TaxTMI 
TaxTMI 
1987 (2) TMI 121
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....elonging to Machavaram village, Ramachandrapuram Taluk was the settlor and the author of the trust. She settled a sum of Rs. 10,000 for the benefit of Sri K. Veerraju Choudhary son of Sri Narayanamurthy of Kakinda. The appointed trustee is one Smt. Kantipudi Sitaratnam wife of Sri Veerraju Choudary of Kakinada. That means the trustee is none other than the wife of the beneficiary. According to clause 4 of trust deed the trust moneys can be invested in shares, stocks, securities and other investments in business, purchase of properties and the income thereof together with the trust fund should be aggregated or accumulated for a period of 10 years and after the expiry of 10 years from the date of trust deed the income of the trust fund will be applied for the benefit of the beneficiary. The accumulation shall not exceed the period of 10 years or the death of the settlor whichever is longer. Before the expiration of the period of determination of trust if the beneficiary dies then the heirs of the beneficiary or beneficiaries other than the settlor shall be treated as equal beneficiary under the trust. Even in such a case the income of the trust be accumulated and should not be applie....
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.... Pullayya alias Tatarao, " 7-10-1980 23-4-1981 7,500 9. V. Veerayya " 8-10-1980 24-4-1981 10,000 10. N.Venkataramayya Chowdary " 8-10-1980 23-4-1981 16,000 11. K.M. Veerraju, " 8-10-1980 24-4-1981 20,000 12. V. Ammi Reddi, " 9-10-1980 23-4-1981 15,000 13. N. Maheswara Rao, " 16-10-1980 23-4-1981 15,000 14. V. Satyanarayana Murthy " 5-11-1980 20-4-1981 11,000 15. K. Veerraju Chowdary " 11-11-1980 20-4-1981 60,000 16. G. Satyavathi " 7-10-1980 25-4-1981 5,000 . . . 2,63,000 4. In I.T.A. No. 1276 (Hyd.) 1983 the settlement deed is dated 23-1-1981. The settlor is one Sri Teledevara Pattabhiramayya, son of Late Sri Subba Rao, 48 years, Kakinada. The sole trustee appointed was Smt. Manorama wife of Sri Srihari Rao, aged 28 years, resident of Kakinada. The settled amount was Rs. 5,000 for the benefit of Sri Ch. Srihari Rao son of Sri Venkanna. The trust was created under the deed named Srihari Family Trust. As in the above case under clause 3 the trust fund was contemplated to comprise of not only the s....
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....enkatarao, Peddapuram 18-2-1981 21-4-1981 18,000 3. Kongara Naryanarao, Jaggampeta 20-2-1981 21-4-1981 10,000 4. Bikkani Krishnamurty, Samalkot 20-2-1981 28-4-1981 8,500 5. Yarlagadda Raghavulu, Jaggampeta 20-2-1981 21-4-1981 15,000 6. Kantipudi SatyanarayanamyMurthy, Kakinada 22-2-1981 23-4-1981 16,000 7. Pynni Suryakantam 18-2-1981 12,000 8. Pynni Ravindranath 29-2-1981 16,000 9. Pynni Gangadharam 19-2-1981 17,000 10. Palacherla Govindarao 22-2-1981 13,000 1,45,500 5. In ITA No. 1275 (Hyd.) 1983 we are concerned with Sitaratnam Family Trust evidenced by a registered deed dated 25-2-1981. The settlor was one Sri Yelati Subbarao, son of Sri Dhanayya of Kakinada and the sole trustee was one Smt. Kantipudi Sitaratnam, wife of Sri Veeraju Chowdary. The settled amount was Rs. 5,000 and the beneficiaries were said to be the children of Kanthipudi Saradhi son of Sri Veeraju Chowdary. It is stated in clause 3 that by the date of the trust deed Sri K. Saradhi was having only one son viz., Vijay. ....
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....ent on KVR Family Trust for assessment year 1981-82 was completed on 14-8-1981 for assessment year 1981-82 under section 143(3). According to the learned CIT, Visakhapatnam who had revised the orders of the Income-tax Officer stating that they are erroneous and prejudicial to the interests of revenue firstly held in the case of Sitaratnam Family Trust that the income-tax is chargeable on income of the trust at the maximum marginal rate. Secondly he held that if 12 other persons who have gifted amounts to the extent of Rs. 1,81,000 wanted to entrust the amounts gifted by them to the trustees with the same trust and intended them to be spent for the same purposes for which the original trust is created then they ought to have executed separate trust deeds. Even if it is assumed that in making the gifts with the trustees their intention was to create a trust in favour of the beneficiaries on the same terms and conditions as are contained in the trust deed then also it will amount to creation of oral trust within the meaning of Explanation 2 to section 164A. A combined reading of section 160(1) Explanations 1 and 2 thereunder would clearly show that if a trust is not declared by a duly....
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....date of distribution, depending upon contingencies which may come to pass in future. So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of sub-section (1) of section 21. The position has to be seen on the relevant valuation date as if the preceding life interest had come to an end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries and on what determinate shares, sub-section (1) of section 21 must apply and it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being. " In view of the above ratio of the Hon'ble Supreme Court it is clear that we have to determine who are all the beneficiaries at the end of previous assessment year. If on that date the beneficiaries are ascertainable with c....
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....aykrishna Trust's case at page 80 of the reported decision as follows : " These decisions are clear authorities for the proposition that in determining whether the shares of beneficiaries are determinate and known, so that assessment should be made under sub-section (1) of section 41 of the Income-tax Act, what the revenue authorities have to see is whether such shares are known and specific during the accounting period. If these facts are known sub-section (1) and not the first proviso would apply and it does not matter that the number of beneficiaries might vary in future. Tax being leviable with reference to the income of the year of account, the crucial fact is not what is the general position but what is the position during the year of account. If during that year the number of beneficiaries is known and specific and their shares in the income are capable of determination, it would be sufficient and sub-section (1) of section 41 would apply and the exceptions laid down in the first proviso thereof would not apply. The language used in sub-sections (1) and (4) of section 21 being similar to that in sub-section (1) of section 41 and the first proviso thereof, there is no reas....
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....t in writing if a statement in writing signed by the trustee or trustees, setting out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the Income-tax Officer--- (i) where the trust has been declared before the 1st day of June, 1981, within a period of three months from that day ; and (ii) in any other case, within three months from the date of declaration of the trust. Explanation 2: For the purposes of clause (v) 'oral trust' means a trust which is not declared by a duly executed instrument in writing including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913) and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing. " So also section 164(1) without the proviso thereunder is as follows : " 164. (1) Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for th....
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....e settlors enumerated in the three lists noted in the order above. They made the gifts to the respective trusts after fully knowing the terms of those respective trust deeds and also the beneficiaries of the respective trusts. He submitted that the settlors not only made the gifts but also submitted the gift-tax returns shown against each one of their names in the three tables above. Except in the case of one or two persons the Gift-tax Officer completed their assessments also. The assessment orders and the statements that were filed along with the G.T. returns by each and every settlor who made the gifts to the three trusts which are subject matters before us are filed in the second paper book in each of the three appeals before us. As the statements are all stereotyped it is enough if we extract one of such statements. For instance the statement of Ch. Amanna son of Narayya of Kakinada may be extracted as under : " The Kakinada Income-tax Circle II Officer--- Respected Sir, I have gifted Rs. 10,000 (Rupees ten thousand only) on 2-3-1981 to Sitharatnam Family Trust, Kakinada. I have secured the amounts from out of my agricultural income. I have possessed 4.64 acres agricu....
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....ed under a trust deed dated 19-12-1944 supplemented by another trust deed dated 16-1-1951. The object of the trust deed is stated to be advancement of learning and education, amelioration of the sufferings of all citizens of Indian Union irrespective of caste, colour or creed for maintaining library or libraries for the free use of the public in general etc. etc. Sardar Ajaib Singh is one of the trustees. The assessment year in appeal is 1960-61 for which the previous year ended on 31-3-1960. On 23-1-1959 Sardar Ajaib Singh transferred 640 fully-paid up equity shares of the face value of Rs. 6,40,000 to the assessee-trust. He reserved to himself the right to revoke or recall the transfer of either the entire 640 shares or any portion thereof but not until the expiry of clear full seven years from the date of the delivery of the shares to the trust. The trust by their letter dated 1-2-1959 accepted the offer and also the terms and conditions upon which the offer had been made and ratified the same by their resolution dated 5-2-1959 and March 4, 1959. Therefore shares were transferred and given delivery of to the trustees. In the accounting year in question a dividend amounting to Rs....
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....ank was closed and a new account 'Account of Nizam Khanazads' was opened. As the Nizam created the trust the Income-tax Officer initiated gift-tax proceedings against the settlor. The settlor contended that there was no gift. The Gift-tax Officer rejected this claim which was upheld in appeal. The settlor approached the CBDT. Sometime in October 1966 the settlor accepted that there was no valid and proper gift prior to the execution of the trust deed dated 12-8-1957 and therefore accepted the correctness of the gift. The settlor had an intention of creating another trust for the benefit of some of Khanazads that were left out at the time of creation of the earlier trust dated 12-8-1957. This trust was to be formed on 12-6-1961. Shares of the face value of Rs. 23.5 lakhs were transferred by June 1961 and that amount formed part and parcel of the trust created on August 12, 1957. The Andhra Pradesh High Court held as follows : " Though initially the trust deed dated August 12, 1957, was found to be void, later it was realised that it was a valid one, and, subsequently, shares of Rs. 23.5 lakhs, transferred in 1961, were also placed at the disposal of the very same trust. The settl....