Trust income taxation depends on ascertainable beneficiary shares under section 164 and proper construction of the trust deed.

The proper application of section 164 and Explanation 1(ii) depended on whether the trust deed expressly stated and made ascertainable the individual shares of the persons for whose benefit the income was receivable. The Tribunal had focused on assignment of rights and general tax avoidance observations without first applying that statutory test to the deed. As that construction exercise was not properly undertaken, the Tribunal's order could not be sustained and the matter had to be reconsidered in accordance with law.

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Issues: Whether, on the proper interpretation of section 164 and Explanation 1(ii), the trust income could be taxed at the maximum marginal rate and whether the Tribunal had correctly applied the trust deed to the beneficiary shares.

Analysis: The Tribunal had proceeded mainly on assignment of rights and on general observations about tax avoidance, without first addressing the statutory test under Explanation 1(ii) as to whether the individual shares of the persons for whose benefit the income was receivable were expressly stated and ascertainable in the trust deed. The dispute turned on construction of the trust deed in the light of the statutory explanation, which had not been properly examined.

Conclusion: The Tribunal's order could not be sustained and the matter required reconsideration in accordance with law.

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