Commissioner of Income Tax vs Manilal Bapalal Family Benefit Trust

R. Jayasimha Babu, J.—The questions referred to us for our consideration are:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in cancelling the order passed by the

Commissioner of Income Tax u/s 263 of the Income Tax Act ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in cancelling the order of the Assessing Officer

passed in consequence of the Commissioner''s order u/s 263 of the Income Tax Act ?

The Tribunal, after construing the trust deed being the one executed by Smt. Joiti Bai, on October 2, 1981, constituting the Manilal Bapalal

Family Benefit Trust, held that the beneficiaries are known and that the shares are determinate and, therefore, the question of assessing the trust as

an association of persons u/s 164 did not arise. The order made to the contrary by the Commissioner, who exercised his power u/s 263 to revise

the original assessment order, which had not levied tax on the trust but had imposed tax on the beneficiaries directly, was set aside.

The Commissioner had invoked Section 263 on the ground that the original assessment was faulty and prejudicial to the Revenue as the trust

had not been treated as an association of persons and taxed on that basis, as in his view the trust deed did not identify all the beneficiaries and the

shares were also not determinate. That view of the Commissioner has been found to be erroneous by the Tribunal. Having perused the order of the

Tribunal, we do not find any error therein.

The beneficiaries of the trust included the prospective spouses of some of the beneficiaries. The trust deed also provided that in the event of a

beneficiary dying before marriage or not marrying before the trust came to an end, that part of the benefit which was to be given to the spouse

would be given to the heir of the beneficiary or to the beneficiary himself or herself.

This court in the case of Commissioner of Income Tax Vs. P. Bhandari, has held that the provision made in the trust deed for a prospective wife

with the other clauses indicating as to when the benefit should go in the event of the person not marrying did not render the trust deed void for

vagueness and that it also did not offend the rule against perpetuity.

The share to be allotted to the beneficiaries being determinate under the trust deed here and the beneficiaries also being known, the Tribunal has

rightly held that the Commissioner was in error in revising the order of the Assessing Officer on the ground that the shares were indeterminate and

that the trust deed is void or vagueness. The setting aside of the order of assessment that had been made pursuant to the revisional order was a

necessary consequence of setting aside the revisional order.

The questions are answered against the Revenue and in favour of the assessee.