Judgment

BHARUCHA, J.:- An interesting question arises in these appeals. It is this; has the Revenue an option to assess and recover tax from either the trustees or the beneficiaries of a discretionary trust when the income thereof is distributed and received by the beneficiaries in the accounting year? The appeals have been heard together and may be disposed of by a common judgment, taking, as illustrative, the facts of the lead appeal (Civil Appeal No. 2145 of 1978, CIT, Gujarat, Ahmedabad v. Mrs. Kamalini Khatau).

2. The relevant Assessment Year is 1969-70, the previous year being the calendar year 1968. The assessee was the beneficiary of 9 trusts. In respect of three of these she was the sole beneficiary, and there is no dispute about their income. In regard to the other six trusts, the assessee was one of the beneficiaries thereunder. In each of these six trust deeds the clause relevant for our purpose read thus :

"From and after the date hereof (i.e., the date of the Trust Deed) and during the periods mentioned in this clause, the Trustees may either accumulate the net income of the Trust or at their discretion pay the same to the persons as mentioned therein or to any one or more of them to the exclusion of others or other of them for their, his or her absolute use or benefit in such proportion and in such manner as the Trustees may in their absolute discretion think fit ......"

During the accounting year relevant to the Assessment Year 1969-70 the assessee received the amounts set out hereafter. The amounts were received pursuant to the resolutions of the trustees to distribute the same from out of the income of the six trusts for the accounting year.

Name of the trust Amount

Rs.

1. Geeta Mayour D. Trust No. 1 1,600

2. Ambalal Sarabhai D. Trust No. 4 6,200

3. Manorama Sarabhai (K. 8 D-Trust) 1,000

4. Saraladevi Sarabhai (G. 15) D. Trust 1,400

5. Manorama Sarabhai D. Trust No. 1 7,300

6. Anand Sarabhai (J-9) D. Trust 500

________

18,000

________

3. The assessee contended before the Income-tax Officer that the said amount of Rs. 18,000/- was not liable to be taxed in her hands. The payment of income under the said six trusts to any one or more of the beneficiaries thereof depended upon the discretion of the trustees; accordingly, the shares of the beneficiaries thereof were indeterminate and unknown. The income of the trusts was, therefore, taxable only in the hands of the trustees thereof, having regard to the provisions of Section 164 of the Income-tax Act, 1961 (hereinafter referred to as "the Act").The ITO rejected the assessees contention and assessed the said amount of Rupees 18,000/- in her hands. In doing so he relied upon the provisions of S. 166 of the Act. The assessee preferred an appeal. The Appellate Assistant Commissioner affirmed the view taken by the ITO. The assessee preferred a second appeal before the Income-tax Appellate Tribunal. The Tribunal held that no part of the income of the said six trusts was receivable on behalf of or for the benefit of any of the beneficiaries thereof. The provisions of Section 164 were, therefore, attracted. The Tribunal rejected the Revenues contention that Section 166 was applicable. Accordingly, the Tribunal allowed the assessees appeal. At the behest of the Revenue, the Tribunal referred to the High Court of Gujarat for its opinion the following question:

"Whether, on the facts and in the circumstances of the case, various amounts totalling to Rs. 18,000/ - received by the assessee out of the income of the six discretionary trusts are liable to be taxed in the hands of the assessee ?"

4. A Division Bench of the High Court referred the matter to a larger Bench, and it was heard by a Bench of three learned Judges. The order of the Tribunal was upheld by the majority judgment, the third learned Judge dissented. We shall have occasion to refer to the majority and dissenting judgments.

5. It is convenient now to set out those provisions of the Act which have a bearing on the issu