Gujarat High Court
Commissioner Of Income-Tax vs Tanvi Sajni Family Trust on 4 February, 1994
Equivalent citations: [1994]209ITR497(GUJ)
Author: M.B. Shah
Bench: M.B. Shah
JUDGMENT R.K. Abichandani, J.
1. The Income-tax Appellate Tribunal, Ahmedabad Bench "B", has referred for the opinion of this court under section 256(1) of the Income-tax Act, 1961, the following questions :
"(1) Whether, on the facts and in the circumstances of the case, and on a true interpretation of the trust deed dated March 31, 1973, the conclusion of the Appellate Tribunal that shares of the beneficiaries are determinate is sustainable in law ?
(2) Whether, on the facts and in the circumstances of the case, the assessment in the case of the assessee is not required to be made under the provisions of section 164 of the Income-tax Act, 1961 ?
(3) Whether, on the facts and in the circumstances of the case, the assessee-trust is entitled to the allowances of interest paid to the beneficiaries ?"
2. The relevant assessment year is 1975-76. The assessee is a family trust known as "Tanvi Sajni Family Trust" and it field the return of income in respect of the said assessment year on June 29, 1975. The Income-tax Officer treated the trust as one in which the shares of the beneficiaries were determinate and definite. The Commissioner of Income-tax (Appeals) proceeding under section 263 of the Act, set aside the assessment with a direction to the Income-tax Officer to made a fresh assessment for the year in question applying the provisions of section 164 of the Income-tax Act. In the appeal filed by the assessee, the Tribunal, construing the relevant provision of the trust deed, held that the shares of the assessees were determinate. Regarding the payment of the interest by the assessee to the beneficiaries, the Tribunal held that the beneficiaries earned interest on the loans standing to their credit in the books of the trust and that interest paid to the beneficiaries was not receivable by them under the trust but was due to them because of the loan advanced by them. It was, therefore, held that the trust was entitled to the deduction of interest paid to the beneficiaries on the amount which was kept by the beneficiaries as loan.
3. Under the provisions of section 164 of the Act, as applicable in the relevant years, it was, inter alia, provided that 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 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 such part thereof it receivable are indeterminate or unknown, tax shall be charged : (i) as if such income or such part thereof were the total income of an association of persons, or (ii) at the rate of sixty-five per cent., whichever course would be more beneficial to the Revenue.
4. It would, therefore, be clear that if the shares of the beneficiaries are determinate or definite, the provision of section 164(1) would not be attracted. The question as to whether the shares of the beneficiaries are determinate or not it to be decided with reference to the trust deed in the instant case. A copy of the trust deed which was executed on January 31, 1973, refers to the shares of the beneficiaries, Kum. Tanvi Pankaj Dalal and Kum. Sajni Pankaj Dalal, in clauses 8(a) and (b) thereof, which read as under :
"(a) Up to and including March 31, 1997, the trustees shall pay and distribute 50 per cent. of the net income of the trust fund to and amongst Kum. Tanvi Pankaj Dalal or the survivor of survivors of her for her or their absolute use and benefit provided however that the whole or any part of the net income of the trust fund as may not have to be distributed by the trustees in any year shall be at the end of the year be added to and held as accretion to capital and from part of the corpus of the trust fund and shall be dealt with accordingly.
(b) Up to and including March 31, 1997, the trustees shall pay and distribute 50 per cent. of the net income of the trust fund to and amongst Kum. Sajni Pankaj Dalal or the survivor or survivors of her for her or their absolute use and benefit provided however that the whole or any part of the net income of the trust fund as may not have to be distributed by the trustees in any year shall at the end of the year be added to and held as accretion to capital and form part of the corpus of the trust fund."
5. It would be noticed from these clauses that the shares of Kum. Tanvi and Kum. Sajni are fixed at 50 per cent. net of the trust fund. A duty is enjoined upon the trustees to distribute 50 per cent. of the net income of the trust to these two beneficiaries up to and including March 31, 1997. The words "shall pay" occurring in these clauses rule out any discretion on the part of the trustees. The payment is required to be made up to and including March 31, 1997, meaning thereby not only on March 31, 1997, but in each year up to March 31, 1997. The provisions of clause 9 contained in the deed on which reliance is placed on behalf of the Revenue do not in any manner change the determinate character of the shares, as reflected from the above clauses 8(a) and (b). In our opinion, therefore, the Tribunal was right in holding that the shares of the beneficiaries are determinate. Since the shares of the beneficiaries are determinate, the provisions of section 164 of the act would not apply in the instant case and the assessment is not required to be made under the provision of section 164 of the Act. Questions Nos. 1 and 2 are, therefore, answered in the affirmative, in favour of the assessee and against the Revenue.
6. As regards payment of interest to the beneficiaries, it would appear that the interest was paid by the trustee on the amounts which were shown as loans standing in the credit of the beneficiaries in the books of account of the trust. The beneficiaries were not obliged to keep these amounts with the trust and the fact that they were treated as loan on which interest was payable by the trust, cannot go against the assessee. A trust is a distinct legal entity and different from the beneficiaries and, therefore, it cannot be said that after the money became payable to the beneficiary under the deed as per their determinate share, it would be treated by the trust as its own money. In the instant case, as rightly held by the Tribunal, there is no person borrowing form one's own wealth. In our view, therefore, the Tribunal was right in holding that the trust was entitled to the deduction of interest paid to the beneficiaries on the income from the trust which was kept by the beneficiaries as loan. Question No. 3 referred to us is, therefore, answered in the affirmative, in favour of the assessee and against the Revenue.
7. The reference stands disposed of accordingly with no order as to costs.