N CHORDIYA FAMILY BENEFICIAL TRUST Vs. INCOME TAX OFFICER
LAWS(IT)-1989-4-1
INCOME TAX APPELLATE TRIBUNAL
Decided on April 03,1989

Appellant
VERSUS
Respondents

JUDGEMENT

Per Shri T.V.K.Natarajachandran, Accountant Member -This is an appeal by the assessee which is directed against the order of the CIT (A), Nashik dt. 7-3-1988. The CIT (A) held that the trust is not valid and therefore, it is to be assessed as AOP as one unit at maximum marginal rate, because the shares of the beneficiaries are not known and indeterminate. Thus he has confirmed the assessment order passed by the ITO and dismissed the appeal filed by the assessee. - (1.)
(2.)The assessee has taken several grounds to urge that the CIT (A) erred in his reasons and conclusion and the trust is to be held as a valid trust and a specific trust and the income is to be assessed in the hands of the beneficiaries to the extent of share income derived from the trust or the trustee should be assessed to the same extent as individual beneficiaries of the trust. It is also urged that the authorities erred in concluding that the income of the trust should be assessed in the hands of the settlor and in marking protective assessment on the trust.
One Shri Surajmal Bafna son of Shri Dhondiram Bafna settled a sum of Rs. 1,100 in the trust for the benefit of the family members of late Shri Narayandas Chordiya evidenced by a deed of trust dt. 31-10-1982. Shri Subhashchand Choridiya and Shri Sureshchand Chordia are appointed as the trustees of the trust who are also beneficiaries of the 12 beneficiaries described in the trust deed. For the assessment year 1984-85 for which the accounting year ended on 31- 3-1984, the assessee filed return on 4-12-1984 declaring the total income at nil. The trustees have been authorised to carry on buisness. The assessee trust is a partner in M/s Chordiya Brothers, Aurangabad and also carries on proprietary buisness in the name and style of M/s Chordiya Brothers. The ITO computed the total income at Rs. 1,74,390 in the status of AOP (trust) but in a protective manner.

(3.)ACCORDING to the ITO, besides the 12 beneficiaries enumerated in the trust deed, the children who will be added on to the families of Shri Subhaschand Chordiya, Sureshchand Chordiya and Shantilal Chordiya will be beneficiaries, but their shares are not determinable with reference to the trust deed. Since unborn children were also given benefit of the trust income, application of rule of perpetuity was to be considered. In clause 3 of the trust deed, the duration of the trust is specified as a period of 18 years from the date of the trust deed, i.e. up to 31-10 2000 or the death of the settlor whichever is later. From this, the ITO concluded that the settlor is not completely disassociated from the trust and trust property as the duration of the trust is liked with the death of the settlor. Since the settlor could live beyond the first limit of 18 years, which is the first limit of the duration of the trust in which unborn children are also beneficiaries, the trust is likely to continue beyond their minority. Therefore, the rule of perpetuity is applicable in this case. Therefore, the transfer of the trust property by the settlor is invalid. Consequently, the trust fails and as a result, the entire income of the trust is assessable in the hands of the settlor. Since the settlor is not totally disassociated from the trust, provisions of section 60 of the Income-tax Act, 1961 are applicable.


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