COMMISSIONER OF INCOME TAX Vs. CHUNILAL RAICHAND TRUST

JUDGEMENT

(1.) IN this Departmental reference relating to the assessee's assessment for the asst. yr. 1971 -72, the Tribunal has referred to this Court the following question of law for opinion under s. 256(1) of the IT Act, 1961 : 'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee trust was covered by cl. (iii) of the proviso to s. 164(1) and hence was not liable to be taxed at a flat rate of 65% under s. 164(1) of the IT Act, 1961 ?'

(2.) THE facts and not in dispute. The assessee is a discretionary trust. Assessment is to be made under s. 164(1) of the IT Act, 1961. The short question that has arisen in this reference is whether the assessee falls under proviso (iii) to sub -s. (1) of s. 164 because if it does fall under that clause, the assessee will have to be taxed at the rate applicable to its total income and not at the maximum rate. Proviso (iii) to s. 164(1) reads as under : '(iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non -testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or' According to the Tribunal, for the purpose of considering whether the assessee trust falls or does not fall under this clause, the situation as was obtaining on the day the trust was created is relevant whereas according to the Department the situation in the year for which the assessment is being made is relevant. In our view, the expression 'having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, etc.' clearly indicates that it is the situation that was obtaining at the time of creation of the trust that is relevant. Incidentally, this is also the view taken by Gujarat High Court in the case of CIT vs . Gunvantlal Jivanlal Family Trust : [1982]133ITR162(Guj) . We are in respectful agreement with the Gujarat High Court. Accordingly, we agree with the Tribunal and answer the question of law referred to us in the affirmative and in favour of the assessee.