Trust income with indeterminate beneficiary shares taxed under section 164(1) for the charity-account portion.

Where a trust is only partly for charitable or religious purposes, the portion of income not specifically receivable by any identified beneficiary is taxed under section 164(1) if the beneficiaries' shares are indeterminate or unknown. The trust deed gave definite shares to the named beneficiaries for 85% of the income, so section 164(3) did not apply to that portion. The remaining 15% credited to the charity account was not earmarked for any specific beneficiary and had indeterminate shares, so it fell within section 164(1). The income attributable to the charity account was therefore chargeable at the rate applicable under section 164(1).

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Issues: Whether the 15% of trust income credited to the charity account was liable to be assessed under section 164(1) of the Income-tax Act, 1961, or under section 164(3)(a) of the Income-tax Act, 1961.

Analysis: The trust income was derived from property held under trust in part only for charitable or religious purposes, so the threshold condition for section 164(3) was present. That provision, however, applied only if the income applicable to non-charitable purposes was not specifically receivable for any person or if the individual shares of the beneficiaries were indeterminate or unknown. The 85% allocated to the named beneficiaries had definite shares under the trust deed and therefore did not satisfy the second condition. The 15% credited to the charity account was not earmarked for any specific beneficiary and its shares were indeterminate or unknown. In such a situation, section 164(1) governed the 15% portion, while section 164(3) did not apply.

Conclusion: The 15% charity-account income was chargeable under section 164(1) and not under section 164(3)(a), in favour of the Revenue.

Final Conclusion: The reference was answered against the assessee and the income attributable to the charity account was directed to be taxed at the rate applicable under section 164(1).

Ratio Decidendi: Where a trust is partly for charitable purposes and a distinct portion of its income is not specifically receivable for any identified beneficiary and the shares are indeterminate or unknown, that portion is taxable under section 164(1) rather than section 164(3).

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