Law:

Section:

Section 164 of the Income-tax Act, 1961 [Corresponding to First Proviso to section 41(1) of the Indian Income-tax Act, 1922] - Trust/Trustees - Charge of tax where shares of beneficiaries unknown - Assessee created a trust in favour of her son 'P', his wife and their children - As per trust deed, settlor had first of all created an interest in income of trust in favour of 'P' and after his life time, in favour P's wife and after lifetime of survivor of two, in favour of their four children upon certain terms - Later on, beneficiaries 'P' and his wife relinquished their title, right and interest in trust - ITO assessed income of trust in hands of trustees and levied tax thereon at maximum marginal rate on ground that individual shares of beneficiaries were indeterminate and unknown - Whether it could not be held that during period between going out of 'P' and his wife, and date of distribution, share of children could be said to be determinate and known - Held, yes - Whether therefore income was rightly taxed under first proviso to section 41 - Held, yes FACTS The assessee created a trust in favour of her son 'P' and his wife, and their children. The trust deed laid down for payment of the net income to P for his absolute use and benefit during his lifetime; and from and after his death, to pay the net income to his wife for her absolute use and benefit during her lifetime: and from and after the death of the survivor of the said P and his wife, the trustees would hold the trust property upon trust till the period of distribution of the corpus of the trust property in the manner mentioned therein, and they might in the meantime at their absolute discretion, accumulate the whole of the net income of the trust property or such portion thereof as they might think proper and/or apply the whole income or such portion thereof as they might in their discretion think proper for the maintenance, education and benefit of such one or more to the exclusion of other or others of the following persons' viz., the male and female children and issues of the said P by any wife of the said P in such proportion and in such manner in all respects as the trustees might in their…

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