JUDGMENT
U.L. Bhat, C.J.
1. The following question has been referred to this court at the instance of the Revenue by the Income-tax Appellate Tribunal, under Section 256(1) of the Income-tax Act, 1961, (for short “the Act”) ;
“Whether, on the facts and circumstances of the case, the Tribunal is justified in directing that the total income of the trust, i.e., Rs. 21,726, should be assessed to tax in the manner laid down under Section 164(1)(a) of the Act as if it were the total income of an association of persons ?”
2. The matter relates to the income of a trust for the assessment year 1980-81. The trust was created by a registered document, dated September 1, 1978, by Smt. Gallobai. A sum of Rs. 5,000 was credited as trust fund by using which the trustees would hire and exhibit cinematographic films and make profit. Out of the profit earned, 15 per cent. is to be credited to the charity account to be spent for religious and charitable purposes, such as, setting up of a public dharmashala, or public temple or educational institution, feeding of the poor or to set up an institution for medical relief, etc. The remaining 85 per cent. is to go to the four specified beneficiaries in specified proportion. The Assessing Officer took the view that the beneficiaries of the 15 per cent. of the income credited to the charity account are indeterminate and tax has to be levied under Section 164(1) of the Act The Appellate Assistant Commissioner took the view that tax has to be assessed under Section 164(3) of the Act. The Tribunal, in further appeal by the assessee, held that assessment has to be made under Section 164(5)(a) of the Act. The Revenue contends that the appropriate provision is Section 164(1) of the act. It is necessary to note that the dispute relates only to the 15 per cent. of the trust income credited to the charity account and not to the 85 per cent. paid to the specified beneficiaries.
3. Section 160 of the Act defines “representative assessee”. The trust, in this case, falls under Section 160(1)(iv) of the Act, since the question relates to income which a trustee appointed under a trust declared by a duly executed instrument in writing receives or is entitled to receive on behalf, or for the benefit, of any person. Section 161 specifies the liability of the representative assessee.
4. Section 164 of the Act reads as follows :
“164. (1) Subject to the provisions of Sub-sections (2) and (3), where any income in respect of which the persons mentioned in Clauses (iii) and (iv) of Sub-section (1) of Section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter, in this section referred to as ‘relevant income’, ‘part of relevant income’ and ‘beneficiaries’, respectively), (tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate) :
Provided that in a case where –
(i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust, or
(ii) 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 ; or
(iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Income-tax Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance ; or
(iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession,
tax shall be charged on the relevant income or, part of the relevant income as if it were the total income of an association of persons.
(2) In the case of relevant income which is derived from property, held under trust wholly for charitable or religious purposes, or which is of the nature referred to in Sub-clause (iia) of Clause (24) of Section 2, tax shall be charged on so much of the relevant income as is not exempt under Section 11 or Section 12 as if the relevant income not so exempt were the income of an association of persons.
(5) In a case where the relevant income is derived from property held under trust in part only for charitable or religious purposes or is of the nature referred to in Sub-clause (iia) of Clause (24) of Section 2 and cither the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are indeterminate or unknown, the tax chargeable on the relevant income shall be the aggregate of-
(a) the tax which would be chargeable on that part of the relevant income which is applicable to charitable or religious purposes (as reduced by the income, if any, which is exempt under Section 11) as if such part (or such part as so reduced) were the total income of an association of persons ; and
(b) the tax on that part of the relevant income which is applicable to purposes other than charitable or religious purposes, and which is either not specifically receivable on behalf or for the benefit of any one person or in respect of which the shares of the beneficiaries are indeterminate or unknown, at the maximum marginal rate :
Provided that in a case where –
(i) none of the beneficiaries in respect of the part of the relevant income which is not applicable to charitable or religious purposes has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust ; or
(ii) the relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him ; or
(iii) the relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Income-tax Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust, to the extent it is not for charitable or religious purposes, was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependant on the settlor for their support, maintenance tax shall be charged on the relevant income as if the relevant income (as reduced by the income if any, which is exempt under Section 11) were the total income of an association of persons.
Explanation 1.–For the purposes of this section, —
(i) any income in respect of which the persons mentioned in Clause (iii) and Clause (iv) of Sub-section (1) of Section 160 are liable as representative assessee or any part thereof, shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previous year is expressly stated in the order of the court or the instrument of trust or wakf deed, as the case may be, and is identifiable as such on the date of such order, instrument or deed ;
(ii) the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is received shall be deemed to be indeterminate or unknown unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in the order of the court or the instrument of trust or wakf deed, as the case may be, and are ascertainable as such on the date of such order, instrument or deed.
Explanation 2.–In this section, ‘maximum marginal rate’ means the rate of income-tax (including surcharge on income-tax, if any,) applicable in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year.”
5. It is necessary to understand the scheme underlying Section 164. Sub-section (1) is made subject to the provisions in Sub-sections (2) and (3). To a case governed by Sub-section (2) or Sub-section (3), naturally subsection (1) would be inapplicable. Sub-section (2) applies in case the relevant income is derived from property held under trust wholly for charitable or religious purposes, or is of the nature referred to in Sub-clause (iia) of Clause (24) of Section 2. There is no controversy that the relevant income in the present case will not fall under either of these two categories. Subsection (3) is applicable in case the relevant income is derived from property held under trust in part only for charitable or religious purposes or is of the nature referred to in Sub-clause (iia) of Clause (24) of Section 2. There is no controversy that the income in this case is derived from property held under trust in part only for charitable or religious purposes. Therefore, the earlier part of Sub-section (3) is satisfied in the instant case.
6. Sub-section (3) is in two parts. The first part requires that the income is derived from property held under trust in part only. This requirement is satisfied in the instant case. The second part contains two alternatives, namely –
(1) the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any person, or,
(2) the individual shares of the beneficiaries in the income applicable are indeterminate or unknown.
7. In order that Sub-section (3) should apply, two conditions have to be satisfied. The first condition is the one stipulated in the first part of Subsection (3). The second condition is one of the two alternatives prescribed in the second part of Sub-section (5). One of the alternatives is that the income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any person. The income applicable to non-charitable purposes in the present case is 85 per cent. of the total income and this goes to the benefit of the four named beneficiaries: The first alternative is not satisfied in the instant case. The second alternative is that the individual shares of the beneficiaries in the income applicable to non-charitable or non-peligious purposes are indeterminate or unknown. This alternative condition is not satisfied since the share of the four named beneficiaries, which is 85 per cent. of the income, is determined by the trust deed. Thus, of the two conditions required under Sub-section (3), the second condition is not satisfied. Therefore, Sub-section (3) is not attracted in the instant case. Since Sub-section (2) or Sub-section (3) are not applicable, Sub-section (1) would apply,
8. According to Sub-section (1), where the income or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of specified persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown, tax shall be charged on the relevant income at the maximum marginal rate. This provision applies to the 15 per cent. of the income which is credited to the charity account, since the shares are indeterminate or unknown and the individual shares of the beneficiaries are indeterminate or unknown. Therefore, in regard to the 15 per cent. of the income, tax shall be charged in accordance with Section 164(1) of the Act.
9. We answer the question in the negative, that is, in favour of the Revenue and against the asscssee.
10. A copy of this judgment under the signature of the Registrar and seal of the High Court will be transmitted to the Appellate Tribunal. No order as to costs.