of the beneficiaries, viz., Ms. Sonal Bipin Kothari and Master Amit Bipin Kothari, in the ratio of 50 : 50. On the aforesaid fact, the assessee filed its return of income for the year under reference computing the taxable income as nil in the manner mentioned in the return of income.

5. The Income-tax Officer framed the assessment under Section 143(3) read with Section 164 of the Act on August 24, 1984, wherein he had brought to tax the income of the assessee at the maximum marginal rate of tax holding that the share of the beneficiaries was not definite and ascertainable as on the date when the trust came into being, as such act of trustees cannot subsequently change or alter it. In other words, the trust was assessed as discretionary trust and the income of the trust was brought to tax at the maximum marginal rate of taxation as provided under Section 164 of the Income-tax Act.

6. Being aggrieved by the aforesaid order of the Income-tax Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner ("the AAC" for short), who was pleased to allow the appeal filed by the assessee, accepting the contention of the assessee. The Revenue being aggrieved by the aforesaid order of the Appellate Assistant Commissioner, carried the matter in appeal before the Tribunal. For the reasons recorded for the year under reference, the Tribunal upheld the order of the Appellate Assistant Commissioner.

7. Having been dissatisfied with the decision of the Tribunal, the Revenue desired the Tribunal to refer the question of law for the opinion of this Court extracted from the opening part of this order.

8. Having heard learned Counsel appearing for the Revenue and having perused the finding recorded by both the authorities below and the material available on record, resolutions adopted by the trustees and the demarcation of shares made by them in favour of the beneficiaries in the ratio of 50 : 50 as indicated hereinabove, clearly indicates that the power vested in the trustees, the board of trustees was exercised by them at their meeting held on June 28, 1980, wherein the shares of the beneficiaries were defined though initially the trust was a discretionary trust, i.e., up to March 31, 1980. But after having defined the specific shares of each beneficiary, the definite trust came into existence. In that view of the matter, the view taken by the Tribunal is in consonance with the evidence available on record.

9. In this view of the matter, the trust has to be held to be a non-discretionary trust. If that be so, the question referred has to be answered in the affirmative, i.e., in favour of the assessee and against the Revenue. (See CIT v. Trustees of the Trust of Mrs. Manorama L. Apte Trust for the relatives.

10. Reference, accordingly, stands disposed of with no order as to costs.