Determinate beneficiaries' shares prevent maximum-rate taxation of trust capital gains under section 41(1).

Capital gains from the sale of trust property were not taxable in the trustees' hands at the maximum rate because the beneficiaries' shares were defined and determinate. The trust deed provided fixed shares in the income and corpus, and the supplemental statement showed that the relevant contingency for treating the shares as indeterminate or unknown did not arise. The proviso to section 41(1) of the Indian Income-tax Act, 1922 applies only where beneficiaries' shares are indeterminate or unknown, so it could not be invoked on these facts. Taxation at the maximum rate was therefore unavailable to the revenue.

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Issues: Whether capital gains arising from the sale of trust property were liable to be taxed in the hands of the trustees at the maximum rate under the proviso to section 41(1) of the Indian Income-tax Act, 1922, on the footing that the shares of the beneficiaries were indeterminate or unknown.

Analysis: The trust deed provided for distribution of the income and corpus in defined shares, and the supplemental statement showed that during the relevant previous year Ashok had a male child. On that finding, the case did not fall within the contingency under which the shares could be treated as indeterminate or unknown. The applicable principle was that where the beneficiaries' shares are definite and determinate, the proviso to section 41(1) cannot be invoked to levy tax at the maximum rate.

Conclusion: The question was answered in the negative and the capital gains were not liable to be taxed at the maximum rate in the hands of the trustees; the decision was in favour of the assessee.

Ratio Decidendi: The proviso to section 41(1) of the Indian Income-tax Act, 1922 applies only where the beneficiaries' shares are indeterminate or unknown; if the shares are definite and determinate, taxation at the maximum rate is not permissible.

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