TaxTMI 
TaxTMI 
1986 (7) TMI 129
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....to be applied in equal share to all for benefit of children of said Atul that may be in existence on 31st day of March each financial year. According to the ITO in light of the above provisions of the deed of trust the beneficiaries for each particular period, i.e., for each accounting period were not known to the settler on the date of settlement. Therefore, he inferred that the identity of beneficiaries were neither known nor specified. As a consequence Explanation 1 to section 164 of the Income-tax Act, 1961 ('the Act') was clearly applicable. He, therefore, held that the interest income determined by him at Rs. 2,200 was exigible to tax at maximum marginal rate. 2. The matter was carried in appeal before the AAC who observed that whi....
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....cular No. 281 dated 22-9-1980 [see Taxmann's Direct Taxes Circulars, 1985 edn., Vol. 2, page 830] under which the scope of the said Explanation has been explained. Shri Shah next pointed out that the above Explanation was introduced in order to curb avoidance of tax through media of discretionary trusts. Thus, the said Explanation would be applicable in a case where discretion was given to the trustee to decide either the allocation of income every year or right to beneficiary to exercise option to receive income. Neither of the said conditions applied in the instant case and, therefore, authorities below were not justified in assessing the income of the trust at maximum marginal rate. The learned departmental representative on the other ha....
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....e above Explanation was introduced by the Finance (No. 2) Act, 1980 with effect from 1-4-1980 with a view to curb avoidance of tax liability by creation of discretionary trusts. Therefore, according to the said Explanation unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previous year is expressly stated in the deed of trust and the beneficiaries were identifiable as such on the date of such deed the trust would be treated as a discretionary trust. In other words in order to get out of the mischief of the said Explanation two conditions must co-exist. In the first place the shares of the beneficiaries must clearly be specified and secondly the beneficiaries must be identifiable....
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.... the same are specified inasmuch as the beneficiaries as may be in existence on 31st day of March of each financial year, i.e., the end of the accounting year of the trust shall be entitled in equal share to the income of the trust. It may be pointed out here that in the abovementioned circular it is, inter alia, laid down in para 30.3, sub-para 4(a) as follows: "(a) any income in respect of which the court of wards, the administrator-general, the official trustee, receiver manager, trustee or mutawalli appointed under a wakf deed is liable as a representative assessee or any part thereof shall be regarded as not being specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose be....