Income‑tax‑‑‑

‑‑‑‑Representative assessee‑‑‑Trustee‑‑‑Trusts for benefit of daughter‑in‑law to‑be and son‑in‑law‑to‑be‑‑‑Beneficiaries were known and determinate‑‑ Section 164(1) was not applicable‑‑‑Indian Income Tax Act, 1961, Ss.161 & 164.

The assessees were four trusts. Two trusts were created for the benefit of the would‑be son in‑law of the settlor and other two trusts for the benefit of the would‑be daughter‑in‑law. The terms of the trust deeds in all the cases were similar. The trust deeds were irrevocable. However, a clause in the deeds provided that if the intended marriage did not take place within a period of 20 years for any unforeseen reason, from the date of the deed, the trust property would become reinvested in the settlor as a beneficial owner. The Income‑tax Officer, for the assessment year 1977‑78, completed the assessment under section 144 of the Income Tax Act, 1961, in the status of an "association of persons by accepting the returns filed by the assessees. The Commissioner of Income‑tax initiated suo motu proceedings in respect of all the assessees under section 263 of, the Act on the ground that the trust was created for an unknown beneficiary and, hence, the provisions of section 164(1) were attracted. The Tribunal, however, held that the beneficiaries were known and section 164(1) was not applicable. On a reference:

Held, that the beneficiaries were known persons and it could not be said that they were non‑existent on the date of the execution of the relevant trust deeds. When the beneficiaries are known, the provisions of section 164 were not attracted.

CIT v..M.K. Chandrakanth (1997) 225 ITR 101 (Mad.) ref.

S.V. Subramaniam for C.V. Rajan for the Commissioner.

R. Meenakshisundaram for the Assessee.

JUDGMENT

N.V. BALASUBRAMANIAN, J‑‑‑At the instance of the Revenue, the Income‑tax Appellate Tribunal, Madras, has stated the consolidated statement of the case in respect of four assessees under section 256(1) of the Income Tax Act, 1961, and referred the following common questions of law for our opinion:

"(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in setting aside the orders passed by the, Commissioner of Income‑tax under section 263 of the Income Tax Act, 1961?

(2)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that because the beneficiary was non‑existent at the time of the execution of the trust deed, it could not be said that the beneficiary was known and that the provisions of section 164(1) would not, therefore, be applicable?"

The four assessees who are the respondents in the tax cases are four trusts. Of the four trusts two trusts were created for the benefit of the would be son‑in‑law of the settlor and other two trusts for the benefit of the would be daughter‑in‑law. The terms of the trust deeds in all the cases are similar. Hence, we noticed one of the trust deed which would govern the four cases as well. Clause 19 of the trust deed, namely, M.K. Kannan Marriage Benefit Trust, declared that "the trust shall be irrevocable". However, clause 22 of the said deed provided that if the intended marriage did not take place within a period of 20 years for any unforeseen reason from the date of the deed, the trust property would become re‑invested in the settlor as a beneficial owner. The Income‑tax Officer, for the assessment year 1977‑78, completed the assessment under section ! 44 of the Income‑tax Act, in the status of an "association of persons" by accepting the returns filed by the assessee.

The Commissioner of Income‑tax initiated suo motu proceedings in respect of all the assessees under section 263 of the Act on the ground that the trust was created for an unknown beneficiary and, hence, the provisions of section 164(1) of the Act are attracted and the trusts should have been assessed at the maximum rates. The assessee raised certain objections against the suo motu revision of the Commissioner of Income‑tax. ‑ The Commissioner, however, held that the beneficiaries under the trust were indeterminate and unknown persons. He also held that the objects of the trusts were‑further subject to clause 22 of the deed and, therefore, the deed of trust shall be void and the trust estate becomes reinvested on the settlor as a beneficial owner. In this view of the matter, the Commissioner was of the view that the beneficiaries were indeterminate and unknown at the end of the previous years arid directed the Income‑tax Officer to assess the assesses, at the maximum rates. The assessees appealed to the Tribunal challenging the order of the Commissioner of Income‑tax. The Appellate. Tribunal, following an earlier order in the case of Smt. Umrao Kavur Bai, Madras (I.T.A. Nos.1523 to 1526 (Mad.) of 1977‑78, dated August 2, 1978), held that because the person was non‑existent at the time of the execution of the trust deed, it cannot be taken that the beneficiary was not known. The Tribunal, therefore, held that since the beneficiaries were known under the relevant terms of the deeds of trust, the provisions of section 164(I) of the Act are not applicable and the order of the Commissioner of Income‑tax, Madras, directing the Income‑tax Officer to assess at the maximum rate was not correct in law.

It is against this order of the Tribunal, the Revenue has sought for the reference and the Appellate Tribunal has stated the case and referred the common questions of law in all the cases stated above.

At the time of hearing the tax cases reference, Mr. C. V. Rajan, junior standing counsel for income‑tax fairly brought to our notice an earlier unreported decision of this Court in the case of M. C. Sowmiyaram

Marriage Benefit Trust, Coimbatore, rendered in T. C. Nos. 1912 to 1921 of 1984, dated January 9, 1997, and another unreported decision in the case of M. K. Radha Marriage Benefit Trust, Coimbatore, in T. C. Nos. 1846 of 1984 to 1955 of 1984, dated January 20, 1997, where this Court in the above tax cases followed an earlier order rendered in T.C. Nos.831 and 832 of 1984, dated April 15, 1996 (CIT v. M.K. Chandrakanth (1997) 225 ITR 101), and held that the trusts created were valid trusts and they were irrevocable and the beneficiaries were known beneficiaries. In view of the above judgment of this Court it is clear that the beneficiaries were known persons and it cannot be said that they were non‑existent on the date of the execution of the relevant trust deeds. When the beneficiaries are known to law, the provisions of section 164 of the Act are not attracted and the decision of the Commissioner of. Income‑tax directing the Income‑tax Officer to assess the trust at the maximum rate invoking the provisions of section 164(1) of the Act cannot be regarded as correct in the eye of law. Following the earlier decisions of this Court cited supra, we hold that there is no infirmity in the order of the Appellate Tribunal in holding that the beneficiaries cannot be regarded as non‑existent at the time of the execution of the trust deed and the beneficiaries were known. Therefore, in this view of this matter, the questions of law referred to us in the instant cases are liable to be answered in the affirmative and against the Revenue. Accordingly, we answer both the questions in all the cases referred to us in the affirmative and against the Revenue. There will, however, be no order as to costs in the circumstances of the case.

M.B.A./379/FCReference answered.