Mainly dependent test under trust taxation requires actual financial dependence, not just a legal duty to maintain relatives.

A non-testamentary trust created before 1 March 1970 for relatives with independent income did not qualify under clause (iii) of the proviso to section 164(1) of the Income-tax Act, 1961. The expression "mainly dependent" must be assessed from all surrounding circumstances at the date of creation, including the beneficiaries' financial position. A mere legal obligation on the settlors to maintain relatives was insufficient where the beneficiaries could maintain themselves from their own income. The proviso applied only where the trust was bona fide and exclusively for relatives mainly dependent on the settlor for support and maintenance, which was not satisfied on these facts.

---

---

Issues: Whether a non-testamentary trust created before 1 March 1970 for the benefit of relatives, who had independent income at the time of creation, could be treated as falling within clause (iii) of the proviso to section 164(1) of the Income-tax Act, 1961 merely because the settlors had a legal obligation to maintain them.

Analysis: Clause (iii) requires satisfaction, on the basis of all circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of relatives who were mainly dependent on the settlor for support and maintenance. The expression "mainly dependent" is not satisfied by the mere existence of a legal duty to maintain. It must be judged with reference to the financial position of the beneficiaries at the date of creation of the trust. Where the beneficiaries had their own income and could maintain themselves, dependence in law alone was insufficient to attract the proviso.

Conclusion: The trust did not fall within clause (iii) of the proviso to section 164(1) of the Income-tax Act, 1961, and the assessee was not entitled to assessment at the rate applicable to an association of persons.

---