Capital gains in trust assessed by ascertainable beneficiaries, so maximum-rate taxation under the proviso was not attracted.

Capital gains received by trustees were not taxable at the maximum rate under the proviso to section 41 of the Income-tax Act, 1922, because the persons on whose behalf the gains were receivable were not indeterminate or unknown on the relevant accounting date. The trust deeds showed that the life tenants were in existence and that their children formed a definite and ascertainable class, even though their eventual interests in the corpus were contingent on future events. The test had to be applied by reference to the facts existing on that date, and on those facts the beneficiaries and their shares were capable of determination. The assessee's contention therefore succeeded, and section 17(6) governed the tax treatment.

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Issues: Whether the capital gains received by the trustees under the trust deeds were taxable at the maximum rate under the proviso to section 41 of the Income-tax Act, 1922, or at the rate applicable to capital gains under section 17(6) of that Act.

Analysis: The relevant inquiry was whether, on the accounting date, the persons on whose behalf the capital gains were receivable were indeterminate or unknown. The trust deeds showed that the life tenants were then in existence and that the children of the life tenants constituted a definite and ascertainable group. Although their interests in the corpus might have been contingent because the eventual takers depended on future events, that circumstance did not make the beneficiaries indeterminate or unknown. The test had to be applied with reference to the facts existing on the relevant date, and on that date the beneficiaries and their shares were capable of determination.

Conclusion: The proviso to section 41 was not attracted, and the capital gains could not be taxed at the maximum rate; the assessee's contention on this point succeeded.

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