Punjab & Haryana H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of proviso (ii) to sub-s. (1) of s. 164 are not applicable in this case ?

High Court Of Punjab & Haryana

CIT vs. Poonam Trust

Section 164(1), Proviso (ii)

Asst. Year 1983-84

D.K. Jain, C.J. & Hemant Gupta, J.

IT Ref. No. 45 of 1989

29th March, 2005

Counsel Appeared

D.S. Patwalia, for the Revenue : S.K. Mukhi, for the Assessee


D.K. Jain, C.J. :

The Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as ‘the Tribunal’), has referred under s. 256(1) of the IT Act, 1961 (for short ‘the Act’), the following question of law for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of proviso (ii) to sub-s. (1) of s. 164 are not applicable in this case ?”

2. Briefly stated, the material facts are as follows : The assessee-trust was created by virtue of a will executed by one Vidya Wati for the benefit of her granddaughter, namely, Poonam, daughter of Mangat Rai. Mangat Rai, the adopted son of Smt. Vidya Wati, was appointed as a trustee. A sum of Rs. 20,000 was earmarked as the corpus of the trust. The said amount was invested in a firm on which an amount of Rs. 4,113 was earned by way of interest during the previous year, relevant to the asst. yr. 1983-84. While computing assessment for the said assessment year, the AO was of the opinion that since the said amount had been received under a trust wherein the share of a beneficiary had not been defined, in view of s. 164(1)(ii) of the Act, the interest income was assessable in the hands of the trust. Accordingly, the said amount was included in the total income of the trust and subjected to tax at the maximum marginal rate, taking the status of the assessee-trust as AOP.

Aggrieved, the assessee-trust carried the matter in appeal to the Appellate Assistant Commissioner of Income-tax (‘AAC’ for short). The AAC was of the view that since the trust had been created for the sole beneficiary, namely, Poonam, there was no one else to receive any benefit from the trust at the discretion of the trustee, assessee’s case did not fall within the ambit of s. 164 of the Act. He, accordingly, deleted the addition made in the hands of the trust. Revenue’s appeal to the Tribunal against the said order was unsuccessful.

On Revenue’s moving an application under s. 256(1) of the Act, the aforenoted question has been referred for our opinion.

We have heard learned counsel for the parties. Mr. D.S. Patwalia, learned counsel for the Revenue, has argued before us that the finding recorded by the AAC and affirmed by the Tribunal is perverse inasmuch as the AO had found as a fact that by virtue of the will, the deceased, Smt. Vidya Vati had created four trusts and, therefore, the share of the beneficiary remained indeterminate, attracting the provisions of s. 164(1) of the Act.

We are unable to agree with learned counsel for the Revenue for more than one reason. It is trite that where a party desires to attack Tribunal’s finding as defective or perverse, a specific question to that effect has to be raised. [See : Hazarat Pirmahomed Shah Saheb Roza Committee vs. CIT (1967) 63 ITR 490 (SC) and CIT vs. Greaves Cotton & Co. Ltd. (1968) 68 ITR 200 (SC)]. No such question has been raised here. Secondly, s. 164(1) of the Act is attracted and such income is brought to tax at the maximum marginal rate, where the shares of different beneficiaries in the trust are indeterminate or unknown. In the instant case though it is true that four trusts were created under one will but insofar as the trust created for the benefit of Poonam was concerned, she was the sole beneficiary. Under these circumstances, the question of aggregation of interest income received for the benefit of one single person for the purpose of s. 164(1) of the Act did not arise.

In view of the above, we are in complete agreement with the view taken by the Tribunal that provisions of s. 164(1)(ii) of the Act were not attracted in the instant case.

Accordingly, we answer the question referred in the affirmative i.e., in favour of the assessee and against the Revenue.

The reference stands disposed of, with no order as to costs.

[Citation : 282 ITR 129]

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