A trust for a "would-be wife" of a minor beneficiary is a discretionary trust, and the beneficiary not being known and determined, the trust is liable to be taxed at the maximum marginal rate under Section 164(1) of the Income-tax Act, 1961.

1. IN this instant application, the following question of law has been referred for our opinion :

"Whether, on the facts and in the circumstances of the case and on a correct interpretation of Explanation (1) below Section 164(3) of the Income-tax Act, 1961, the Tribunal was justified in law in holding that the 'would be wife' of the minor satisfied the above condition and thereby directing the Assessing Officer to tax in the status of association of persons at the rate applicable to association of persons and not at the maximum marginal rate ?"

2. THE assessee is a trust which filed a return with the Income-tax Officer, SC-I, Calcutta, on July 29, 1980. The trust was settled with a trust deed dated March 27, 1979. From the trust deed it is seen that Shri Krishna Kumar Mohta settled Rs. 5,000 on the "would be wife" of the minor, Shri Keshav Kumar Mohta. Shri Krishna Kumar Mohta had made himself trustee jointly with Shri Narendra Kumar Mohta.

The source of income of the trust is share income from the firm, Mohta Marketing Syndicate, and income from share dealing. From the trust deed, it is further revealed that the income of the trust is to be kept for the purpose of the "would-be wife" of the minor, Shri Keshav Kumar Mohta. According to the Income-tax Officer the beneficiary is not definite and the trust has been formed for the benefit of some unknown person, which cannot be determined at any length of time. This makes the trust a discretionary one and calls for invoking Section 164(1) of the Income-tax Act, 1961. Therefore, the assessee has to pay tax at the maximum rate as representative assessee as provided under the said Section of the Act and the income-tax assessee has to pay tax accordingly.

3. IN appeal before the Appellate Assistant Commissioner he has taken a view that in the present case Clause 5 of the deed of trust expressly states the share of the sole beneficiary. Thus there was no violation by the appellant with reference to the Explanation to Section 164 of the Act. The Appellate Assistant Commissioner further held that the trust is to be assessed as per the proviso to Section 164(1), proviso, Clause (i), under the status of association of persons and tax will be charged at the rate applicable to associations of persons.

4. IN appeal before the Tribunal, the Tribunal has held that so long as the trust deed gives the description of the person who is to be benefited, the beneficiary cannot be said to be uncertain merely because the actual beneficiary cannot be known until the marriage of the minor named above takes place. Moreover, in the present case the "would-be wife" is the sole beneficiary, and therefore, not only the beneficiary is certain but the extent of share in the trust property is also certain and adequate (sic). Therefore, the Tribunal directed assessment on the assessee in the status of association of persons at the rate applicable to associations of persons.

Learned counsel for the Revenue brought to our notice the latest decision of the court in the case of CIT v. Atreya Trust [1992] 193 ITR 716, Income-tax Reference No. 26 of 1987, wherein this court held that the provisions of Section 164 were made explicit by the Explanation which was inserted with effect from April 1, 1980. In the instant case, the assessment year was 1981-82 and the Explanation was clearly applicable to the instant case. In view of the Explanation the benefit of Section 164 could not be obtained unless the beneficiary is known and determined. In the instant case, the beneficiary is the "would-be wife" of the minor. Further, it was not known that the marriage had been fixed and the would-be wife was not identifiable. The trust deed provided that the trust was for the benefit of the "would-be wife", who was not in existence when the trust was created and there was no certainty that such marriage would ever take place to fulfil the object of the trust. The Tribunal was, therefore, not justified in holding that the afore