V.M.R. Trust vs Commissioner of Income Tax

R. Jayasimha Babu, J.—The question referred to us concerns the assessment year 1982-83. The question referred is as to whether the

assessee-trust can claim the benefit of section 164(1) of the income tax Act, 1961 (''the Act''), even while it has failed to satisfy the requirements of

section 164(1), proviso (ii). There is no dispute about the fact that the settlor by her will had created not one but several trusts. Three family trusts

were created by the will dated 30-10-1978, executed by Smt. Lakshmiammal. The requirement of section 164(1), proviso (ii), is that ''the relevant

income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him''.

It is evident that on the plain language of the section, the claim of the assessee does not satisfy the requirement of the provision relied upon by the

assessee.

The claim by the assessee was that the beneficiaries, as also trustees of two of the trusts had agreed to transfer all the assets to the third trust

and, therefore, that other trust should now be regarded as the only trust declared by the testator. This argument is plainly untenable. What has been

declared by the will is three trusts, and any subsequent action of the assessee cannot erase that fact. They may, as a matter of convenience, choose

to transfer the assets of two of the trusts to the third, but that does not make the trust to which the assets are so transferred the only trust created

by the testator.

The counsel relied on the decision of the Andhra Pradesh High Court in the case of Commissioner of Income Tax Vs. Trustees of H.E.H. The

Nizam''s Miscellaneous Trust, wherein it was held that modification of the direction of the settlor when the trustees act in accordance with the

mandatory provisions of the trust deed is permissible. That does not establish the proposition that trustees and beneficiaries can by their overt acts

erase the factum of creation of more than one trust by the testator. In the result, the question referred to us is answered in favour of the revenue

and against the assessee.