(Appeal by special leave from the judgment and order, dated March 1, 1978, of the Gujarat High Court in Income Tax Reference No. 142 of 1976).

(a) Income-tax---

----Representative assessee---Trustee---Discretionary trust---Option to assess trust or beneficiary directly---Indian Income Tax Act, 1961, Ss. 164 & 166.

(b) Income-tax---

----Special deduction---New Industrial undertaking---Trust---Discretionary trust---Dividend received by trust from new industrial undertaking---Whether beneficiary entitled to deduction---Matter remanded to High Court---Indian Income Tax Act, 1961, SS.80-K & 166.

Distributions received by a beneficiary from, a discretionary trust can be assessed in the hands of the beneficiary or in the hands of the trust.

CIT v. Kamalini Khatau (1994) 209 ITR 101 (SC) fol.

[Since the High Court had held in favour of the assessee on the first question and had, therefore, not answered the second question. the Supreme Court remanded the matter to the High Court to decide the second question, i.e. whether, in respect of distributions received by the beneficiary from dividends received by the trust which were exempt under section 80-K of the Income Tax Act, 1961, the beneficiary was entitled to exemption.]

J. Ramamurthy, Senior Advocate (S.N. Terdol, Advocate with him) for Appellant.

Mrs. A.K. Verma, Advocate for Respondent.

ORDER

Two questions of law arising out of the Tribunal's order were referred under section 256(1) of the Income Tax Act, 1961, to the Gujarat High Court for its decision. These questions are the following:

"(1)Whether, on the facts and in the circumstances of the case the Tribunal was justified in law in holding that the sum of Rs.53,122 received by the assessee from various discretionary trusts could not be taxed in the hands of the assessee under section 166 of the Income-tax Act?

(2)If the answer to question No. l is against the assessee, whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the said sum of Rs.53,122 was exempt from tax inasmuch as the said sum was paid out of dividends received by the trusts, which were exempt from tax under section 80-K of the Income Tax Act, 1961?"

The High Court answered the first question in the affirmative in favour of the assessee. As a consequence of its answer to question No. 1, the High Court by the impugned judgment, dated March, 1, 1978, did not answer question No.2 stating that the answer to it was not necessary. This appeal by special leave is against that judgment.

The decision which was relied on by the High Court in answering the above quoted first question in favour of the assessee has been reversed by this Court in CIT. Kamalini Khatau (1994) 209 ITR 101. Accordingly, following the decision of this Court, question No. l has to be answered in favour of the Revenue and against the assessee and the decision of the High Court has to be reversed on that point. Since question No.2 referred to High Court was left unanswered by it in view of its answer to question No. 1, the matter has to go back to the High Court for deciding the above quoted question No.2 in accordance with law.

Consequently, the appeal is allowed. Question No. l is answered in favour of the Revenue and against the assessee, and question No.2 would now be decided by the High Court in accordance with law The matter is remitted to the High Court to this limited extent.

M.B.A./1850/FCAppeal allowed.