Trust income and section 164(1): beneficiary's identifiable entitlement on the accounting date defeated maximum marginal rate taxation.

Section 164(1) of the Income-tax Act did not apply to the trust income because the beneficiary was alive, identifiable, and entitled under the trust deed during the relevant previous year. The deed required accumulation of income until the beneficiary attained majority and directed transfer of corpus and accumulated income only on that event; the possibility of a later contingency, including death before determination of the trust, did not make the income indeterminate for the year under assessment. The majority held that entitlement must be examined on the relevant accounting date, and the trust income was therefore not assessable at the maximum marginal rate under section 164(1).

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Issues: Whether section 164(1) of the Income-tax Act, 1961 applied to the trust income in the hands of the trustee, having regard to the trust deed and the minority status of the sole beneficiary.

Analysis: The trust deed required accumulation of income during the beneficiary's minority and provided that the corpus and accumulated income would be handed over only on attainment of majority. The deed also contained a clause empowering transfer of the corpus and income to another trust if the beneficiary died before determination of the trust. On the majority view, the relevant enquiry under section 164(1) had to be made with reference to the facts existing on the relevant previous year. Since the beneficiary was alive and identifiable, the trust income was treated as receivable for her benefit, and the possibility of a future contingency did not make the income indeterminate for the year under assessment. The dissenting view treated the beneficiary's interest as contingent and therefore held section 164(1) applicable.

Conclusion: Section 164(1) was held not to apply by the majority, and the trust income was not assessable at the maximum marginal rate under that provision.

Ratio Decidendi: For the purpose of section 164(1), the character of the beneficiary's entitlement must be tested on the relevant accounting date, and a future contingency does not by itself render the income not specifically receivable on behalf of a known beneficiary.

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