Specific beneficiary rule under trust taxation: monthly payment excluded, but indeterminate residual trust income taxed at the maximum rate.

The first proviso to section 41(1) of the Indian Income-tax Act, 1922 applied only where income was not specifically receivable for one person, or where the beneficiaries' shares were indeterminate or unknown. Under the trust deed, the monthly payment of Rs. 500 to the settlor's wife was specifically receivable on behalf of one identified beneficiary, so it was outside the maximum-rate proviso. The balance of the trust income was receivable for more than one beneficiary, but their beneficial shares were not determinate during the relevant assessment years because final distribution depended on future contingencies. Accordingly, the proviso applied to the remaining income, which was taxable at the maximum rate.

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Issues: Whether, on the construction of the trust deed and the facts of the relevant assessment years, the first proviso to section 41(1) of the Indian Income-tax Act, 1922 applied to the trust income so as to attract the maximum rate of tax, and whether the monthly payment of Rs. 500 to the settlor's wife and the remaining income stood on the same footing.

Analysis: The trust deed directed a specific monthly payment of Rs. 500 to the settlor's wife during her life, and separately provided for marriage expenses and eventual distribution of the accumulated surplus among the sons in equal shares at the time of distribution. The statutory proviso applies where income is not specifically receivable on behalf of any one person, or where the individual shares of the persons on whose behalf it is receivable are indeterminate or unknown. On the deed, the monthly payment was specifically receivable on behalf of one person, namely the wife, and therefore did not attract the maximum rate. As regards the remaining income, it was receivable on behalf of more than one beneficiary, but the beneficial shares could not be treated as determinate or known during the relevant assessment years, because the ultimate distribution depended on future contingencies and the time of distribution.

Conclusion: The first proviso to section 41(1) did not apply to the monthly payment of Rs. 500 to the settlor's wife, but it did apply to the rest of the trust income, which was taxable at the maximum rate.

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