Law: Income Tax Act, 1961

Section: 161(1)

Income-tax----Representative assessee---Trust---Shares of beneficiaries determinate--¬Beneficiaries not entitled to receive trust income for a period of 20 years--¬Beneficiaries had no role to play in trust---Beneficiaries merely a body of individuals and not an association of persons---Trust to be assessed under S.161(1)---Indian Income Tax Act, 1961, S.161(1). The assessee-trust formed for the benefit of seven persons of whom two were majors and five were minors, carried on business in silver and potatoes and earned a profit of Rs.10,417 from the said business. The assessee contended that in regard to the said business, the assessment should be made in the status of an association of persons and since the shares of the beneficiaries had been indicated in the trust-deed, the income from the trust had to be assessed in the individual hands of the beneficiaries. The Income¬tax Officer rejected the claim of the assessee. On appeal, the Appellate Assistant Commissioner held that even though the shares of the beneficiaries had been specifically mentioned, the same were to be distributed after 20 years from the date of creation of the trust and till that time there was no question of any distribution, that the income belonged to the trust only and not to the beneficiaries, and that, therefore, the income was assessable in the hands of the trust under section 161(1) of the Income Tax Act, 1961. On further appeal, the Tribunal allowing the appeal in part in relation to the objection of the status of the assessee, directed assessment in the status of an association of persons. On a reference at the instance of the assessee: Held, that in accordance with the terms of the settlement deed, the beneficiaries had no role to play in the business carried on by the trust and the entire income was to remain with the trust till its distribution as expressed in the settlement deed. Thus, the beneficiaries were not required to do anything but to stand and wait for something to fall to their respective shares in accordance with the settlement deed. They were merely, thus, a body of individuals and not an association of persons with any intention to carry on a common activity to…

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