Income Tax Appellate Tribunal - Pune
N. Chordiya Family Beneficial Trust vs Income-Tax Officer. on 3 April, 1989
Equivalent citations: [1989]30ITD373(PUNE)
ORDER
Per Shri T. V. K. Natarajachandran, Accountant Member -This is an appeal by the assessee which is directed against the order of the CIT (A), Nashik dt. 7-3-1988. The CIT (A) held that the trust is not valid and therefore, it is to be assessed as AOP as one unit at maximum marginal rate, because the shares of the beneficiaries are not known and indeterminate. Thus he has confirmed the assessment order passed by the ITO and dismissed the appeal filed by the assessee.
2. The assessee has taken several grounds to urge that the CIT (A) erred in his reasons and conclusion and the trust is to be held as a valid trust and a specific trust and the income is to be assessed in the hands of the beneficiaries to the extent of share income derived from the trust or the trustee should be assessed to the same extent as individual beneficiaries of the trust. It is also urged that the authorities erred in concluding that the income of the trust should be assessed in the hands of the settlor and in marking protective assessment on the trust.
3. One Shri Surajmal Bafna son of Shri Dhondiram Bafna settled a sum of Rs. 1,100 in the trust for the benefit of the family members of late Shri Narayandas Chordiya evidenced by a deed of trust dt. 31-10-1982. Shri Subhashchand Choridiya and Shri Sureshchand Chordia are appointed as the trustees of the trust who are also beneficiaries of the 12 beneficiaries described in the trust deed. For the assessment year 1984-85 for which the accounting year ended on 31- 3-1984, the assessee filed return on 4-12-1984 declaring the total income at nil. The trustees have been authorised to carry on buisness. The assessee trust is a partner in M/s Chordiya Brothers, Aurangabad and also carries on proprietary buisness in the name and style of M/s Chordiya Brothers. The ITO computed the total income at Rs. 1,74,390 in the status of AOP (trust) but in a protective manner.
4. According to the ITO, besides the 12 beneficiaries enumerated in the trust deed, the children who will be added on to the families of Shri Subhaschand Chordiya, Sureshchand Chordiya and Shantilal Chordiya will be beneficiaries, but their shares are not determinable with reference to the trust deed. Since unborn children were also given benefit of the trust income, application of rule of perpetuity was to be considered. In clause 3 of the trust deed, the duration of the trust is specified as a period of 18 years from the date of the trust deed, i.e. up to 31-10 2000 or the death of the settlor whichever is later. From this, the ITO concluded that the settlor is not completely disassociated from the trust and trust property as the duration of the trust is liked with the death of the settlor. Since the settlor could live beyond the first limit of 18 years, which is the first limit of the duration of the trust in which unborn children are also beneficiaries, the trust is likely to continue beyond their minority. Therefore, the rule of perpetuity is applicable in this case. Therefore, the transfer of the trust property by the settlor is invalid. Consequently, the trust fails and as a result, the entire income of the trust is assessable in the hands of the settlor. Since the settlor is not totally disassociated from the trust, provisions of section 60 of the Income-tax Act, 1961 are applicable.
5. The ITO also stated that the shares of the beneficiaries are not exactly equal, in that, the 12th beneficiary, viz. Master Alish Kumar Chordiya is given 8.37 per cent while the others were given 8.33 per cent each. Thus, though the trust proclaims that the income as well as the trust fund shall be divided amongst the beneficiaries equally, there is a contradiction. Therefore, the ITO concluded that neither the beneficiaries nor their shares are determinable with reference to the trust deed. Since the trust deed provides that on marriage of the female beneficiary she will cease to be a beneficiary, the ITO points out that the trustees can disentitle the female beneficiary by distributing the least portion of income among the income to the corpus of the trust. From this, the ITO also come to the conclusion that the ratio of distribution of the trust income is entirely at the discretion of the trustees. Therefore, the trust is a discretionary trust and is to be charged at the maximum marginal rate as provided under section 164 of the Income-tax Act, 1961. For these reasons, the ITO subjected the total income to maximum marginal rate of tax applicable to AOP and that too in a protective manner.
6. On appeal, the learned counsel for the assessee contended that the settlor was not interested in the trust, but the duration of the trust is associated with the death and nothing more. Rule of perpetuity was also not applicable just because the settlor is likely to survive beyond 18 years period. All the beneficiaries are existing persons and nothing was provided for the benefit of unborn persons. As regards the percentage of sharing the income, it was for the sake of convenience fixed so as to arrive at total of 100 per cent and this would not invalidate the trust. Therefore, the shares of the beneficiaries are determinate and they would be determinable from the trust. There was no discretion for the trustees to alter the shares of the beneficiaries and therefore, from that point of view also it could not be said that the shares of the beneficiaries were inderterminate. The learned counsel also pleaded that in view of the aforesaid settlement the total income should have been allocated in the hands of the concerned beneficiaries and tax liability should have been ascertained to the extent of liability of each beneficiary separately. Reliance was placed on the decision of the Tribunal, Pune Bench, in the case of Trustees of Anillkumar Trust v. ITO [1986] 18 ITD 451.
7. The CIT (A) stated that in clause 2 of the trust deed the shares of the beneficiaries are not equal, in that the 12th beneficiary Master Alish Kumar Chordiya was given 8.37 per cent against 11 others at 8.33 per cent each. In clause 4(a) it is stated that the beneficial interest of other beneficiaries will be equal and therefore, there is a contradiction. This contradiction was not clarified anywhere in the trust deed. The slight ambiguity in drafting of the trust deed is fatal and one is not expected to read in between the lines of the documents. From this, he concluded that the share of the beneficiary is left to the discretion of the trustees. In clause 4(b) of the trust deed, there is provision for marriage of major male beneficiaries and minor male beneficiaries and any other male beneficiaries who will be admitted to the benefit of the trust in the capacity of HUF consisting of himself and his wife. From this he concluded that there is provision made even for persons who are not presently alive or not anywhere in existence. In this conclusion he is one with the conclusion of the ITO that even unborn children have been made beneficiaries of the trust. The CIT (A) also concurred with the findings of the ITO that the trust is not valid and failed and therefore, the entire income of the trust was assessable in the hands of the settlor. Consequently, he concluded that the trust is to be assessed as AOP and that too, at the maximum marginal rate, because the shares of the beneficiaries are not determinate being in contradiction to clauses 2 and 4. He also stated that the decision of the Tribunal in the case of Trustees of Anilkumar Trust (supra) is not applicable to the facts of the assessees case. In short, the CIT (A) agreed with the reasons and conclusions of the ITO.
8. At the time of hearing, the learned counsel for the assessee, besides reiterating the grounds, submitted that the shares of the beneficiaries, whether determinate or known, is to be determined only with reference to the facts as on the relevant accounting year and nothing more. The additions and subtractions of the beneficiaries could not vitiate the question of the share of the beneficiaries, because reading the provisions of the trust deed as a whole the beneficiaries then existing would share the income equally. The trustees have no discretion in the matter on distribution on income which is a mandate of the trust deed. He has also filed a copy of the order of the Tribunal, Pune Bench, in the case of Ashish Beneficial Trust [IT Appeal No. 2106 (Pune) of 1987, dated 24-2-1989] wherein the Tribunal considered clause 3 of the deed of trust which is said to have violated the rule against perpetuity and came to the conclusion that clause 3 did not violate the rule of perpetutity contained in section 14 of Transfer of Property Act. The contention of the learned counsel is that the relevant clause in the deed in the case of the appellant is the same as clause 3 of the Ashish Beneficial Trust, Aurangabad and therefore submitted that the issue relating to perpetuity stands covered by the earlier order of the Tribunal cited (supra).
9. The learned departmental representative has been duly heard and he vehemently supported the reasons and conclusions drawn by the authorities.
10. We have duly considered the rival submissions and the record. Clause 3 of the deed of trust dated 31-10-1982 in the assessees case reads as under :
3. Upon expiration of the period of 18 years from the date of these persons, on the death of the SETTLOR herein whichever is later or in case the aforesaid beneficiaries die before the aforesaid date, then upon the death of the last survivor of the afroesaid beneficiaries whichever event occurs earlier or any earlier date as the TRUSTEES may in their absolute discretion think fit and proper (hereinabove or hereinafter referred to as the DATE OF DISTRIBUTION), the Trustees shall divide the trust fund, the income thereof and all the accumulations hereto into pay the same to the beneficiaries equally. Each of the beneficiaries shall be sole and absolute owner of his or her share provided however that if any of the said beneficiaries dies before the date of distribution, accretion and all returns thereto will be distributed amongst the legal heirs of the said deceased excluding the settlor as per the law relevant to succession then in force and in no circumstances any part either or corpus shall ever paid to the settlor."
From the aforesaid clause specifying the date of distribution equally among the beneficiaries, it is not to be seen whether the aforesaid clause violates the rule against perpetuity, contained in section 14 of the Transfer of Property Act. Section 14 of the Transfer of Property Act reads as under :
"Section 14 : No transfer of property can operate to create an interest which is to take effect after the lifetime of one or more persons living at the date of such transfer, and the minority of some person who shall be in existence at the expiration of that period, and to whom, if he attain full age, the interest created is to belong."
The aforesaid section provides against, what is known as perpetuity. According to Jarman "A perpetuity, in the primary sense of the word, is a disposition which makes property inalienable for an indefinite period". It is concerned with interests, created in praesenti which are sought to be made inalienable for an indefinite period. The modern rule of perpetuity has been explained by Jarman as follows : "Subject to the exceptions to be presently mentioned, no contingent or executory interest in property car be validly created, unless it must necessarily vest within the maximum period of one or more lives in being and twenty-one years afterwards". This modern rule applicable to English Law has been adopted in Indian Law in section 14 of the Transfer of Property Act reproduced above. In this section, the limitation prescribed is the lifetime of one or more persons living at the date of transfer of the property and the life of any unborn person who shall come into existence before the expiration of the lifetime of transferee persons and to whom interest created should belong when he attained the age of majority. In other words, the vesting of the property in an unborn child subject to prior charge in existing persons should not exceed the majority of unborn person to whom the residue of interest is created. If interest created is vested after the minor attains majority, the transfer becomes void and not when he attains majority.
11. Let us now look into the beneficiaries of the trust to whom the property has been transferred. The preamble of the trust deed enumerates the f ollowing beneficiaries, viz : (i) Shri Subhashchand Narayandas Chordiya, Karta of Late Shri. Narayandas Vithaldas /Chordiya HUF consisting of : (a) Smt. Kanchanbai N. Chordiya, widow mother aged about 50 years, (b) Shri. Subhashchand N. Chordiya eldest son, (c) Shri. Sureshchand N. Chordiya, elder son, (d) Shri Shantitlal N. Chordiya, youngest son, (e) Smt. Chanchalbai Chordiya S. N. Chordiya, (f) Smt. Pushpabai S. Chordiya W/o S. N. Chordiya, (g) Master Sachin s/o Subhashchand Chordiya, (h) Miss Sarika d/o Subhashchand Chordiya, (i) /Master Alish Kumar s/o Subhashchand Chordiya, (ii) Shri Subhashchand Narayandas Chordiya, Karta of his HUF consisting of himself and his wife Smt. Chanchalbai Chordiya and two mioner sons Master Sachin and Master "Alish Kumar and a minor daughter Miss Sarika, (iii) Shri. Sureshchand Naryandas Chordiya Kaarta of his HUF consisting of himself and his wife Smt. Pushpabai Chordiya, (iv) Smt. Kanchanbai chordiya w/o late Shri Narayandas Chordiya, aged about 50 years. (v) Shri Subhashchand Chordiya s/o late Shri Narayandas Chordiya, aged about 27 years, (vi) Shri Subhashchand Chordiya s/o late Shri Naryandas Chordiya, aged about 25 years, (vii) Shri Shantilal Chordiya s/o late Shri Naryandas Chordiya aged about 22 years, (viii) Smt. Chanchalbai Chordiya w/o Shri Subhashchand Chordiya aged about 26 years, (ix) Smt. Pushpabai Chordiya w/o Shri Sureshchand Chordiya aged about 24 years, (x) Master Sachin Chordiya s/o Shri Subhaschand Chordiya aged about 6 years, (xi) Miss Sarika Chordiya d/o Shri Subhaschand Chordiya aged about 4 years, (xii) Master Alish Kumar Chordiya s/o Shri Subhaschand Chordiya aged about 2 years.
After enumerating the 12 beneficiaries, the perainble also says any other additional members of the families of Shri Subhashchand Chordiya, Sureshchand Chordiya and Shri Shantilal Chordiya also would be called and referred collectively as beneficiaries. In other words, besides the existing 12 beneficiaries, the preamble also provides that any addition to the family members of the male beneficiaries would also be beneficiaries of the trust. It is these additional members who will be treated beneficiaries which made the ITO to feel that the trust has transferred property to unborn persons also and therefore rule of perpetuity was violated. Sftrictly Speaking, sec. 14 of the Transfer of Property Act does not prohibit vesting of property in unborn child which was not in existence at the time of transfer of property, but it is subject ot the prior vesting of the property in the existing beneficiaries and ultimate vesting in kthe unborn child should be the whole interest of the property as per sec. 13 of the Transfer of Property Act. Thus even sec. 13 provides for transfer of property in favour of a person not in exstence at the date of transfer subject ot a prior interest created by the same transfer, say in the name of turstee. A perusal of the preamble does not show that any interest is created specifically in respect of any particular unborn person belonging to any family of particular existing beneficiary. It simply provides for any additional members will aslo be treated as beneficiary. This is a contigency provision and therefore, the trus as such has not vested any interest in unborn beneficiary. In his anxiety, the settlor has included additional members of the male beneficiaries should also be benefited by the trust. Thus the provision of modern rule of perpetnity is not violated by the trust under consideration. The Tribunal in the case of Ashish Beneficial Trust (supra) where similar clause 3 was incorporated in the turst deed came to the conclusion that that clause did not violate the modern rule against perpetuity. There is another angle in which same conclusion could be arrived at. The period of the trust or the date of distribution of the trust is contained in clause 3 which has been already extracted above. The period is 18 years from the date of trust deed or the death of the settlor whichever is later or death of the settlor whichever is later or death of the existing beneficries if all the existing beneficiaries die before that date then the last date of death of the beneficiary whichever is earlier or any earlir date the trustee may decide in their absolute discretion. In other words, the trustee have got absolute discretion to determine the distribution of the trust fund even earlier to 18 year or death of the settlor or death of all the beneficiaries. Thus, sec. 17 of the Transfer of Property Act pertaining to accumulation of the income from the property is not violated. Therefore even if an unborn person is also eligible as beneficiary if he were to be born after the date of execution of the trust, the vesting of the trust would not exceed the majority of such unborn person. This is a possibility and not in the realm of conjecture based on the period of distribution of trust fund. Therefore, in the circumstances we are of the opinion that the modern rule of perpetuity contained in secs. 14 and 17 is not violated by clause 3 of the trust deed under consideration.
12. We shall now see whether the settlor himself is benefited in any manner out of the trust income or fund in any manner whatsoever. From clause 3 which provides for period of distribution of trust fund which contains the date of death of the settlor as one of the periods, the ITO concluded that the settlor was not completly disassociated from the trust and trust property. In our view the inference drawn by the ITO is wrong because even besides provding for exclusion of the settlor from the benefit of the trust, there is a specific exclusion of the settlor to inherit the property of the deceased beneficiary even as a legal mheir to such beneficary, vide later part of clause 3 of the trust deed italicised. The inference of the ITO that the duration of the trust is likely to be beyond the minority of the unborn children is also not correct, in view of the overriding absolute discretion given to the trustees to determine the period of trust and distribute trust property to the beneficiaries earlier than all other conditions specifed. Therefore, this inference of the ITO is also not correct. In view of our finding that the settlor is specifically excluded from the trust fund as well as from the income of the trust and also from inheriting any portion of the property as a legal heir of the beneficiary, provision of sec. 60 of the Income-tax Act is not applicable.
13. We shall now consider the question whether the shares of the beneficiaries are known and determinate or equal. Clause 2 of the trust deed specifies at 8.33 per cent for 1 to 11 beneficiaries and at 8.37 per cent for youngest and the last beneficiary Master Alish Kumar Chordiya. It is the contention of the ITO that in view of the fact that the last beneficiary is given 8.37 per cent share, vis-a-vis 8.33 per cent for 11 others, the shares are not equal and therefore, there is a contradiction in clause 3 of trust deed where it says that the income of the trust would be divided among the beneficiaries equally. From this, the ITO concluded that neither the shares of the beneficiaries nor the beneficiares themseleves are deterrminate. Possibly the ITO has taken into account the additional members as the beneficiaries so a to come to the conclusion that even the number of beneficiary is aslo not determinate. In this connection, it is necessary to refer to the judgment of the Calcutta High Court in the case of Bankim Ch. Datta v. CIT [1966] 62 ITR 239. In that case the settlor created a trust for the purpose of performing certain religious functions including services and pooja of particular deities and specificed fixed sum for each with direction to accummulate the surplus for future application. While construing the word shareas appearing in proviso to sec. 41(1) which provided for the application of maximum rate of tax when income or any one part thereof isnot specifically receivable on behelf of any one person or individual shars of the beneficiaries are indeterminate or unknown, their Lordships of the Calcutta High Court held that the word sharemeans fixed, definte fraction or proportion in realation to the income of property. It may mean a definte part or portion of income. Applying the aforsaid interpretatin of the word sharethe share given to the 12th beneficiary viz. 8.37 per cent is a definite fraction of the income of the trust the income of which is 100 per cent. From this point of view the definite fraction of 8.37 per cent specifited as a share of the 12th beneficiary is known and ascertainable share. It is now to be seen whether there is any contradiction between the statement in the trust deed. Clause 2 of the trust deed is releveant for this purpose and therefore, it is reproduced below : "2. Notwithstanding the Trust and provisions hereinabove declare and contained, the Trustees may from time and at any time until the date of distribution out of the capital of the Trust Fund, divide and pay such sum or sums to the beneficiaries as in equally proportions. The Annual income of the Trust shall be divided amongst the beneficiaries as in equally proportions. The Annual income of the Trust shall be divided amongst the beneficiaries at the close of such financial year and also the accumulated undistributed Trust fund shall stand distributed amongst the beneficiaries is as on the closing day of such financial year which will be shared and belonging to concerned beneficiaries as per the provisions of the Trust, which at presently stands as under."
The aforesaid clause provides fro two situations, viz. division and payment of sum and sums to the beneficiaries in equal proportions and division of the annual income to the beneficiaries at the close of each financial year. It is the annual income of each financial year that is specifically required to be distributed among the beneficiary in the fraction or percentage of income specified. In clause (1. b) of the trust deed, the trustees are enjoined to pay for marriage, education, maintenance, residence, medical attendance and treatment or for any purpose of emergency or urgent necessity or benefit as the trustees thought fit and properequally for the benefit of beneficiaries and also out of the accumulations of the trust fund out of the net income of the trust and shall accumulate the residue, if any, for future investment. Therefore, it is clear that is for the necessaries of life the trustees are empowered to pay accumulations of the trust fund equally among the beneficiaries in all the circumstances specified above. Clause 2 contains clear and unequivocal discretion given to the trustees to divide and pay funds of the trust fund and divide and pay such sum or sums to the beneficiaries in equal proportions. This clause contains omnibus clause, viz. "notwithstanding the Trust and provisions hereinabove declared and contained". In other words, even before the distribution of the trust fund, trustees are empowered to apply the trust fund for the benefit of the beneficiaries in equal proportions obviously to meet the necessities of life enumerated above. Therefore, it is crystal clear that it is only the funds or accumulations of the trust fund which are required to be applied equally among the beneficiaries to meet the necessaries of life while it is the annual income of every financial year that is required to be distributed among the beneficiaries at the specified fraction. It is open to reason that even before the ultimate date of distribution at the termination of the trust, contingencies would arise such as marriage, college admission etc. which may entail some amounts to meet the situation. It is for this purpose the trustees are given overriding power to apply the funds of the trust to met such eventualities. The omnibus clause contained in clause 2 overrides the ultimate date of distribution of trust fund. Thus, there is no contradiction in the provisions of the trust deed and the shares allotted to the beneficiaries.
14. We shall now consider whether the beneficiaries are known or determinate. Firsttly a perusel of the trust deed clause 2 thereof shows that the distribution among beneficiaries is to be decided as they are on the closing day of the financial year. We shell now consider some legal decissions in this connection. The Supreme Court in the case of CWT v. Trustees of H. E. H. Nizams Family (Remainder Wealth) Trust [1977] 108 ITR 555 at 557, while dealing with the applicability of sub-secs. (1) and (4) of sec. 21 of the Wealth-tax Act which is at par with the proviions of sec. 161(1) and 161(4) of the Income-tax Act observed as under :
"The question in regaerd to the applicability of sub-sec. (1) or (4) of sec. 21 has to be determinded with reference to the relevant valuation date. The WTO has to determine who are the beneficiaries in respect of the remainder on the relevant valuation date and whether their shares are indeterminate or unkown. It is not at all relevant whether the beneficiaries may change in subsequent year before the date of distribution, depending upon cintingencies 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 possibilty that the beneficiaries may change by reason of subsequent event such as brith or death would not take the case out of the ambit of sub sec. (1) of sec. 21. The position has to be seen on the relevant on that date and if, on the preceding life interest had come to an end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaers and on what determinate shares, sub-se. (1) of sec. 21 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 to exist of some new beneficiaries coming into being. From the above extract, it is cleaer that we have to look to the position as on the relevant valuation date to come to the conclusion whether the beneficiaries are known and their shaeres were determinate or not. It is also not relevant whether the beneficiary is changed in subsequent year before the date of distiribution on account of birth or death. Further we have to proceed on the assumption that the date of distribution is the relevant accounting year and to see whether the beneficiaries are known and their shares are ascertainable. It is only when it was not possible to say with certainty and befiniteness as to who are the beneficiaries and whether their shaeres ar determinate and specific, the case will be governed by sec. 21(4) equivalent to sec. 161(4) of the Income-tax Act. 1961. The Madras High Court in the case of CWT v. Trustees of the Estate of V. R. Chetty & Bros. [1979] 120 ITR 329 enunciated the same principle as laid down by the Supreme Court, viz, : "so long as it is possible to say that on the relevant date the beneficiaries are known and their shares are determinate, the possibilty that the beneficiaries may change by reason of sub-sequent events such as brith or death would not take the case out of sec. 21" equivalent to sec. 161(1) of the Income-tax Act, 1961. In that case, when the trust was made, there were two sons of the settlor and the beneficiaries included their sons that would be born to the settlor till the first son attained the age of 21. Ultimately three more sons were born till the first attained the age of 21 and all the 5 sons were held to be beneficiaries entitled to 1/5th each and even in such situation, application of sec. 21(1) of the Income-tax Act, 1961. As the facts stand on the respective respective accounting year, the beneficiaries are known and their shares are also determinate. Consequently, application of sec. 161(4) is not called for. In view of the specific share of income of the beneficiaries specificed in clause 2, it is not open to the trustees to vary the same at their discretion as opined by the ITO. This is a specific trust created by the settlor in favour of existing beneficiaries with a direction to the trusstees to distribute the income in specified fraction and the corpus of the trust fund equally and therefore, it is not a discretionary trust. Since the beneficiaries as on the relevant accounting year ending on 31-3- 84 are known and ascertainable and their shares are also determinate and ascertainalble and their shares are also determinate and ascertainalble, the trust is to be assessed not at maximum marginal rate in terms of sec.. 161(4) as opined by the ITO. On the other hand, the trustee is to be assessed in a representative capacity u/s 161(1) of the Income-tax Act, 1961 as held by the Tribunal in the case of Trustees of Anilkuumar Trust (supra). Another point which was relied upon by the ITO to apply provisions of sec. 164 relate to female beneficiary viz. Miss Sarika Chordiya Clause (4. a) of the trust deed provides, upon the date of her marriage before the date of distribution, she will cease to be the trust. But the same clause provides that in the event of marriage, the amount lying to the credit of such beneficiary and the the proportionate share of the trust fund along with the accumulted income should be handed over by the trustees to the female beneficiary at the time of her marriage or the amount might be applied for the purpost of her marriage. In other words, either the amount should be given as dowry or marriage expenses shluld be met by the trustees of the female beneficiary. As on marriage she ceased to be the member of family as per the custom of Hidus, the benefit of the trust is not extended to her after marriage. This does not mean that female beneficiary became disentitled to the trust fund because portion of the trust fund due to her is paid to her on the date of marriage. In any case, this is the condition preecribed by the settlor over which there could be no grievance for any body elso. In view of the authorities of the Supreme Court and Madras High Court cited (supra), the CIT (A) was not correct in observing that clause (4. b) provides, for person who are not presently alive nor in existence i.e. unborn children and threby coming to the conclusion that the trust is not valid, because there is ambiguity and therefore it is void. The ITO as well as the CIT (A) were not justified in coming to the conclusion that because the trust is void or not vaild, the entire income of the trust is assessable in the hands of the settlor because the trust is a specific trust and vaild trust in terms of the legal authority cited and therefore they are not justified in concluding that the entire income is be assessed in the hands of the settlor. Since the position of the beneficiaries and their shares is to be ascrtained only as on the last date of the financial year, viz 31-3-84 and if it is done so, there is no question of the beneficiaries being indeterminate or the shares being in determinate or unknows. On the contrary, the beneficiaries are known and determinate and their shares also are known and determinate. Since this is a specfic trust, provisions of sec. 161(1) applies in view of the decision of the Supreme Court and Madras High Court cited (supra). Consequently, we reverse the order of the CIT (A) and direct the ITO to assess the income substantively u/s 161(1) and not protectively u/s 161(4) of the Income-tax Act, 1961.
15. In the result, the appeal is allowed.