Revocable trust taxation: identifiable beneficiary shares kept income assessable in beneficiaries' hands, not as an association of persons.

A trust arrangement was analysed as a valid revocable trust where the deed allowed revocation of contributions and the contributors and beneficiaries could overlap without invalidating the structure. The trust was not treated as an association of persons because the investments were made separately and there was no common concerted purpose among the security receipt holders. As the beneficial shares were identifiable from inception, the trust was also not indeterminate. Income was therefore governed by the revocable transfer provisions and assessable in the hands of the beneficiaries under sections 61 to 63 of the Income-tax Act, 1961, rather than in the hands of the trust.

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Issues: Whether the assessee trust was to be treated as a revocable trust with income assessable in the hands of the beneficiaries under sections 61 to 63 of the Income-tax Act, 1961, and whether it could be assessed as an association of persons or as an indeterminate trust.

Analysis: The trust deed and surrounding structure showed that the contributors and beneficiaries were not disqualified from being the same persons under the Indian Trust Act, 1882, and the arrangement satisfied the statutory requirements of a valid trust. The relevant clause of the deed permitted revocation of contributions, and the existence of a consent mechanism did not make the transfer irrevocable. The reasoning also rejected the inference of a common concerted purpose among the security receipt holders, since their investments were made separately and their beneficial interests were defined from inception. On that basis, the trust could not be treated as an association of persons, and the income was required to be assessed in the hands of the beneficiaries. As the shares were known at the outset, the trust was also not indeterminate.

Conclusion: The assessee was held to be a revocable trust, not an association of persons, and the income was held taxable in the hands of the beneficiaries under sections 61 to 63 of the Income-tax Act, 1961.

Final Conclusion: The appeal was allowed, and the adverse assessment of the trust's income was set aside in favour of taxation in the hands of the beneficiaries.

Ratio Decidendi: Where the trust deed permits revocation and the beneficiaries' shares are identifiable from inception, the income is governed by the revocable transfer provisions and cannot be taxed in the trust's hands merely because the contributors and beneficiaries overlap or because the trustee administers pooled assets.

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