Gujarat High Court
D.E. Anklesharia vs Commissioner Of Income-Tax on 7 March, 1993
Equivalent citations: [1994]207ITR1068(GUJ)
JUDGMENT G.T. Nanavati, J.
1. The following five questions have been referred to this court by the Income-tax Appellate Tribunal, Ahmedabad, under section 256(1) of the Income-tax Act, 1961 :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income of the assessee-trust or any part of that income was not exempt from tax under the provisions of section 11(1) ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that income of the assessee-trust continued to be receivable on behalf of Mrs. Shirinbai D. Daruwala Children Trust and, therefore, its income was taxable at the maximum rate ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the case of the assessee did not fall within the exemption contained in section 164(3) of the Act ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income of the assessee-trust was taxable at the higher rate of 65 per cent ?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee-trust was a discretionary trust ? [
2. The assessee is a trust. It was created by a deed dated April 1, 1937. The object of the trust is to make good the shortfall, if any, in the income or corpus of other trusts which were created by Dr. Anklesaria or which were likely to be treated to be created by him in future. In this reference, we are concerned with the assessment years 1971-72 and 1972-73. For the relevant years, the assessee-trust declared in its returns income of Rs. 10,317 and Rs. 16,731. It was contended before the Income-tax Officer that the trust being a religious and charitable trust, its income was exempt under section 11(1) of the Act. It was also contended that the assessee-trust had three beneficiaries. They were three trusts known as (i) General Charitable Trust; (ii) Religious Rituals trust and (iii) Mrs. Shirinbai D. Daruwala Children Trust (trust No. 8). However, it was conceded that the General Charitable Trust did not provide for minimum annual income and, therefore, it was not a beneficiary under the assessee-trust. As regards trust No. 8, it was contended that the youngest beneficiary under the said trust attained the age of 28 on February 25, 1968, and since then, he has ceased to be a beneficiary under the assessee-trust. Thus, the only beneficiary under the assessee-trust was the Religious Rituals Trust and, therefore, the assessee-trust deserved to be regarded as a trust created for charitable and religious purposes. It was also contended that the income of the trust should not be taxed at 65 per cent, as section 164(2) was attracted in this case. The Income-tax Officer found that the object of the trust was not charitable or religious; that the income for two years was not spent for any charitable or religious purposes and that shares of individuals who were beneficiaries under the trust were unknown or indeterminate. He, therefore, computed the tax at the rate of 55 per cent. The assessee preferred two separate appeals to the Appellate Assistant Commissioner but the same were dismissed. The assessee then approached the Tribunal which also dismissed the appeals filed by the assessee. The assessee, therefore, preferred an application under section 256(1) to the Tribunal for referring the abovestated questions to this court. The Tribunal being satisfied that the said questions did arise out of its order, has referred the same to this court.
3. The same contentions which were raised before the Tribunal are raised before us. Even if it is assumed that the assessee-trust was set up wholly for religious or charitable purposes, exemption under section 11(1) of the Act was not available to it as admittedly the income for these two years was not spent and the conditions requisite for claiming exemption were not satisfied. Moreover, the purpose of the trust cannot be said to be religious or charitable as its purpose was to make good the shortfall, if any, in the minimum income of the beneficiary-trusts and one of the beneficiary-trusts was Mrs. Shirinbai D. Daruwala Children Trust which was not established for religious or charitable purpose. The Tribunal was, therefore, right in holding that the assessee-trust was not entitled to exemption under section 11(1) of the Act.
4. As regards the correct rate of tax, what we have to consider is whether the share of the beneficiaries can be said to be known or determinate. As rightly pointed out by the Tribunal, the share of the beneficiaries was contingent. The beneficiaries were to get income only if there was short-fall in their income, that is, if the income received by these beneficiaries was below the minimum fixed by the settlor of the trusts. In that view of this contingent nature of the right it will have to be stated that the shares of the beneficiaries were indeterminate and unknown. In that view of the matter, the assessee's case fell within section 164 of the Act. Without going into the question whether such trust can be said to be a discretionary trust or not, it can be said that the said trust, at the relevant time, was governed by the provisions of section 164 of the Act. As stated earlier, the purpose of the trust cannot be said to be charitable or religious. Therefore, sub-section (2) of section 164 did not have any application. For that very reason, it will have to be stated that even sub-section (3) of section 164 was not applicable. The case of the assessee-trust, therefore, clearly fell within sub-section (1) of section 164. Its income at the relevant time was chargeable at the rate of 65 per cent.
5. For the reasons stated above, we answer questions Nos. 1 to 4 in the affirmative, that is, against the assessee and in favour of the Revenue. We answer question No. 5 by stating that the assessee-trust did fall within the purview of section 164 of the Act. Reference is disposed of accordingly No order as to costs.