A discretionary trust is to be assessed as an individual and not as an association of persons under Section 164(1) of the Income-tax Act, 1961.

AJIT K. SENGUPTA, J.

( 1 ) IN this reference made at the instance of the Revenue, the following question of law has been referred to this court under Section 256 (1) of the Income-tax Act, 1961, for the assessment year 1984-85 :" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income of Shri Krishna Bandar Trust should be assessed taking the status of the assessee as 'individual' and not 'association of persons' and, consequently, the deduction under Section 80l of the Income-tax Act, 1961, should be allowed

( 2 ) SHORTLY stated, the facts are that the assessee is a discretionary trust and was assessed in the status of an "association of persons". The assessee claimed relief under Section 80l of the Income-tax Act, 1961. The Income-tax Officer was of the view that, having regard to the provisions of Explanation 2 to Section 164 of the Income-tax Act, 1961, a discretionary trust has to be taxed as an association of persons and, therefore, deduction under Section 80l was not available to the assessee-trust. The Commissioner of Income-tax (Appeals) upheld the stand of the assessee-trust following the decision of the Hyderabad Bench of the Tribunal in the case of Education Trust Fund v. ITO.

( 3 ) THE Revenue, being aggrieved, went to the Tribunal. The case of the assessee before the Tribunal was that the trustees in the instant case had not mutually associated themselves for the purpose of producing income and that they were jointly holding an office and were merely receiving income by way of dividend and interest. According to the assessee, its case fell under the main provision of Section 164 (1) of the Income-tax Act, 1961, and the first proviso to that section was not attracted in this case.

( 4 ) ON the other hand, the case of the Revenue before the Tribunal was that, for the immediately preceding two years, namely, assessment years 1982-83 and 1983-84, the assessee-trust disclosed its status as that of an association of persons and it was assessed in that status for both these years. It was, inter alia, contended by the Departmental representative before the Tribunal that while, in the case of a discretionary trust, the tax shall be charged at the maximum marginal rate as laid down in Section 164 (1) of the said Act, the status of the discretionary trust would be that of an association of persons in view of Explanation 2 to Section 164 of the said Act.

( 5 ) IT is necessary at this stage to set out the provisions of Section 164 (1) and Explanation 2 thereto as it stood at the relevant time. " 164. Charge of tax where share of beneficiaries unknown.-- (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 Subsection (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. . . . 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. "

( 6 ) IT may be observed that the words "tax shall be charged on the relevant income at the maximum marginal rate" as well as Explanation 2 as aforesaid were inserted in the Act by an amendment introduced by the Finance (No. 2) Act, 1980, with effect from April 1, 1980. Prior to t

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