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| The Tax Publishers2020 TaxPub(DT) 4269 (Mad-HC) : (2020) 429 ITR 0440 : (2021) 277 TAXMAN 0041 INCOME TAX ACT, 1961
Section 164 Section 161(1)
Where benefits were to be shared by beneficiaries of trust in proportion to the investment made shares were determinable amongst the beneficiaries and assessee did satisfy the condition of Explanation 1(ii) to section 164 in order to become eligible to be treated as determinate Trust and income of respective sharer or the beneficiaries was to be taxed in the hands of beneficiary, and not in the hands of Trustees.
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Liability in special cases - Assessment of trust - Shares of beneficiaries mentioned in trust deed, i.e., in proportion to the investment made -
Assessee was assessed as an Association of Persons (AoP) and for the assessment year under consideration. As per AO, assessee was an indeterminate Trust, as list of beneficiaries had not been specifically set out in the Deed of Trust. Assessee filed appeal before Tribunal contending that it was a contributory trust and income of assessee was to be allowed in accordance with section 161(1). Tribunal held that trust was a determinate Trust and shares of beneficiaries were identifiable and accordingly, allowed assessee's appeal. Revenue's case was that assessee did not satisfy the condition of Explanation 1(ii) to section 164 in order to become eligible to be treated as determinate trust. Held: By no interpretative process the Explanation to section 164, which is pressed in service can be read for determinability of shares of beneficiary with the quantum on the date when Trust Deed is executed and real test is the determinability of shares of beneficiary and is not dependent upon the date on which trust deed was executed if one is to connect the same with the quantum. The real test is whether shares are determinable even when after the Trust is formed or may be in future when the Trust is in existence. In the facts of the present case, even AO noticed that beneficiaries were to share the benefit as per their investment made or to say in other words, in proportion to the investment made. Once benefits were to be shared by beneficiaries in proportion to the investment made, any person with reasonable prudence would reach to the conclusion that shares were determinable. Once shares were determinable amongst the beneficiaries, it would meet with the requirement of law, to come out from the applicability of section 164 and income of respective sharer or the beneficiaries was to be taxed in the hands of beneficiary and not in the hands of Trustees.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. :
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