Law:

Section:

Section 164(1) of the Income-tax Act, 1961 - Trust - Charge where shares of beneficiaries unknown - Whether section 164(1) is attracted where shares of beneficiaries in corpus of trust may be known but their shares in income of trust are not determinate - Held. yes - Trustees required to distribute property of trust equally among minor beneficiaries on their attaining majority but during their minority trustees required to spend for their overall advancement not equally but according to their needs - Whether shares of beneficiaries in trust's income were indeterminate and hence section 164(1) was attracted - Held, on facts, yes Section 166 of the Income-tax Act, 1961 - Representative assessee - Direct assessment on - ITO assessed beneficiaries directly while knowing that trust is liable to be assessed under section 164(1) and stated in assessment order that their assessments were subject to rectification on completion of assessment of trust - Whether it could be said that ITO had exercised the option to assess beneficiaries directly - Held, on facts, yes Facts The assessee-trust was created by one R and his mother for the benefit of his four grandsons, who were all minors at the relevant time. The property settled by R on trust was his individual property and not his ancestral property. Under the trust deed (i) the trust was to continue till the youngest beneficiary attained the age of majority and, thereafter, the property of the trust was directed to be equally distributed among the beneficiaries; (ii) the trustees were required to preserve the income and corpus of the trust and they were authorised to spend only so much out of the income of the trust as was necessary for meeting the essential requirements of the beneficiaries and for their overall advancement only; and (iii ) the shares of the beneficiaries in the income of the trust were not specified hi the trust deed. The ITO assessed the trust under section 164(1) holding that the shares of the beneficiaries of the trust were indeterminate. Earlier, the ITO had also made assessments of the beneficiaries in their individual capacity including therein their share income of the trust, specifically stating…

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