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Wrong distribution of income by trustees may affect rights of beneficiaries inter se for which various other consequences may ensue, but it cannot lead to conclusion that their shares are indeterminate or unknown Section 164 of the Income-tax Act, 1961 - Trust - Charge of tax where shares of beneficiaries unknown - Assessment years 1981-82 to 1983-84 - Whether mere wrong distribution of income by trustees may affect rights of beneficiaries inter se on which various other consequences may ensue, but it cannot lead to conclusion that their shares are indeterminate or unknown - Held, yes FACTS A registered trust was created to which the lady-assessee bequeathed her savings for the benefit of the children of three sons of her husband's other wife. The children were to take per stripe, i.e., children of each son to be entitled to one-third share equally. In other words, one-third share was to be shared equally by the children of each son. Initially there were in all 11 beneficiaries to whom income was distributed according to the said arrangement. Thus, insofar as the trust deeds were concerned, the shares of the beneficiaries were clearly determinate. But, the Assessing Officer, on the directions of the Commissioner under section 263, treated the trust as a discretionary trust on the ground that the trustees had distributed the income of the trust only to six beneficiaries while no share was given to some other beneficiaries; in other words since income had not been distributed to all the beneficiaries; in accordance with their shares as specified in the trust deeds, the shares of the beneficiaries were held to be indeterminate or unknown and the income of the trust was taxed in its hands at the maximum marginal rate under section 164(1). On appeal, the Commissioner (Appeals) held that since the original trust deed was valid, the shares as defined therein were also valid. Accordingly, the shares of the beneficiaries being defined and determinate, the provisions of section 164(1) were not attracted. On appeal by the revenue, the Tribunal maintained the order of the Commissioner (Appeals). On reference : HELD As per section 164(1), it is only where individual shares…

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