COMMISSIONER OF INCOME TAX Vs. SAROJA RAMAN

JUDGEMENT

(1.) THE question referred to us at the instance of the Revenue arising out of the assessment of the income of the respondent/ assessee for the assessment years 1977-78 and 1978-79 is "whether the Appellate Tribunal's view that Section 164(1) of the Act cannot be invoked in the assessee's case is correct in law ?"

(2.) SECTION 164(1) of the Act may be set out at the outset as the answer to the question depends upon the true interpretation of that provision. That section reads as under :

(3.) VESTING of the income in the beneficiary is not a necessary prerequisite for the trust to claim that the maximum marginal rate is not applicable to the income received by it on behalf of the known solitary beneficiary. The question of assessing the income of the beneficiary in the hands of the trustees would not arise if the income vests in the beneficiary, and such beneficiary is available for being subjected to tax. Had Parliament intended that the income received by the trustees on behalf of the beneficiary should vest in the beneficiary, before the normal rates of tax could be levied on such income nothing would have been simpler than an explicit statement to that effect in the section. Section 164 only deals with the receipt of income in the hands of the representative assessee and the person for whose benefit or on whose behalf that income is received. If the beneficiary is one, and it is known that the trustees received the income for that beneficiary alone and do not have the discretion to use the receipts for any purpose other than the benefit of the beneficiary, Section 164 is clearly not attracted. It is the obligation under which the money received as income is held that is material, and not the extent to which the beneficiary has control over that income. The discretion that the trustees may have in deciding the time at which and the extent to which the income so received should be disbursed to the beneficiary does not in any manner affect their obligation to apply the income so received on behalf or for the benefit of the beneficiary, solely for the benefit of such beneficiary. So long as that obligation is clear, the trust is not liable to be taxed at the highest marginal rate.