High Court Of Gujarat
Sanjiv Family Trust vs. CIT
Section 164, Expln. 1(ii)
Asst. Year 1984-85
R.S. Garg & M.R. Shah, JJ.
IT Ref. Nos. 148, 149, 157 & 160 to 164 of 1995
13th July, 2006
Counsel Appeared
S.N. Soparkar, for the Applicant : Manish R. Bhatt, for the Respondent
JUDGMENT
R.S. Garg, J. :
At the very beginning of the hearing, Mr. S.N. Soparkar, learned senior advocate submitted that the matters relate to first level trust and second level trust, IT Ref. No. 149 of 1995—Sanjiv Family Trust is the first level trust while IT Ref. Nos. 157/1995, 160/1995, 161/1995, 162/1995 and 163/1995 are references at the instance of the second level trusts who are claiming certain benefit under the first level trust. His further submission is that yet another first level trust, namely, Hemesh Family Trust (IT Ref. No. 148 of 1995) is not before this Court, so also Chanchalba Family Trust (IT Ref. 164 of 1995), which is second level trust is also not on the board and as these two matters are raising common question, matters may be called and be disposed of along with the listed matters. Mr. M.R. Bhatt, learned counsel for the Revenue has no objection. We have accordingly called IT Ref. Nos. 148 of 1995 and 164 of 1995.
2. Mr. Soparkar, learned senior advocate for the petitioner, after taking us through the trust deed and provisions of s. 164 of Indian IT Act, submitted that the AO, CIT(A) and the Tribunal were in fact, impressed by the observations made by the Supreme Court in the matter of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) and did not refer to the provisions of law, specially s. 164 Expln. 1(ii). His further submission is that the original trust namely, Sanjiv Family Trust, Ahmedabad, had four beneficiaries and as each of them had a determinate/fixed share, beneficiaries were to receive 25 per cent of the income and were also to receive 25 per cent of the corpus on determination of the trust, any act on their part in selling or assigning their right would not make any change into the original trust, a specific trust would not become discretionary trust. His submission is that tax cannot be charged on the relevant income or part of relevant income at the maximum marginal rate. Referring to the judgment in the matter of Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC), it is submitted by him that the observations made by Their Lordships of the apex Court in the matter of McDowell & Co. Ltd. (supra) have been diluted to a large extent and the tax planning which was taken by the apex Court to be bad in the matter of McDowell & Co. Ltd. is being accepted as a proper policy. His further submission is that the questions have not been appreciated in their proper perspective and the authorities went on a wrong line and instead of deciding the legal issue, went on moral aspect of the matter. It is submitted that on a perusal and fair understanding of s. 164 Expln. 1(ii), it would clearly appear that tax at maximum marginal rate could not be levied. Shri M.R. Bhatt, learned counsel for the Revenue, however, submitted that the thrust of the matter in s. 164 is on the words “specifically receivable” and in the present matter,by assignment or alienation of the right, title and interest, beneficiary in the first level trust has asked the trustees to join more people to the first level trust and as such, determination of the shares has become different. His further submission is that second level trust is some body of individuals (commonly known as BOI) and as the benefit ultimately would percolate to the individuals, the authorities were justified in deciding against the interest of the assessee.
We have gone through the orders passed by the authorities and have also gone through the order passed by the Tribunal. From the order passed by the Tribunal, it would clearly appear that instead of making any reference to s. 164 of the IT Act, it has referred to the assignment and after reading of the deeds and documents in juxtaposition, made observation that the act on the part of the assessee and his intention was to deprive the Revenue of its lawful recovery. It would also appear that the Tribunal has referred to the observations made by the Supreme Court in the matter of McDowell & Co. Ltd. (supra) and has further observed that the intention of the settlers, trustees and beneficiaries can always be looked into. It observed that the matter at hand was worse from the assessee’s angle even if piercing of veil for trust was not made applicable. It also observed that the assessee-trust on the facts and juxtapose reading of the deeds and documents being one of the nine trusts is discretionary trust in respect of the income, which stands assigned to the second level trust.
Agreeing with the submission made by the assessee, the Tribunal observed that once maximum marginal rate of tax was applied, second line of beneficiaries could not be taxed.
The question that provisions of s. 164 Expln. 1(ii) would apply to the present case or not had at all not been considered by the Tribunal. Sec. 164 Expln. 1(ii) says that :
“Explanation—For the purposes of this section,— (i) xxxxxx (ii) the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is received shall be deemed to be indeterminate or unknown unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in the order of the Court or the instrument of trust or wakf deed, as the case may be, and are ascertainable as such on the date of such order, instrument or deed.”
The question for determination before the Tribunal was whether individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable was expressly stated in the deed or not. The Tribunal did not advert its attention to the fact that the entire dispute was hinging upon the interpretation of the trust deed in light of Expln. 1. Taking into consideration the totality of the circumstances, we are of the view that the order passed by the Tribunal cannot be upheld as without proper interpretation and application of law, it has decided the matter against the interest of the assessee. At this stage, Mr. Bhatt, learned counsel for the Revenue submits that the entire order made by the Tribunal, including the benefit in relation to the double taxation be set aside so that proper tax is recovered either from the first level trust beneficiary or from the second level trust beneficiary or from the BOI or from the individuals. Taking into consideration the fact that the order in relation to recovery of maximum marginal rate of interest is being set aside on the ground of beneficiary share, we are of the opinion that that part of the order may also be set aside. The Tribunal would be entitled to reconsider the entire matter and redetermine the liability of the assessee, that is, the beneficiary of the first level trust. It would be open to the Tribunal to reconsider the matter and decide the matter in accordance with law after taking into consideration the judgments above-referred and CIT vs. Smt. Kamalini Khatau (1994) 119 CTR (SC) 169 : (1994) 209 ITR 101 (SC) and CIT vs. Ambalal Sarabhai D. Tr ust No. 5 (1998) 147 CTR (Guj) 450 : (1998) 231 ITR 540 (Guj) on which reliance is being placed by the learned counsel for the Revenue. As we are remanding the matters back to the Tribunal, we refuse to make any observation on the merits of the matters as the same is likely to adversely affect the right of either party.
[Citation : 292 ITR 156]
