Law: Income Tax Act, 1961

Section: 14,161

Income-tax------Representative assessee---Trust---Discretionary trust---Trustees empowered to pay net income of trust to beneficiaries in their absolute discretion---Trustees passing resolution that net income of trust shall be paid to one of beneficiaries---Character of discretionary trust cannot be changed by resolution---Trust assessable under 5.164---Income-tax Officer justified in applying rate of 65 % of tax---Indian Income Tax Act, 1961, Ss. 161 & 14. Where the trust deed does not define the individual shares of the beneficiaries, the provisions of section 164 of the Income Tax Act, 1961, would get attracted. In the case of discretionary trust, where it is entirely left to the discretion of the trustees to distribute among the beneficiaries the net income of the trust in such proportions as it pleases them, the shares of the beneficiaries would be indeterminate. The representative assessee falling in clause (iv) of section 160(1) who is entitled to receive income on behalf of or for the benefit of any person, is liable under section 161(1) to be assessed in his own name, as regards the income in respect of which he is a representative assessee as if the income were income accruing to him. It would, therefore, follow that merely because a trustee who is liable to be assessed as a representative assessee has a discretion to distribute the income to any one of the beneficiaries, his liability to be assessed as a representative assessee does not vanish on his paying the net income to a particular beneficiary. The real question is whether the representative assessee, i.e., the trustees, could themselves have known the shares of the beneficiaries at the time when they received the income during the previous year. The knowledge whether the shares are fixed could be derived by them only from the contents of the trust deed. If the shares are not fixed in the instrument under which the trust is created, so far as the trustees are concerned, the shares of the beneficiaries would be indeterminate or unknown and that is why by the discretion given to them they would be in a position to allot any portion of the income to any one of the beneficiaries or to more…

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