COMMISSIONER OF INCOME TAX Vs. VIJAYA FAMILY TRUST

JUDGEMENT

(1.) OUT of the six appeals relating to three trusts, viz., Vijaya Family Trust, Kakinada, Uday Family Trust, Kakinada and Sowmya Family Trust, Kakinada, the above reference arises. The facts in all these cases are identical. For appreciating the question involved, we refer to the facts in Vijaya Family Trust.

(2.) ONE, G. Narayana Murthy, created a trust and appointed Sri K. Saradhy as a trustee. The beneficiaries of the trust are the children of the said Saradhy. The trust was created with a corpus of Rs. 10,000 with a provision that all further additions to the trust and all income arising thereof would also constitute the corpus. Some 11 persons made cash gifts of Rs. 2,29,000. The trustee accepted the amounts and treated them as part and parcel of the trust property and, accordingly, invested them.

(3.) THE dispute in this case relates to the rate of tax applicable to the income of the trust. THE contention of the Revenue was that Explanation (ii) to section 164A was applicable and, therefore, the income was chargeable at the maximum marginal rate. We shall read here section 164A of the Income-tax Act, which is in the following terms :