COMMISSIONER OF INCOME-TAX Vs. ARVIND NARROTTAM

JUDGEMENT

(1.) This reference arises out of assessments made on the assessee as an individual for the assessment years 1962-63, 1963-64 and 1964-65, the relevant account years being Samvat Years 2017, 2018 and 2019. The Reference involves a question of construction of three trust deeds executed by the assessee's father for the benefit of the assessee, his wife, and his children and grandchildren, one dated 19th March 1955 in respect of Arvind Narrottam Trust, the other dated 9th April 1955 in respect of Arvind Family Trust, and the third dated 18th March 1961 in respect of Arvind Kalyan Trust. All the three trust deeds are in identical terms barring only the difference in the minimum amounts payable to the beneficiaries out of the income of each year and it would therefore be sufficient to make a reference only to the terms of one of the three trust-deeds, namely, that in respect of Arvind Kalyan Trust. By that trust deed, the assessee's father settled certain shares on the trust set out in Clauses 7 and 8 of the trust deed which, according to their English translation, run as follows:

(2.) In the course of the assessment of the assessee to income-tax for the assessment years 1962-63, 1963-64 and 1964-65, a question arose whether the entire amount of the three trusts was includible in the total income of the assessee or only the minimum amount of Rs. 650 payable to the assessee under the three trusts. The Income-Tax Officer took the view that the assessee being unmarried during the relevant years of account was the sole beneficiary under the trust deeds and the entire income of the relevant account years was therefore receivable by the trustees on behalf of or for the benefit of the assessee and the assessee was liable to be assessed directly in respect of such income under Section 166 of the Income-Tax Act, 1961. The Income-Tax Officer accordingly included the entire income of the three trusts in the total income of the assessee for all the three assessment years. The asessee being aggrieved by the orders of the Income-tax Officer, preferred appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner disagreed with the view taken by the Income-Tax Officer and held that the only income receivable by the trustees for the benefit of the assessee was the minimum amount of Rs. 650 and that was therefore the only amount in respect of which the assessee could be directly assessed under Section 166 which could be included in the total income of the assessee for the purpose of his assessment. This decision of the Appellate Assistant Commissioner was challenged in appeal by the Income - Tax Officer but the appeal was unsuccessful and the Tribunal agreeing with the view taken by the Appellate Assistant Commissioner rejected the appeal. Hence the present reference at the instance of the Commissioner.

(3.) Before we examine the terms of the trust deeds it would be convenient at this stage to refer to the provisions of the Act bearing on the determination of the controversy between the parties. Section 160 defines "Representative assessee" and enumerates four categories of representative assessees who are assessable in respect of income which does not beneficially belong to them but belongs beneficially to another. Clause (iv) of sub-section (1) of that section describes the fourth category of representative assessees by saying that in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise receives or is entitled to receive on behalf or for the benefit of any person, such trustee shall be representative assessee. Section 161 imposes a substantive liability to assessment on the representative assessee in the following terms:-