GOSAR FAMILY TRUST, JAMNAGAR ETC. versus COMMISSIONER OF INCOME TAX

Citation: [1995] 3 S.C.R. 894 · Decided: 28-04-1995 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Dismissed

Judgment (excerpt)

A 
GOSAR FAMILY TRUST, JAMNAGAR ETC. 
v. 
i 
COMMISSIONER OF INCOME TAX 
APRIL 28, 1995 
B 
[B.P. JEEVAN REDDY, S.C. SEN, AND G.T. NANA VAT!, JJ.] 
Indian Trust Act 1882-Discretionary Trust created with two categories 
of beneficiaries-First category entitled to trust income-Second category to 
' 
get the corpus of the trust and all the income accumulated at the end of the 
c trus!-Held : Second category is beneficiary. 
Income Tax Act 1961-Section 164(1) and Proviso (if-Trust created 
with two category beneficiaries-First category to get trust income-Second 
category to get corpus and income at the end of the Trust-First category 
D 
beneficiaries having no taxable income under the proviso-The second 
category falling under the proviso-Rates for charging tax of the trust in-
come-Held: Charging of trust income at maximum marginal rate not con-
trary to /aw-Policy of law to discourage discretionary trust. 
Words & Phrases-''Benificiaries''-Meaning of-To be construed and 
E understood in its ordinary and normal sense-No distinction between the two 
categories of beneficiaries-So for as income of the trust concerned-Since no 
distinction made between beneficiaries and beneficiaries by the income tax 
ac~ section 184(1) or Proviso (i). 
By way of a deed a private trust of discretionary nature was created. 
I.. 4 
F There were 2 sets of beneficiaries to the trust. One of the beneficiaries was 
common to both the sets. According to recitals of the trust c!eed, the life 
of the trust was 18 years which could be terminated after a period of 2 
years at the discretion of the trustees. The trust income was to go to the 
first category beneficiaries and the second category beneficiaries were to 
G get the corpus of the trust and all the income accumulated at the end of 
the trust. Further the trustees bad right to invest the fnnds in any firm or 
joint stock company in which any one or more of the trustees were 
partners, directors or share holders. 
1 -
For assessing the trust the Revenue, finding none of the first 
H category beneficiaries having taxable income under the Act within meaning 
894 
GOSARFAMILYTRPSTv. COMNR.OFI. TAX 
895 
of proviso (i) to sec. 164 (i) and second category beneficiaries having such A 
income • charged the trust at maximum margined rate treating the second 
category beneficiaries for the purpose of proviso (i). 
On appeal the tribunal held that the rate applicable was the rate 
relevant to the association of persons by virtue. to proviso (i) to. section 
™ro· 
B 
At the instance of the Revenue the' case was referred to High Court. 
The High Court decided in favour of Revenue holding that proviso (i) was 
not attracted in this case and therefore the income.is chargeable at the 
maximum marginal rate. 
Dismissing the appeal, this Court 
HELD : 1.1. The second category beneficiaries are also beneficiaries 
c 
as rightly pointed out by the High Court. Indeed there is no distinction 
between the two categories, so far as the income of the trust is concerned. D · 
The members of the first category have no rigbt to demand or receive 
income. They may or may not receive any income. It may well happen that 
they may not get a single pie either in the year concerned or during the 
entire period of the trust. The second category beneficiaries too have no 
right to the income but yet they may get whole of it or such part of it as E 
may not have been distributed or paid to first category. Thus neither 
category bas a right but only an expectation to receive income. In this 
sense, members of the second category are as much beneficiaries as the 
members of the first category. The trustees are entitled to choose not to 
pay a pie out of the income to any one and invest the whole of it in the.ir 
own concerns. [902-F, G, 903-A, BJ 
F 
1.2. The trnstees were under no obligation to disburse or distribute 
the income received in an year in that year or in the following year and the 
income not distributed ultimately goes to second category. It is immaterial 
whether that income becomes part of corpus or not. Whilt is material is G 
that it goes to the second category. In absence of such obligation, it cannot 
be said that the trust income is receivable by the trustees on behalf of or 
for the benefit of the first category beneficiaries. [903-B, E, F, G] 
1.3. For the purpose of section 164(i), what is relevant is that the 
income is receivable on behalf of the beneficiaries. It is not necessary that H 
896 
SUPREME

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