TaxTMI 
TaxTMI 
1989 (4) TMI 156
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....ding that the income of the trust should be assessed in the hands of the settlor and in making protective assessment on the trust. 3. One Shri Surajmal Bafna son of Shri Dhondiram Bafna settled a sum of Rs. 1,100 in trust for the benefit of the family members of late Shri Narayandas Chordiya evidenced by a deed of trust dt. 31-10-1982. Shri Subhashchand Chordiya and Shri Sureshchand Chordiya are appointed as the trustees of the trust who are also beneficiaries of the 12 beneficiaries described in the trust deed. For the assessment year 1984-85 for which the accounting year ended on 31-3-1984, the assessee filed return on 4-12-1984 declaring the total income at 'nil'. The trustees have been authorised to carry on business. The assessee trust is a partner in M/s Chordiya Brothers, Aurangabad and also carries on proprietary business in the name and style of M/s Chordiya Brothers. The ITO computed the total income at Rs. 1,74,390 in the status of AOP (trust) but in a protective manner. 4. According to the ITO, besides the 12 beneficiaries enumerated in the trust deed, the children who will be added on to the families of Shri Subhashchand Chordiya, Sureshchand Chordiya and Shantil....
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....um marginal rate of tax applicable to AOP and that too in a protective manner. 6. On appeal, the learned counsel for the assessee contended that the settlor was not interested in the trust, but the duration of the trust is associated with the death and nothing more. Rule of perpetuity was also not applicable just because the settlor is likely to survive beyond 18 years period. All the beneficiaries are existing persons and nothing was provided for the benefit of unborn persons. As regards the percentage of sharing the income, it was for the sake of convenience fixed so as to arrive at total of 100 per cent and this would not invalidate the trust. Therefore, the shares of the beneficiaries are determinate and they would be determinable from the trust. There was no discretion for the trustees to alter the shares of the beneficiaries and therefore, from that point of view also it could not be said that the shares of the beneficiaries were indeterminate. The learned counsel also pleaded that in view of the aforesaid settlement the total income should have been allocated in the hands of the concerned beneficiaries and tax liability should have been ascertained to the extent of liabil....
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.... of the trust deed as a whole the beneficiaries then existing would share the income equally. The trustees have no discretion in the matter on distribution of income which is a mandate of the trust deed. He has also filed a copy of the order of the Tribunal, Pune Bench, in the case of Ashish Beneficial Trust [IT Appeal No. 2106 (Pune) of 1987, dated 24-2-1989] wherein the Tribunal considered clause 3 of the deed of trust which is said to have violated the rule against perpetuity and came to the conclusion that clause 3 did not violate the rule of perpetuity contained in sec. 14 of Transfer of Property Act. The contention of the learned counsel is that the relevant clause in the trust deed in the case of the appellant is the same as clause 3 of the Ashish Beneficial Trust, Aurangabad and therefore submitted that the issue relating to perpetuity stands covered by the earlier order of the Tribunal cited. 9. The learned departmental representative has been duly heard and he vehemently supported the reasons and conclusions drawn by the authorities. 10. We have duly considered the rival submissions and the record. Clause 3 of the deed of trust dated 31-10-1982 in the assessee's cas....
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....to English Law has been adopted in Indian Law in section 14 of the Transfer of Property Act reproduced above. In this section, the limitation prescribed is the lifetime of one or more persons living at the date of transfer of the property and the life of any unborn person who shall come into existence before the expiration of the lifetime of transferee persons and to whom the interest created should belong when he attained the age of majority. In other words, the vesting of the property in an unborn child subject to prior charge in existing persons should not exceed the majority of unborn person to whom the residue of interest is created. If interest created is vested after the minor attains majority, the transfer becomes void and not when he attains majority. 11. Let us now look into the beneficiaries of the trust to whom the property has been transferred. The preamble of the trust deed enumerates the following beneficiaries, viz : (i) Shri Subhashchand Narayandas Chordiya, Karta of Late Shri Narayandas Vithaldas Chordiya HUF consisting of : (a) Smt. Kanchanbai N. Chordiya, widow mother aged about 50 years, (b) Shri Subhashchand N. Chordiya eldest son, (c) Shri Sureshchand N....
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....property as per sec. 13 of the Transfer of Property Act. Thus even sec. 13 provides for transfer of property in favour of a person not in existence at the date of transfer subject to a prior interest created by the same transfer, say in the name of trustee. A perusal of the preamble does not show that any interest is created specifically in respect of any particular unborn person belonging to any family of particular existing beneficiary. It simply provides for any additional members will also be treated as beneficiary. This is a contingency provision and therefore, the trust as such has not vested any interest in unborn beneficiary. In his anxiety, the settlor has included additional members of the male beneficiaries should also be benefited by the trust. Thus the provision of modern rule of perpetuity is not violated by the trust under consideration. The Tribunal in the case of Ashish Beneficial Trust where similar clause 3 was incorporated in the trust deed came to the conclusion that that clause did not violate the modern rule against perpetuity. There is another angle in which same conclusion could be arrived at. The period of the trust or the date of distribution of the trust....
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....he trust fund as well as from the income of the trust and also from inheriting any portion of the property as a legal heir of the beneficiary, provision of sec. 60 of the Income-tax Act is not applicable. 13. We shall now consider the question whether the shares of the beneficiaries are known and determinate or equal. Clause 2 of the trust deed specifies the shares of the 12 beneficiaries at 8.33 per cent for 1 to 11 beneficiaries and at 8.37 per cent for youngest and the last beneficiary Master Alish Kumar Chordiya. It is the contention of the ITO that in view of the fact that the last beneficiary is given 8.37 per cent share, vis-a-vis 8.33 per cent for 11 others, the shares are not equal and therefore, there is a contradiction in clause 3 of the trust deed where it says that the income of the trust would be divided among the beneficiaries equally. From this, the ITO concluded that neither the shares of the beneficiaries nor the beneficiaries themselves are determinate. Possibly the ITO has taken into account the additional members as the beneficiaries so as to come to the conclusion that even the number of beneficiary is also not determinate. In this connection, it is necessa....
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....ng the beneficiary in the fraction or percentage of income specified. In clause (1.b) of the trust deed, the trustees are enjoined to pay for marriage, education, maintenance, residence, medical attendance and treatment or for any purpose of emergency or urgent necessity or benefit as the trustees thought fit and proper 'equally' for the benefit of beneficiaries and also out of the accumulations of the trust fund out of the net income of the trust and shall accumulate the residue, if any, for future investment. Therefore, it is clear that it is for the necessaries of life the trustees are empowered to pay accumulations of the trust fund equally among the beneficiaries in all the circumstances specified above. Clause 2 contains clear and unequivocal discretion given to the trustees to divide and pay funds of the trust fund and divide and pay such sum or sums to the beneficiaries in equal proportions. This clause contains omnibus clause, viz. "notwithstanding the Trust and provisions hereinabove declared and contained". In other words, even before the distribution of the trust fund, trustees are empowered to apply the trust fund for the benefit of the beneficiaries in equal proportio....
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....tion 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-sec. (1) of sec. 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." From the above extract, it is clear that we have to look to the position as on the relevant valuation date to come to the conclusion whether the beneficiaries are known and their shares were determinate or not. It is also not relevant whether the beneficiary is changed in subsequent years before the date of distribution on account of birth or death. Further we have to proceed on the assumption that the date of distribution is the relevant accounting year and to see whether the beneficiaries are known and their shares are ascertainable. It is only when it was not possible to say with certainty and definiteness as to who are the beneficiaries and whether their shares are determinate and specific, the case wi....
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....rust. But the same clause provides that in the event of marriage, the amount lying to the credit of such beneficiary and the proportionate share of the trust fund along with the accumulated income should be handed over by the trustees to the female beneficiary at the time of her marriage or the amount might be applied for the purpose of her marriage. In other words, either the amount should be given as dowry or marriage expenses should be met by the trustees of the female beneficiary. As on marriage she ceased to be the member of family as per the custom of Hindus, the benefit of the trust is not extended to her after marriage. This does not mean that female beneficiary became disentitled to the trust fund because portion of the trust fund due to her is paid to her on the date of marriage. In any case, this is the condition prescribed by the settlor over which there could be no grievance for any body else. In view of the authorities of the Supreme Court and Madras High Court cited, the CIT(A) was not correct in observing that clause (4b) provides for persons who are not presently alive nor in existence, i.e. unborn children and thereby coming to the conclusion that the trust is not....