SANJIV FAMILY TRUST Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the very beginning of the hearing, Mr. S.N. Soparkar, learned senior advocate submitted that the matters relate to first level trust and second level trust, IT Ref. No. 149 of 1995 -Sanjiv Family Trust is the first level trust while IT Ref. Nos. 157/1.995, 160/1995, 161/1995, 162/1995 and 163/1995 are references at the instance of the second level trusts who are claiming certain benefit under the first level trust. His further submission is that yet another first level trust, namely, Hemesh Family Trust (IT Ref. No. 148 of 1995) is not before this Court, so also Chanchalba Family Trust (IT Ref. 164 of 1995), which is second level trust is also not on the board and as these two matters are raising common question, matters may be called and be disposed of along with the listed matters. Mr. M.R. Bhatt, learned Counsel for the Revenue has no objection. We have accordingly called IT Ref. Nos. 148 of 1995 and 164 of 1995.

(2.) MR . Soparkar, learned senior advocate for the petitioner, after taking us through the trust deed and provisions of Section 164 of Indian IT Act, submitted that the AO, CIT(A) and the Tribunal were in fact, impressed by the observations made by the Supreme Court in the matter of McDowell and Co. Ltd. v. CTO : [1985]154ITR148(SC) and did not refer to the provisions of law, specially Section 164 Expln. 1(ii). His further submission is that the original trust namely, Sanjiv Family Trust, Ahmedabad, had four beneficiaries and as each of them had a determinate/fixed share, beneficiaries were to receive 25 per cent of the income and were also to receive 25 per cent of the corpus on determination of the trust, any act on their part in selling or assigning their right would not make any change into the original trust, a specific trust would not become discretionary trust. His submission is that tax cannot be charged on the relevant income or part of relevant income at the maximum marginal rate. Referring to the judgment in the matter of Union of India v. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 , it is submitted by him that the observations made by Their Lordships of the apex Court in the matter of McDowell and Co. Ltd. (supra) have been diluted to a large extent and the tax planning which was taken by the apex Court to be bad in the matter of McDowell and Co. Ltd. is being accepted as a proper policy. His further submission is that the questions have not been appreciated in their proper perspective and the authorities went on a wrong line and instead of deciding the legal issue, went on moral aspect of the matter. It is submitted that on a perusal and fair understanding of Section 164 Expln. 1(ii), it would clearly appear that tax at maximum marginal rate could not be levied. Shri M.R. Bhatt, learned Counsel for the Revenue, however, submitted that the thrust of the matter in Section 164 is on the words 'specifically receivable' and in the present matter, by assignment or alienation of the right, title and interest, beneficiary in the first level trust has asked the trustees to join more people to the first level trust and as such, determination of the shares has become different. His further submission is that second level trust is some body of individuals (commonly known as BOI) and as the benefit ultimately would percolate to the individuals, the authorities were justified in deciding against the interest of the assessee.

(3.) AGREEING with the submission made by the assessee, the Tribunal observed that once maximum marginal rate of tax was applied, second line of beneficiaries could not be taxed.