COMMISSIONER OF INCOME TAX Vs. MUTHUKRISHNAN

JUDGEMENT

(1.) THIS reference is at the instance of the Revenue. The assessment year is 1983-84. The questions referred are :

(2.) ONE L. Narayana Iyer created a trust on May 27, 1982, by contributing a sum of Rs. 1,500 for the benefit of L. Muthukrishnan, Smt. M. Thrayambika Devi, minor M. Sathishkumar and Shri K. Kuppusamy, the first three to have 1/15th share and the last 12/15ths share. Muthukrishnan, Balasubramanian and K. Kuppusamy were appointed as trustees. The instrument directed the trustees to augment the corpus with all gifts, donations, etc., received and any prize money received on lottery tickets as well as 2/3rds share of the net interest earned from investments made by the trustee. The trust deed also provided that the corpus of the trust shall not be divided or distributed among the beneficiaries until the duration of the trust which was to be for a period of fifteen years, or sooner, if all the beneficiaries unanimously agreed to terminate the trust even before the expiry of fifteen years. Out of the interest income of the trust, the beneficiaries were to receive only one-third and the balance was to be accumulated. The trustees were also empowered to carry on business and invest the funds of the trust and loss, if any, was to be deducted from the corpus.

(3.) IN the case of C. R. Nagappa v. CIT , a decision rendered by a three-judge Bench, the apex court considered Section 64(v), Section 161(1) and (2), as also Section 166 of the INcome-tax Act, 1961. The court quoted with approval the observations made by Chagla C. J., in the case of Vaidya [1958] 34 ITR 187 (Bom), that (page 632) :