Income-tax---

----Trust---Representative assessee--Trust for benefit of "would be wife" of minor--- "Would be wife" not in existence when trust was created---No certainty that such marriage would ever take place to fulfil object of trust-- Trust not for benefit of beneficiary who is known and determinate---Trust to be assessed at maximum marginal rate and not at the rate applicable to an AOP---Indian Income Tax Act, 1961, S. 164(1), (3) & Expln. 1.

The trust deed of the assessee-trust showed that KM settled Rs.5,000 on the "would be wife" of the minor M. KM, the settlor, had made himself trustee of the trust jointly with NKM. The source of income of the trust was share income from a -firm and income from share dealing. For the assessment year 1981-82, the Income-tax Officer found that the beneficiary was not definite and that the trust had been formed for the benefit of some unknown person which cannot be determined at any length of time, that the trust was a discretionary trust, that section 164(1) of the Income Tax Act, 1961, was applicable to the case and that, therefore, the assessee had to pay tax at the maximum marginal rate as a representative assessee. On appeal, the Appellate Assistant Commissioner found that clause 5 of the trust deed expressly stated the share of the sole beneficiary and hence there was no violation by the assessee of the Explanation to section 164, that the trust was to be assessed in the status of an association of persons and the tax would be charged at the rate applicable to an association of persons. On further appeal, the Tribunal held that so long as the trust deed gave the description of the person who was to be benefited, the beneficiary could not be said to be uncertain merely because the actual beneficiary could not be known until the marriage of the minor took place, that the clause in the trust deed that the "would be wife" was the sole beneficiary made it clear that not only the beneficiary was certain but the extent of the share in the trust property was also certain and that, therefore, the assessee-trust was to be assessed in the status of an association of persons. On a reference:

Held, that in view of the Explanation (1) to section 164(3) the benefit of the section could not be obtained unless the beneficiary was known and determined. The trust deed provided that the trust was for the benefit of the "would be wife", who was not in existence when the trust was created and there was no certainty that such marriage would ever take place to fulfil the object of the trust. Therefore, the Tribunal was not justified in holding that the trust was for the benefit of the individual, i.e., the "would be wife" of the minor, who was determinate and known rendering section 164(1) inapplicable.

CIT v. Atreya Trust (1992) 193 ITR 716 (Cal.) fol.

JUDGMENT

In this instant application, the following question of law has been referred for our opinion:

"Whether, on the facts and in the circumstances of the case and on a correct interpretation of Explanation (1) below section 164(3) of the Income-tax Act, 1961, the Tribunal was justified in law in holding that the 'would be wife' of the minor satisfied the above condition and thereby directing the Assessing Officer to tax in the status of association of persons at the rate applicable to association of persons' and not at the maximum marginal rate?"

The assessee is a trust which filed a return with the Income-tax Officer, SC-I, Calcutta, on July 29, 1980. The trust was settled with a trust deed, dated March 27, 1979. From the trust deed it is seen that Shri Krishna Kumar Mohta settled Rs.5,000 on the "would be wife" of the minor, Shri Keshav Kumar Mohta. Shri Krishna Kumar Mohta had made himself trustee jointly with Shri Narendra Kumar Mohta.

The source of income of the trust is share income from the firm Mohta Marketing Syndicate, and income from share dealing. From the trust deed, it is further revealed that the income of the trust is to be kept for the purpose of the "would be wife" of the minor, Shri Kashave Kumar Mohta. According to the Income-tax Officer the beneficiary is not definite and the trust has been formed for the benefit of some unknown person, which cannot be determined at any length of time. This makes the trust a discretionary one and calls for invoking section 164(1) of the Income-tax Act, 1961. Therefore, the assessee has to pay tax at the maximum rate as representative assessee as provided under the said section of the Act and the income-tax assessee has to pay tax accordingly.

In appeal before the Appellate Assistant Commissioner he has taken a view that in the present case clause 5 of the deed of trust expressly states the share of the sole beneficiary. Thus, there was no violation by the appellant with reference to the Explanation to section 164 of the Act. The Appellate Assistant Commissioner further held that the trust is to be assessed as per the proviso to section 164(1), proviso, clause (i), under the status of associations of persons and tax will be charged at the rate applicable to associations of persons.

In appeal before the Tribunal, the Tribunal has held that so long as the trust deed gives the description of the person who is to be benefited, the beneficiary cannot be said to be uncertain merely because the actual beneficiary cannot be known until the marriage of the minor named above takes place. Moreover, in the present case the "would be wife" is the sole beneficiary, and therefore, not only the beneficiary is certain but the extent of share in the trust property is also certain and adequate (sic). Therefore, the Tribunal directed assessment on the assessee in the status of association of persons at the rate applicable to associations of persons.

Learned counsel for the Revenue brought to our notice the latest decision of the Court in the case of CIT v. Atreya Trust (1992) 193 ITR 716, Income-tax Reference No.26 of 1987, wherein this Court held that the provisions of section 164 were made explicit by the explanation which was inserted with effect from April 1, 1980..In the instant case, the assessment year was 1981-82 and the Explanation was clearly applicable to the instant case. In view of the Explanation, the benefit of section 164 could not be obtained unless the beneficiary is known and determined. In the instant case, the beneficiary is the "would be wife" of the minor. Further, it was not known that the marriage had been fixed and the would be wife was not identifiable. The trust deed provided that the trust was for the benefit of the "would be wife", who was not in existence when the trust was created and there was no certainty that such marriage would ever take place to fulfil the object of the trust. The Tribunal was, therefore, not justified in holding that the aforesaid trust was for the benefit of individuals who are determinate and known, and rendering section 164(1) inapplicable.

Learned counsel for the assessee summits that though the issue is covered against the assessee the first proviso to section 164(1) has not been considered by the Tribunal, Therefore, for that purpose the matter can be remitted back to the Tribunal.

Heard counsel for the parties.

We perused the judgment of this Court in the case of Atreya Trust (1992) 193 ITR 716. The issue is squarely covered by the aforesaid decision. The questions proposed, whether the Tribunal was justified in holding that the "would be wife" of the minor satisfied the above conditions and thereby directing the Assessing Officer to tax the assessee in the status of association of persons.

To consider whether the assessee has to pay tax at the rate applicable to association of persons, it is necessary to see whether the trust is discretionary or not and whether the beneficiary is known. Obviously, when the assessee is a discretionary trust, the rate applicable to the assessee is the maximum marginal rate..

No question regarding the applicability of the proviso to section 164(1) has been referred to this Court, nor has that been considered by the Tribunal. Therefore, we cannot go into that question which has not been referred to us. The question before us is whether the trust is a discretionary trust and if discretionary, what should be the rate applicable to the assessee-trust. The answer will be in such a case the tax rate will be the maximum marginal rate.

In the result, we answer the question referred in the negative, i.e., in favour of the Revenue and against the assessee. .

The application is accordingly disposed of.

M.B.A/3283/FC Reference answered.