I created a private trust for my children (all aged above 18 years) by allotting a shopping complex fetching rental income. As per trust deed, 40% of the income is given to beneficiaries equally and the balance is accumulated. The future descendants of my children by birth would also become automatic beneficiaries with equal share. The AO has initiated proceedings for assessment of income of the trust under section 164. Is he correct?
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The provisions of section 164 would apply only where the shares of the beneficiaries are unknown and it is apparent from the marginal heading of that section itself. Section 164(1) will apply where the income of the beneficiaries is indeterminate or unknown. Since the trust deed provides for specific share to the beneficiaries section 164 cannot be pressed into service. The shares of the beneficiaries are equal and in case the unmarried beneficiaries get married, their children, they would also become equal beneficiaries. Hence the trust in my opinion will not be subjected to tax under section 164. You may refer to decisions in the case of CIT v. P.Sekar Trust (2009) 24 DTR (Mad) 161 ; CIT v. L.Muthukrishnan L.Kuppusamy Trust (2003) 260 ITR 526 (Mad).
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