JUDGEMENT
K.R. Dixit, Judicial Member -
(1.)IN both these appeals the grounds are the same arising out of the same facts. Therefore, they are disposed of by this common order. The common question is whether the assessee trust is a specific discretionary trust. This question arises because the beneficiaries in the assessee trust are discretionary trusts and therefore, the question is whether we should take into account only the ultimate beneficiaries or we should confine our attention to the definite beneficiaries specified in the trust deed of the assessee before us.
(2.)Briefly, under the trust deed creating the assessee trust 21 discretionary trusts are specified as beneficiaries having specific shares in the income of the assessee trust. In each of these 21 trusts there are two Associations of Persons (AOP) as beneficiaries but whose right to share in the income of each of these trusts is subject to the complete discretion of the trustees. All these 42 AOPs are made up of various combinations of altogether 34 persons. Under clause 6 of the assessee's trust deed if the disposition of any part of the trust fund is regarded as void and ineffective, that part is to be held in trust of the aforesaid 34 persons. The 42 AOPs, the discretionary trusts and the assessee trust were created on 8th August, 16th August and 8th September, 1983 respectively. The discretionary trusts and the assessee trust were created by settling a sum of Rs. 500 each and Rs. 10,000 respectively. Under the deed of trust the assessee trust was empowered to do business. For the asst. year 1984-85 it returned an income of Rs. 10,31,804 and for the asst. year 1985-86 it showed a loss of Rs. 63,270. The assessee has stated that the income had been distributed among the 21 discretionary trusts and were the beneficiaries and that all those 21 beneficiaries had filed their return of income and so the taxable income of the assessee was nil. Counsel for the assessee pointed out that the discretionary trusts had been taxed at the maximum marginal rate. The Income-tax Officer regarded the assessee trust as a discretionary trust on the ground that income of the assessee trust was to reach the ultimate beneficiaries i.e. the members of the AOPs but their shares were not determined. He has observed:
In fact, the assessee trust was a discretionary trust and it had clearly resorted to device of creating multiplicity of trusts with the sole object of fragmentation of income and other benefits on account of difference in the slabs of rate of tax. Intermediary trusts and AOPs are not genuine, but they are simply conduit pipes for passing of income of assessee trust amongst the ultimate beneficiaries. The intermediate trusts and AOP have also no independent activity and if all relevant indications are taken into account and if the transactions are thoroughly scrutinised and if the truth is ascertained it will be seen that real beneficiaries are persons shown in Annexure.
The Commissioner has confirmed the Income-tax Officer's order.
(3.)ON behalf of the assessee Shri Dastur first of all explained the facts and stated that each of the beneficiaries of the assessee trust i.e. the 21 discretionary trusts had filed its return and paid the tax. He pointed out that although the ITO has stated that the real beneficiaries were persons shown in the Annexure there was no Annexure to the assessment order and therefore, it was not clear as to who the ITO regarded as the real beneficiaries. He also pointed out the defect in the ITO's order quoted above that it has been stated therein that the settlor did not know how much income each ultimate beneficiaries would get because of the 'powers given by him'. Counsel submitted that the settlors in the assessee trust and the discretionary trusts were different and so this statement was not correct.
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