Income Tax provisions relating to Private Trust (Family Trust)

The Indian Trust Act, 1882, governs a Private Trust. Private trust is a vehicle through which property can be transferred from one person (owner) to another for the benefit of an individual or an ascertainable group of people.

A private trust is created for the benefit of specific individuals i.e., individuals who are defined and ascertained individuals or who within a definite time can be definitely ascertained. A family trust set up to benefit members of a family is the most common purpose for a private trust. The purpose of the family trust is for the settlor to progressively transfer his assets to the trust, so that legally the settlor owns no assets himself, but through the trust, beneficiaries get the benefit of these assets.

For Example, ‘A’ forms a Private trust and transfers certain property to ‘B’ instructing him to use the said trust property at the time of ‘C’s marriage. A trust so formed can either be revocable or irrevocable depending upon the objective behind forming a trust. In this trust, where A transfers property to B for benefits of C then A is settlor, B is trustee and C is beneficiary.

Difference between Public Trust and Private Trust

When the trust is created for the family members, relatives, friends etc. the trust is called as Private Trust. And where the trust is created for the charitable or religious purpose where the general public is the beneficiary, that trust is called as Public Trust. A Public Trust is created for the benefit of society at large and for charitable purpose like education, poverty eradication, promotion of sports, medical welfare or for religious or scientific purpose. Beneficiary in Public Trust is society at large and is governed and regulated by respective State Government.

What is Private Trust?

A trust is called a Private Trust when it is constituted for the benefit of one or more individuals who are, or within a given time may be, definitely ascertained. In other words, a trust, which is for the benefit of an individual or class of individuals e.g. a trust for the benefit of X, Y and Z or for the benefit of X‘s all grandsons alive on a particular date, is a “private trust”.

(i) Beneficiaries are limited and specified.

• • A trust is called a Private Trust when it is constituted for the benefit of one or more individuals who are, or within a given time may be, definitely ascertained.

(ii) Governed by Indian Trusts Act, 1882.

• • Private Trusts are created and governed by Indian Trusts Act, 1882.
  • Through a private trust, assets or wealth are transferred by one party (settlor) to be held by another party (trustee) for the benefit of a third party (beneficiaries), under the Indian Trusts Act, 1882.

(iii) Beneficiaries are individuals or families.

• • A private trust is established for the benefit of an individual’s spouse, children or other family members. In other words, private trust can be formed for a single member’s benefit or for a group of members’ benefit.
  • In other words, a private trust may be defined as a trust only for the private convenience and support of individuals or families.

(iv) Can be oral or written.

• • It is not necessary/mandatory to register it.
  • Where a private trust has immovable property, a written trust deed is mandatory.

KEY NOTE:—

(i) Filing of return of income is compulsory.

(ii) Not necessary that only parents can create private trust – relatives, guardians, family friends can create.

Why to form a Private Trust?

(a) Trust : During the life time of the settlor or trust creator

(i) For the benefits of old parents of the settlor

(ii) For the benefits of his spouse, minor children of the settlor

(iii) For protecting his own interests

(iv) For the purpose of personal charity

(v) To prevent alienation of personal/ancestral property

(vi) For the benefit of disabled or handicapped brother or sister

(b) Trust : After the death of the settlor or trust creator

For peaceful distribution of estate among the successors

(i) To safeguard the interest of spouse and children

(ii) To protect parents – old age commitments

(iii) For perpetual charity

(iv) To prevent alienation of personal/ancestral property

Formation of Private Trust

Private Trust is be created and governed by Indian Trusts Act, 1882. It may be created either inter vivos i.e., during a person’s lifetime or by a will i.e., testamentary trust, either orally or under a written instrument, except where the subject matter of the trust is immovable property, the trust would need to be declared by a registered written instrument. If a trust is created by will it shall be subject to the provisions of Indian Succession Act, 1925. The following are required for forming a private trust –

(i) The existence of the author/settlor of the Trust or someone at whose instance the Trust comes into existence and the settlor to make an unequivocal declaration which is binding on him.

(ii) There must be a divesting of the ownership by the author of the trust in favour of the trustee for the beneficial enjoyment by the beneficiary.

(iii) A Trust property.

(iv) The objects of the trust must be precise and clearly specified.

(v) The beneficiary who may be a particular person or persons.

Unless all the above requisites are fulfilled, a trust cannot be said to have come into existence.

KEY NOTE:—

A settlor can have more than one private trust.

The conditions which are necessary for creating a valid trust as laid down by the Bombay High Court in the case of Receiver v. CIT (1964) 54 ITR 189, 208 (Bom) are as under:—

(i) Intention on the part of the author of the trust to create a trust;

(ii) The trust property or the subject of the trust;

(iii) Purpose or the object of the trust; and

(iv) Beneficiary under the trust.

Similar conditions are laid down by the Delhi High Court in CIT v. Brig. Kapil Mohan (2001) 252 ITR 830 (Del).

Certainties

Three certainties are:—

(i) a declaration sufficient to show an intention to create a trust by the settlor; (The declaration must be binding on him)

(ii) setting apart definite property and the settlor depriving himself of the ownership thereof; and

(iii) a statement of the object for which the property is thereafter to be held.

Who are the Parties in a Trust?

(a) Author/Settlor/Trustor/Donor (Mr A):

The person who wants to transfer his property and reposes confidence on another for the creation of the trust.

(b) Trustee (Mr B):

The person who accepts the confidence for the creation of the trust.

(c) Beneficiary (C i.e. Mr A’s grand-daughter):

The person who will benefit from the trust in the near future.

Who can create a Private Trust [Section 7 of The Indian Trust Act, 1882]

Any person who is a major, not legally insane, insolvent or a minor may create a trust. In case of minor : with the permission of a Principal Civil Court of original jurisdiction.

(i) A trust may be created:-

(a) By every person competent to contract, and

(b) With the permission of a principal Civil Court of original jurisdiction, by or on behalf of a minor,

• • • but subject in each case to the law for the time being in force as to the circumstances and extent in and to which the author of the trust may dispose of the trust property.

(ii) Every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract.

(iii) Every person capable of holding property may be a beneficiary.

Who can be a trustee of a Private Trust?

Every person capable of holding property may be a trustee – therefore even a minor can be a trustee. If the trust involves exercise of discretion, trustee has to be a person competent to contract. A trust is accepted by any words or acts of the trustee indicating with reasonable certainty such acceptance. No person is bound to accept a trust.

Who can be a beneficiary of a Trust?

Any person capable of holding a property can be beneficiary. There is no restriction on the nature of person. In a private trust the beneficiaries are one or more ascertainable individuals. Generally, a private trust is not a permanent one.
“PERSON” as per General Clauses Act, 1897, shall include any company or Association of Persons (AOP) or BOI whether incorporated or not.

Unborn persons as beneficiaries

It is not necessary that the beneficiary should be a living person. Even unborn persons could be made beneficiaries. For example, an unborn son or an unborn daughter or schools, hospitals and other charitable institutions can validly be beneficiaries under a trust.

It was held that a trust created for the benefit of prospective wife of a minor son was valid if it contained a clause that in the event of his not marrying during his life time, the benefit would go to the prospective wife of another minor son, and a further clause that in the event of the other son also not marrying, the benefit was to be used for charitable purposes. – [CIT v. P. Bhandari (1984) 147 ITR 500 (Mad)]

Benefit of Private Trust

(i) Effective and efficient mode of managing and passing of family assets.

(ii) In creation of Trust, court does not oversee the process unlike at the time of execution of Will.

(iii) Safeguards interest of family members including maintenance of members with special needs.

(iv) Avoids family disputes.

(v) Under trust, conditions can be attached such as attainment of particular age/fulfillment of authors’ wishes.

Procedure for forming a Private Trust

For creating a private trust, the foremost requirement is that the author must express with reasonable certainty by words or acts, an intention on his part to create a trust. Thus, a trust may be declared either by words, spoken or written or by acts. Where a trust is declared by words, the language used must be clear enough to show an intention to create a trust. No formal language is required to constitute an effective declaration of trust, but the language used must make it certain that—

(i) the author intended to constitute a trust binding in law on himself or the person to whom the property was given;

(ii) he intended to bind definite property by the trust; and

(iii) he intended to benefit a definite person or persons in a definite way.

A Private Trust may be created inter vivos or by will. If a private trust is created by WILL it shall be subject to the provisions of Indian Succession Act, 1925.

Inter-Vivos Trust

An Inter-Vivos Trust is established by someone during their life time to manage certain assets or investments and support beneficiaries, such as family members. These trusts are governed by a trust deed, rather than a Will. These trusts allow assets to be managed on behalf of beneficiaries and, in some cases, generations of a family, without having to pass through the estate of family members that have passed away.

Main instrument of declaring a trust

The instrument by which the trust is declared is called instrument of Trust, and is declared is called instrument of Trust, and is generally known as Trust Deed. The main instrument of declaring a trust is the Trust Deed, which should be made on non-judicial stamp papers of, prescribed fee and signed by the trustee or trustees for submission to the Registrar concerned. In case of trust the registrar or sub-registrar having authority to register properties has the authority to register the Trust Deed. Therefore, Trust Deed of the proposed Trust may be registered with Tahsildar, or registrar properties and endowment at the district collectorate. In metropolitan cities separate offices of registrar of properties and endowments do function.

The Trust Deed should contain name(s) of the author(s), settler(s) of the trust; the name(s) of the trustee(s); the name(s) if any, of the beneficiary/ies or whether it shall be public at large; name of the trust; address of the trust; objects of the trust; procedure of appointment, removal or replacement of a trustee, their rights, duties and powers, etc; the mode and method of determination of the trust etc.

Types of instrument of trust

(i) Trust deed, where a trust is declared intervivos; i.e. by settling property under Trust.

(ii) A will, where a trust is declared under a will;

(iii) A memorandum of association along with rules and regulations, when the association/institution is being formed as a society under the Societies Registration Act, 1860.

(iv) A memorandum and articles of association where the association /institution is desired to be formed as a Company.

Written trust deed is always desirable

A written trust-deed is always desirable even if deed not required statutorily, due to following benefits;

(i) a written trust deed is a prima facie evidence of existence of a trust ;

(ii) it facilitates devolution of trust property to the trust;

(iii) it clearly specifies the trust objectives which enables one to ascertain whether the trust is charitable or otherwise;

(iv) it is essential for registration of conveyance of immovable property in name of the Trust;

(v) it is essential for obtaining registration under the Income-tax Act and claiming exemption from tax;

(vi) it helps to control, regulate and manage the working and operations of the trust;

(vii) it lays down the procedure for appointment and removal of the trustee(s), his/their powers, rights and duties; and

(viii) it prescribes the course of action to be followed under any eventuality including dissolution of the trust.

It is well settled that no formal document is necessary to create a Trust as held in Radha Soami Satsung v. CIT (1992) 193 ITR 321 (SC). But for many practical purposes a written instrument becomes necessary under following cases –

(a) When the trust is created by a will irrespective of whether the trust is public or private or it relates to movable or immovable property. This is because as per Indian Succession Act, a will has to be in writing.

(b) When the trust is created in relation to an immovable property of the value of Rs.100 and upwards, in case of a private trust. In case of public trusts, a written trust deed is not mandatory, even in respect of immovable property, but is optional.

(c) Where the trust/association is being formed as a society or company, the instrument of trust; i.e. the memorandum of association, and Rules and Regulations has to be in writing.

How to register a Private Trust

A registered document called as trust deed is necessary to set up trust and should be registered with the Registrar. The deed should be executed on a stamp paper. The trust deed should have following:-

(i) Details in relation to trust property.

(ii) Purpose of trust.

(iii) Beneficiaries of trust.

(a) If trust property happens to be immovable property:

A registered document (trust deed) is necessary to set up a trust if immovable property is being transferred to it. The deed should be made out on stamp paper and registered with the Registrar of Assurances under the Registration Act.

A registered deed to be executed unless

In the case of Private Trusts, if the trust property is immovable property, section 5 of the Indian Trusts Act, 1882, requires that a registered deed to be executed unless—

(a) the trust is created by a will; or

(b) the owner-settlor himself is the sole trustee.

As per section 5 of the Indian Trusts Act, a private trust related to an immovable property must be created by a non-testamentary instrument in writing, signed by the author of the trust or the trustee and must be registered under section 17 of Registration Act. Therefore, every non-testamentary instrument declaring trust must be registered. This registration will be mandatory even if the instrument declaring trust is exempted from registration under Registration Act, but a Private Trust declared by a will does not require registration.

(b) If trust property happens to be movable property:

If only movable property is settled upon the trust, no formal document or written agreement is necessary. All the same, it’s advisable to prepare a trust deed on a stamp paper and have it signed by the settlor and the trustees in the presence of a witness to avoid any subsequent disputes.

Types of assets can be part of the trust

There are many types of assets that can be held in trust. These may include—

(i) Investments

(ii) Land or property

(iii) Cash

(iv) Other valuable assets; such as paintings, furniture, or jewellery.

• The money and investments held in trust are also called trust capital. This capital may produce income, such as interest or dividends on shares. Assets may also grow in value resulting in capital gains for the trust.

Legal owner of the assets of the trust

Once the assets have been transferred into trust, you may no longer own them. The trustee becomes the legal owner of the assets and manages these for the benefit of the beneficiaries. However, you may wish to be the initial trustee to ensure the trust is established and operated according to your wishes.

When can the trust assets be distributed?

Inter-Vivos Trusts can hold and distribute funds at any time according to the terms specified in the trust deed and the purposes the trust was created for. This may mean distributing the income of the trust amongst family members in a tax effective way for many years. It might also mean providing capital from the trust at a time when it will most benefit the beneficiaries in the future, such as when purchasing a home.

Income from assets transferred to a person for the benefit of spouse [Section 64(1)(vii)]

Income from assets transferred to a person for the benefit of spouse attract the provisions of section 64(1)(vii) on clubbing of income. If—

(i) The taxpayer is an individual.

(ii) He/She has transferred an asset to a person or an association of persons.

(iii) Asset is transferred for the benefit of spouse.

(iv) The transfer of asset is without adequate consideration.

In case of such individuals income from such an asset is taxable in the hands of the taxpayer who has transferred the asset. Thus where a person intends to transfer any property to a trust for the benefit of his/her spouse, then the income shall be clubbed in the hands of the transferor.

Income from assets transferred to a person for the benefit of son’s wife (Daughter-in-law) [Section 64(1)(viii)]

Income from assets transferred to a person for the benefit of son’s wife attract the provisions of section 64(1)(vii) on clubbing of income. If—

(i) The taxpayer is an individual.

(ii) He/she has transferred an asset after 31.05.1973.

(iii) The asset is transferred to any person or an association of persons.

(iv) The asset is transferred for the benefit of son’s wife.

The asset is transferred without adequate consideration. In case of such individual, the income from the asset.

Trust for a Deity

A trust could also be made for the benefit of one’s deity. The Hon’ble Supreme Court of India in CIT v. Sri Jagannath Jew (1977) 107 ITR 9 (SC) held that where the Testator gave away his estate to the deity and created an absolute debutter thereof and obligated the managers of the debutter with responsibility to discharge certain secular or secondary behests including benefit to family members, their residence and transportation, the Deity was the legal owner of the whole estate and was liable to be assessed as such.

Family Deity

“Family Deity” means a deity which has been worshipped by the members of a particular family from generation to generation and wherein the public by custom has acquired no right to offer ‘pujas’. There are family deities which are worshipped by the members of the family from generation to generation but still the public have acquired by custom a right to offer pujas; such deities cannot be regarded as family deities.

Private Trust for Minors

A minor is generally incompetent to contract and thus incompetent to create a trust since it involves transfer or disposition of some property in respect of which trust is to be created. However, a minor is competent to form a trust for charitable or religious purposes. Besides, section 7(b) of the Indian Trusts Act enables a minor to form a private family trust also, with the prior permission is to be applied for by a petition. A trust created by or on behalf of a minor without obtaining the prior sanction of the Civil Court does not exist in the eye of law. Thus, where the settlor transferred certain amounts to the minors as gifts and thereafter, trusts were created in respect of such gifted amounts without obtaining court’s sanction, it was held that the trusts so constituted in respect of the minors’ properties were invalid. If a trust is created for the benefit of a minor, the income could be chargeable in the hands of a guardian of the minor as direct assessment of the beneficiary is not barred as per section 166 of the Act.

REGISTRATION OF MINOR TRUST

Trust can be formed for a minor by executing a deed for a specific period, say 21 years. This trust can be registered under the Indian Trust Act.

Income of Minor Child [Section 64(1A)]

All income which arises or accrues to the minor child shall be clubbed in the income of his parent, whose total income (excluding minor’s income) is greater.

However, in case parents are separated, the income of minor will be included in the income of that parent who maintains the minor child in the relevant previous year. Thus, in case of private trusts where minors are beneficiaries and their parents are alive, then the income from trust property will be clubbed in the hands of the parents as mentioned above.

Income of Minor to be Clubbed with Parent with Higher Income

The investment income of the minor is includible in the income of the father or mother, as the case may be. In case, if in a trust deed for the benefit of the minor(s), there is a provision that the income of the trust would not be applied for his benefit during the course of minority of the beneficiary, in such a case, the income of the trust would be assessable in the hands of the trustee in the normal manner as has been held by the Hon’ble Supreme Court of India in the case of CIT v. M.R. Doshi (1995) 211 ITR 1 (SC).

EXCEPTION:—

(i) Where earning is from some specialized skill.

(ii) In case of physically disabled child.

Private trust for major son

BENEFITS:— to teach Financial Management

• No restriction on Settlor.
• No risk of clubbing of income.
• Mentioning of share of each son is required in case of joint trust.

Private trust for married daughter

BENEFITS:— to avoid the money belonging to daughter, given through gifts to be used by in laws in case of Financial crises.

Private trust for daughter-in-law

Before marriage:— anyone can settle the trust.

Private trust for spouse

When spouse’s in respect of regular gifts Why

• Where spouse is illiterate or less educated.
• Where one does not have faith in spouse’s financial management.

KEY NOTE:—

(i) Settlor should not be husband, father/mother-in-law.

(ii) No restriction on trustees.

FROM TAXATION POINT OF VIEW

There are special provisions governing the assessment and taxation of trusts and their trustees which are contained mainly in sections 160, 161, 162 & 164 of the Act. Thus private trusts are taxed according to the provisions of sections 160 to 164 i.e. either at the rates applicable to individuals or at the maximum marginal rate. Hence, income of a private trust (family trust) may be taxable at the normal slab rates of income- tax, or in some cases may become liable to a maximum marginal rate of income-tax.

Status of Private trust

Status of Private trust is not defined in section 2(31). Analysis of judicial decisions reveal that in the case of PST, there shall be many assessments on trustee with determinate shares and they would have to be made in the status of beneficiary, as such the status of such Private trust shall be similar with that of the beneficiary. What is taxable is the income of the beneficiary and not the receipt by the Trust/ Trustee on behalf of the beneficiary. Thus, the trust per se is not taxable. In a way, a pass through status is given to the trust because of the peculiar relationship between the trustee and the beneficiary. Also, the liability to pay tax in a representative capacity is on the trustee and not on the trust per se. Section 2(31) of the Act defines person. Under the definition of the term person, the trust can possibly be qualified as individual, AOP, BOI or artificial juridical person.

In a case where there are two or more beneficiaries who are individuals

It was held that the mere fact that the beneficiaries or the trustees, being representative assessees, are more than one, cannot lead to the conclusion that they constitute an AOP. The trustees of a discretionary trust have to be assessed in the status of “individual”. – [CIT v. Deepak Family Trust (1995) 211 ITR 575 : 119 CTR  150 (Guj)]

In a case where all the beneficiaries are individuals status of such a private discretionary trust would be that of an Individual:

“It will have to be held that the representative assessee in the case of a discretionary trust must be regarded as an individual and thus would be entitled to the benefit of deduction under s. 80L of the Act.” – [CIT v. Shri Krishna Bandar Trust (1993) 201 ITR 989 (Cal)]

Trust cannot be considered as a Body of Individuals

This is a case of a trust. The beneficiaries are three minors. The trustees are carrying on business the income from which is equally distributed amongst the minors in accordance with the terms of the deed of trust. The Departmental authorities, applying the Supreme Court decision in the case of N. V. Shanmugham and Co. v. CIT (1971) 81 ITR 310, held that the assessment was required to be made in the hands of the trustees as a BOI, a unit separate and independent from the beneficiaries, This has been challenged by the petitioners under Article 226 of the Constitution of India. It was held that the assessment of the income of the trust in the status of a body of individuals was not justified. The assessment may be made in the hands of the beneficiaries or in the hands of the trustees but it has to be in the same manner and to the same extent as it would have been made in the hands of the beneficiaries. – [Lalchand Tikamdas Makhija & Anr. v. CIT (1991)188 ITR 253 : 54 TAXMAN 84 (Bom)]

It was held that, in a case where the shares of the beneficiaries were known or determinate, the fact that the trust was carrying on business was not material and the assessment had to be made in like manner and to the same extent as it would have been made on the beneficiaries separately. –  [CIT v. Marsons Beneficiary Trust (1991) 188 ITR 224 : 87 CTR 71 (Bom)]

Trust- Charge of tax where shares of beneficiary is unknown

Whether in view of fact that second group of beneficiaries consisted of persons having ‘other income’ chargeable under the Act exceeding maximum not chargeable to tax in case of an ‘AOP’ and they were also beneficiaries under other trusts, assessee-trust was liable to be taxed at maximum marginal rate and was not entitled to concessional rate of tax – Held, yes – [CIT v. Goser Family Trust (1991) 59 Taxman 108 (Guj)]

Where persons do not combine in a joint enterprise to produce income, they cannot be assessed as AOP

In the case of CIT v. Indira Balkrishna (1960) 39 ITR 546, the Hon’ble SC while considering what constitutes an association of persons, held that the word “association” means “to join in any purpose” or “to join in an action”. Therefore, “association of persons” as used in section 2(31) (v) of the Income-tax Act, 1961, means an association in which two or more persons join in a common purpose or common action. In the present case, neither the trustees nor the beneficiaries can be considered as having come together with the common purpose of earning income. The beneficiaries have not set up the trust. The trustees derived their authorities under the terms of the deed of trust. Neither the trust nor the beneficiaries have come together for a common purpose. They are merely in receipt of income. The mere fact that the beneficiaries or the trustees being representative assessees are more than one, cannot lead to the conclusion that they constitute “an association of persons”. – [CIT v. Indira Balkrishna (1960) 39 ITR 546 (SC)]

Thus, here also the status cannot be AOP. The question of status of these types of Private Discretionary Trusts seems to be wide open.

Trust is not a juristic person and therefore, cannot be considered as an artificial juridical person – [Thanti Trust v. WTO (1989) 178 ITR 1(Mad)]

Private trust is not an AOP 

It was held that the consequences of the provisions in section 21(1) of the Wealth-tax Act is that the trustee is assessable ‘in the like manner and to the same extent’ as the beneficiaries. – [CWT v. Trustees of H. E. H. Nizam’s Family (Remainder Wealth) Trust (1977) 108 ITR 555 (SC)]

Though there are contrary judgments to the effect that the Trust would constitute an AOP – [CIT v. Smt. Pushpawati (2010) 327 ITR 490 : 235 CTR 467 : 194 TAXMAN 436 : 46 DTR 73 (Del)]

Essential Elements of a Private Trust

(i) The settlor should be of a sound mind and should have attained the age of majority. However, a minor can also become a settlor with the consent of the court. The trustee so appointed should be above 18 years of age and of a sound mind. As he has to manage the property of the trust, he must be the one who is eligible to enter into a contract.

(ii) The property so involved in a trust must be in existence, and the settlor must be legally competent to transfer the same to the trustee.

(iii) The trustee is not bound to accept a trust. His acceptance should be conveyed either in writing or by his act. The beneficiaries for whom the trust is formed should be specified properly in the trust deed so as to avoid confusion while fulfilling the purpose of the trust.

(iv) A private trust in respect of an immovable property cannot be created orally. It can be executed either by a non-testamentary document or by a testamentary document such as a Will that has to be duly registered. Whereas in the case of movable property, trust can be created by giving oral direction or by a document which may or may not be registered. Whatever the author chooses the mode of execution, the purpose of forming a trust must be clearly conveyed to the trustee.

(v) A trust is an instrument of transferring not only the interest in the trust property but also its possession and ownership to the trustee so in such a case once a private trust is formed and the trust deed is executed, the author cannot have control over the trust property. However, the trustee who is in possession of the trust property must carefully deal with the property and work towards the benefit of the beneficiaries and should not use it for his purpose.

(vi) The Private Trust so formed must be lawful and should not be fraudulent. If a part of the purpose of the trust is lawful and the other part is unlawful then the trust so formed becomes void.

Terminating a Private Trust

Once a trust is formed it can be dissolved or revoked depending upon the type of trust. In the case of an irrevocable trust, with the consent of the settlor or beneficiary, a trust can be terminated. However, in case the settlor dies, then the beneficiary may terminate the trust with the intervention of the court. The court  may also pass an order of termination of private trust if it is of the opinion that the material purpose of the trust was not fulfilled or the beneficiaries cannot be located, or the trustees were trying to extend the time limit of the trust for their selfish needs. If a private trust is formed through a Will, then it can be revoked only by the author of the trust during his lifetime. Once the author dies, the private trust cannot be terminated.

Private Trust how extinguished [Section 77 of The Indian Trust Act, 1882]

A trust is extinguished or ceases to exist:

(a) By the Settlor

Settlor can revoke the trust if a provision is made in the trust deed reserving the power for the settlor to revoke the trust at any point in time by way of a registered Deed of Revocation. Unless such provision is made, he cannot revoke the trust.

(b) By the Beneficiaries

Beneficiaries may at their wish relinquish their rights in the trust property by signing a document. By doing so, they give up all their rights to the trust property, and the trust deed gets dissolved transferring the property again to the settlor. Beneficiaries also on attaining maturity and becoming legally competent to contract, may by their consent revoke the trust.

(c) Trust period

A trust may be formed for a certain period. It may be specified in the trust deed as to the duration of the existence of the trust. For example, a trust could exist till the beneficiary reaches a certain age, say 21 years. On the beneficiary reaching that age, the trust gets dissolved.

(d) When its purpose is completely fulfilled

A trust may be formed for the fulfilment of certain purpose. Once the purpose for which the trust was formed in the first place gets fulfilled, the existence of the trust comes to an end.

For example, a trust may be formed exclusively for the education or marriage of the beneficiaries. When the beneficiary completes his/her education or his/her marriage gets solemnised, the trust gets dissolved.

However, the settlor can dissolve the trust even before the fulfilment of purpose. If the trust was formed to pay off the dues of the creditor, the settlor could dissolve the trust even if the dues are not cleared with the creditor. The important point to note in this case is that the settlor can do so only if the creditor is unaware of the purpose of the trust. If the creditor is aware of the trust and its objective then without the permission of the creditor the settlor cannot revoke the trust.

(e) The occurrence of the event

A trustee has to work towards the benefit of the beneficiary and to do so he has to enter into transactions which benefit the trust. If there are repeated events of failure in the performance of certain transaction by the trustee which affects the purpose of the trust or the trust property was used for a purpose other than what it was intended for then in such a scenario the trust can be revoked by the settlor or beneficiary.

(f) Fulfilment becomes impossible

If the trust property gets destroyed or is not maintained in a way which makes it impossible to be used for the fulfilment of the purpose of the trust, then in such an event the trust can be dissolved. For example due to an earthquake or any natural calamity, the trust property gets damaged and makes it impossible to fulfil the purpose of the trust. This leads to the dissolution of the private trust.

(g) When its purpose becomes unlawful

When a trust which was lawful at the time of formation becomes unlawful over the course of time then in such an event the trust becomes void. A trust can become unlawful as per section 4 of the Indian Trust Act, 1882 for the following reasons:—

(i) forbidden by law, or

(ii) is of such a nature that, if permitted, it would defeat the provisions of any law,

(iii) is fraudulent,

(iv) involves or implies to the injury of any person or property of another,

(v) the court regards it as immoral or opposed to public policy.

On the happening of any of the above events which make a trust unlawful, the trust can be dissolved.

Unlawful purpose can not be an object to create a trust

For example : Mr. ‘X’ gives some ships to “Y” to carry on smuggling business and use the profits arising out of it for maintaining ‘X’s children. The Trust is not valid because a Trust can be created only for a lawful purpose.

How a Private Trust can be revoked [Section 78 of The Indian Trust Act, 1882]

When a trust is created by will, it is revocable at the pleasure of the testator, because it does not become effective during the lifetime of the testator. Any other trust can be revoked in the following ways:—

(a) By the consent of all the beneficiaries.

(b) By the settlor in exercise of powers of revocation expressly reserved to him.

(c) If the trust was created for repayment of debts, the settlor can revoke the trust at any time irrespective of whether the debt is repaid or not. However, if the debt is not repaid and the creditor has knowledge of the creation of the trust, then, the trust cannot be revoked without the consent of the creditor.

Types of Private trust (relevant for income tax purposes)

(i)  Revocable Trust [A trust that can be revoked (cancelled) by its settlor at any time during this life]

It is an alternative to Will. It does not protect any assets, as they can be withdrawn from this trust. In this, assets are neither considered given away; hence they are taxed in the hands of Settlor at the slab rate.

(ii)  Irrevocable [A trust will not come to an end until the term / purpose of the trust has been  fulfilled]

(a)  Irrevocable Non-Discretionary Trust

Assets cannot be withdrawn here. Settlor has complete control over trust norms as he can decide which beneficiary receives which asset, and in what proportion. If the Settlor is the primary beneficiary, he/she is taxed at slab rate. For e.g. the settlor may grant 40% of the trust’s benefits to 1st child and 60% of the trust’s benefits to 2nd child. Or the trust may be established for a handicapped child to ensure that he or she is   properly cared for if the child’s parents or guardians die.

(b)  Irrevocable Discretionary Trust

In this case, Settlor lets the trustee decide which beneficiary gets which asset and in what proportion. The Settlor only decides beneficiaries. In other words, while the beneficiaries are identified, their beneficial interest in the Trust is not ascertained upfront. A well-drafted discretionary trust allows the trustee to add or exclude beneficiaries from the class, giving the trustee greater flexibility to address changes in circumstances. The beneficiaries cannot compel the trustee to use any of the trust property for their advantage.

KEY NOTE

Discretionary trusts are more common than Non Discretionary trusts. Today, most family trusts are discretionary.

Income from private trusts is available to specified beneficiaries and not the public at large. Private trusts are further broadly classed into—

(1) PRIVATE SPECIFIC TRUST

Where the individual shares of the beneficiaries are known and ascertainable for e.g. Mr. X creates a trust for his 5 sons and the share of each son is mentioned in the deed as 20% each, then such trust is known as specific trust. In other words, where share of each member is determinate as per the trust deed, it is known as Private Specific Trust.

(2)  PRIVATE DISCRETIONARY TRUST

Where share of each member is indeterminate/not specifically mentioned in the trust deed and income is distributed to them on the “discretion” of the trustee; it is known as Private Discretionary Trust.

The Income-tax Act, 1961 does not define Discretionary Trust. However, Section 164(1) refers to discretionary trust as follows:-

Any income in respect of which the persons who are liable as representative assessee or any part thereof is not specifically receivable on behalf or for benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or part thereof is receivable are indeterminate or unknown.

The Apex court in the case of CWT v. Estate of Late Vikramsinhji of Gondal, (2015) 5 SCC 666: 2014 SCC On Line SC 340 at page 673 observed as follows in relation to discretionary trust:-

A discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they think fit. The trustees must exercise their discretion as and when the income becomes available, but if they fail to distribute in due time, the power is not extinguished so that they can distribute later. They have no power to bind themselves for the future. The beneficiary thus has no more than a hope that the discretion will be exercised in his favour. [Snell’s Principles of Equity, 28th Edn., 138]

Generally speaking a discretionary trust is a trust in which the individual shares in income or corpus of the beneficiaries are indeterminate or unknown. A trust has to be certain as to its beneficiary. Where it is for the benefit of an individual, it is expected that an alternative beneficiary should be provided in case of pre-decease of such individual before maturity of the trust. Where a trust is created for the two minors provided for the contingency of pre-decease of either of them, but not for the contingency of both, the Assessing Officer held the trust to be invalid on grounds of uncertainty as regards the beneficiaries. The High Court in Mehra Trust (2006) 284 ITR 149(All) found that in such a case, Section 77 of the Trust Act would provide for extinguishment of the trust, so that it will revert back to the settlor. There is therefore no uncertainty as presumed by the Assessing Officer. The trust was held to be valid.

(1)  Private Specific Trust

The share of each member is determinate, known and ascertainable.

FOR EXAMPLE:—

Mr. “X” creates a trust for his 4 sons and the share of each son is mentioned in the deed as 25% each, then such trust is known as specific trust.

(i) When trust income does not include any business income [Section 161(1)]

In case of Private Specific Trust (not having profits and gains of business) the share falling to each of the beneficiaries are required to be assessed in the hands of the trustee as a representative assessee as per section 161 “as if “ income were income received by him. Rate applicable to each beneficiary will be determined and applied to the income from the trust and for this purpose separate assessments will be made for each beneficiary.

Alternatively, the Assessing Officer has the option to make the assessment directly on the beneficiaries as per section 166. Once the Assessing Officer exercised his option to assess for that assessment year, again he cannot assess the same income for that assessment year in the hands of other person (i.e. the beneficiary or the trustee) [Circular No. 157, dated 26.12.1974]. Therefore for that assessment year once this option is exercised, section 161(1) cannot be invoked.

Assessment of trust where share of beneficiaries are unknown

CBDT has clarified on assessment of trust where share of beneficiaries are unknown. It has been clarified vide CBDT’s Circular No. 157 [F. No. 228/8/73-IT (A-II)], dated 26.12.1974 that the ITO should at the time of raising the initial assessment either of the trust or the beneficiaries adopt a course beneficial to the

Revenue. Having exercised his option once, it will not be open to the ITO to assess the same income for that assessment year in the hands of the other person (i.e., the beneficiary or the trustee).

CBDT’s Circular No. 157 [F. No. 228/8/73-IT (A-II)], dated 26.12.1974

Subject : Assessment of discretionary trusts under section 164/166 – Correct procedure therefor

1. Attention is invited to Board’s Instruction No. 45/78/66/ITJ(5), dated 24.02.1967 [printed here as Clarification 2] on the subject of assessment made under section 41(2) of the 1922 Act/section 166 of the 1961 Act. In spite of the clear instructions to the effect that neither section 41 which give an option to the department to tax either the representative assessee or the beneficial owner of the income nor the parallel provisions of the 1961 Act contemplated assessment of the same income both in the hands of the trustees and the beneficiaries, instances have come to the notice of the Board of such double assessment.

2. According to the Scheme of the 1961 Act, even as it was under the 1922 Act, the general principle is to charge all income only once. The Board desire to reiterate the earlier instructions in this regard. In order that there is no loss of revenue, the Income-tax Officer should keep this point in view at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to the revenue. Having exercised his option once, it will not be open to the Income-tax Officer to assess the same income for that assessment year in the hands of the other person (i.e., the beneficiary or the trustee).

Letter F. No. 45/78/66-ITJ(5), dated 24.02.1967 [Clarification 2]

1. Recently an interesting case came to the notice of the Board. The assessee was one of the beneficiaries in the trust. The shares of the beneficiaries were known and determinate. The Income-tax Officer raised an assessment on the trustees taxing the income of the trust in their hands at the appropriate rate and to the amount which would have been recoverable in the hands of the beneficiaries. While dealing with the case of one of the beneficiaries of the trust, the Income-tax Officer again included for rate purposes his share in the income of the trust. The reason advanced by him was that the amount of tax leviable should be the same whether the income from the trust is assessed in the hands of the trustees or in the hands of the beneficiaries and if the proportionate income from the trust is not included for rate purposes in the hands of the beneficiary, his income other than the income from the trust would be taxed at a rate lower than that which would have been applicable if the trust income were assessed directly in his hands.

2. The Board have been advised that the approach of the Income-tax Officer is not correct. Section 41 of the 1922 Act (corresponding to section 166 of the 1961 Act), gave an option to the department to tax either the representative assessee or the beneficial owner of the income. Once the choice is made by the department to tax either the trustee or the beneficiary, it is no more open to the department to go behind it and assess the other at the same time. The inclusion of the share income from the trust in the total income of the beneficiary for rate purposes would virtually amount to an assessment of the income which has already been assessed and subjected to tax. According to the scheme of the Act, if certain income is to be included for rate purposes in the total income, a specific provision in that behalf is made in the Act. In the absence of any such express provision, the general principle to charge all income only once would be applicable in such a case.

3. The position under the 1961 Act is also identical. In order that there is no loss to the revenue, the Income-tax Officers may keep this point in view while raising the initial assessment on the trust/beneficiaries.

(ii) When trust income includes any business income [Section 161(1A)]

Section 161(1A) of the Income Tax Act provides that if any part of the income of such a trust includes profits and gains from business, then the aforesaid principle of Section 161(1) would be ignored and the entire income of the trust including any profits and gains from business would be liable to income-tax at the maximum marginal rate.

The trustee should not have any income in the nature of profits and gains from business in the trust otherwise the entire income of the trust would become liable to maximum marginal rate of tax, namely, 30%.

(iii) Taxation of Private Specific Trusts

(a) When trust income includes any business income [Section 161(1A)]

Maximum Marginal Rate i.e. @ 30%

(b) When trust income does not include any business income

(i) Tax Rate applicable to each beneficiary

• • Alternatively – Assessing Officer can assess the income in the hands of the beneficiaries.

(ii) At rates of an Association of Persons (AOP) if—

• • Trust is declared by will.
  • It is exclusively for the benefit of any dependant relative.
  • The trust is the only trust declared by the settlor.

EXCEPTION:—

However, there is a very important exception offered by the proviso to Section 161(1A) which provides that the aforesaid provisions of Section 161(1A) about charging income-tax at the maximum marginal rate on the whole of income of a trust which includes profits and gains in business would not be applicable and the tax on the business income of the trust would be chargeable at normal slab rates of income-tax, provided the following three conditions are fulfilled:—

(a) If the trust has been declared by way of a will from which business income is derived, and

(b) It is exclusively declared for the benefit of any relative dependent on the settlor for support and maintenance, and

(c) Such trust is the only trust so declared by the settlor through the Will.

[“Relative” as per Section 2(41) means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual]

Tax Rates –Specific Trust [Section 161(1) and 161(1A)] 

If Income consist of or include Profits and Gains of Business or Profession (PGBP) in any general cases except below [Section 161(1A)]	Whole income at Maximum Marginal Rate (MMR)
MMR NOT APPLICABLE IF : Income consist of or include Profits and Gains of Business or Profession (PGBP) when trust declared by will exclusively for benefit of any relative dependent on him for support and maintenance and such trust is only trust so declared by him [Proviso to section 161(1A)] In other words, at rate of AOP if:- (i) Trust created through will and (ii) Exclusively for dependent relative and (iii) Only trust created by settlor	Tax leviable on total income of each beneficiary (i.e. at rate of AOP)
DOES NOT INCLUDES BUSINESS INCOME [SECTION 166] If income does not consist of Profits and Gains of Business or Profession – Taxable in the hands of trustee – rate applicable to each beneficiary shall apply to income of trust. Alternatively, Assessing Officer can assess income in the hands of beneficiaries.	Tax leviable on total income of each beneficiary

KEY NOTE
Representative assessee shall be subject to same duties, responsibilities and liabilities as if the income were received/accruing to him and shall be liable to assessment in his own name but in representative capacity only.

(2)  Private Discretionary Trust [Section 164 (1)]

The shares of the members of a Private Discretionary Trust are indeterminate or unknown. In other words, the share of each member is indeterminate say there are 2 members in the trust but their share of income is not written in the deed and income is distributed to them on the discretion of the trustee. Trustee(s) will be liable to tax as a representative assessee at the maximum marginal rate of tax.

What is Discretionary Trust

It is an express Private Trust. A flexible type of trust – an attractive vehicle for family money. Trustee has some form of power or discretion. May involve a wide variety of discretion and deals with all situations e.g., power of appointments, the power to choose. Trustee has a choice and discretions to exercise to determine the class of object. To lack prudence in dealing with money. The trustees can pay out income or capital to any one or more of the beneficiaries entirely at their own discretion.

Role of the Discretionary Trust

Protect trust property

• A useful device for a settlor who wishes to protect family property against spendthrift.
• Prevent and to safeguard the trust fund from dissipation by the beneficiaries – who are financially inexperienced.

Taxation of Private Discretionary Trusts

(a) When trust income includes any business income [Proviso to section 164(1)]

• • In this case trust will pay tax @ 30% + SC + HEC

(b) When trust income does not include any business income [Section 164(1)]

• • In this case trust will pay tax @ 30% + SC + HEC

EXCEPTION:—

However, the maximum marginal rate will not apply in the following cases and relevant income will be liable to tax in the hands of the trustees as if it were the total income of an association of persons—

(i) where none of the beneficiaries has taxable income (Rs. 2,50,000/- for assessment year 2020-21) is a beneficiary under any other private trust; or

(ii) where the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or

(iii) where the relevant income or part of relevant income is receivable under a trust created before 01.03.1970, by a non-testamentary instrument exclusively for the benefit of the relatives of the settlor or where the settlor is HUF, exclusively for the benefit of dependant member’s support and maintenance; or

(iv) where the relevant income is receivable by the trustees on behalf of provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession.

Taxation of Discretionary Trust (Section 164(1))

A	(a) If Income consist of or include Profits and Gains of Business or Profession (PGBP) in any general cases except below	Whole income at Maximum Marginal Rate (MMR)
	(b) At rate of AOP if:- (i)   Trust created through will and (ii) Exclusively for dependent relative and (iii) Only trust created by settlor	At rate of AOP
B	Does not includes business income At rate of AOP if:- (i) Beneficiaries have other income less than basic exemption limit (“BEL”) and are not beneficiaries in other trust; or (ii) Trust created through will and it is the only trust created by settlor; or (iii) Trust is non-testamentary trust created before 01.03.1970 for exclusive benefits of dependent relatives; or (iv) Trust created on behalf of any funds for benefits of employee	At rate of AOP

Taxation of AOP (Section 167B)

(a)	When shares of member are determinable	Income of member	Tax
		No member having more than BEL	Slab rates
		Any member having more than BEL	MMR
		Any member taxed at higher rate than MMR	On such portion relating to AOP – such higher rate On balance – MMR
(b)	When shares of member are indeterminable	Tax on total income – tax @ MMR Any member charged at rate higher than MMR – tax @ such higher rate

Even if the trust is regarded as discretionary trust it is the beneficiaries in whose hand income will be assessed once profits have been credited to their respective accounts

Even if the trust in question is regarded as a discretionary trust inasmuch as the profits have during the relevant assessment years been credited to the respective accounts of the beneficiaries, therefore, in view of the decision of this court in CIT v. Kamalini Khatau (1978) 112 ITR 652 (Guj), it is the beneficiaries in whose hands the income will be assessed. – [Moti Trust Kota  v. CIT (1999) 236 ITR 37 (SC)]

Character of discretionary trust cannot be changed by resolution passed by trustees

It is not open to a discretionary trust to convert nature of trust from discretionary to specific – [CIT v. Ambalal Sarabhai D. Trust No. 5 (1998) 231 ITR 540 : (2004) 137 Taxman 503 (Guj)]

Oral Trust [Sections 160(1)(v) and 164A]

A trust which is not declared by a duly executed deed in writing will be considered as an Oral Trust. Under the general law of trusts, a trust may be declared in writing or, if it concerns movable property, orally by words of mouth. An oral trust is deemed to be a written trust if a statement in writing, signed by the trustee(s), setting out the purpose(s) of the trust, particulars as the trustee(s), the beneficiary(ies) and the trust property, is forwarded to the Assessing Officer, within three months from the date of declaration of the trust [Explanation 1 to Section 160(1)].

“ORAL TRUST” means a trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] and which is not deemed under Explanation 1 of Section 160(1) to be a trust declared by a duly executed instrument in writing.

“ORAL TRUST” for the purposes of income-tax assessment, an “oral trust” means a trust which is not declared by a duly executed instrument in writing including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 [6 of 1913] and which is not deemed under Explanation 1 below section 160(1) to be a trust declared by a duly executed instrument in writing.

Charge of tax in case of oral trust : [Section 164A]

Where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be charged on such income at the maximum marginal rate.

Explanation : For the purposes of this section, “oral trust” shall have the meaning assigned to it in Explanation 2 below section 160(1).

Income of an oral trust, terms whereof are not recorded in writing and intimated to the assessing officer, within the specified time (i.e. within three months from the date of declaration of trust) will be chargeable to income-tax at the maximum marginal rate of tax.

However, income of an oral trust, terms whereof are recorded in writing and forwarded to the assessing officer within the specified time limit (i.e. within three months from the date of declaration of trust), will be chargeable to incometax at the maximum marginal rate of tax, only if, the share of the beneficiaries are indeterminate or unknown and where the shares of the beneficiaries are definite and known, the tax will be levied and recovered from the trustees in the same manner and to the same extent as would be leviable or recoverable from the beneficiaries.

Where only a part of the trust income is chargeable to tax, the share of the beneficiary, which is chargeable to tax is to be determined in the same proportion which such part bears to the whole income of the trust.

FOR EXAMPLE:—

The total income of a trust is 72,000/- out of which a beneficiary received 18,000/- and only 1/3rd of the trust income is chargeable to tax. In such a case, the share of the beneficiary which is chargeable to tax will be only 6,000/- i.e., (1/3 X 18,000/-).

Private Trust can claim deductions under Chapter VIA

All the benefits, deductions or allowances which an individual beneficiary could have obtained are also available to the trustees assessed in representative capacity. A private trust which invests/incurs expenditure on behalf of the beneficiary is eligible to claim deduction under Chapter VIA and further is also eligible for set-off and carry forward of losses.

Trust is entitled to deduction under section 54F by fiction of section 161 despite that AOP is not individual or HUF

It was held that the assessee was principally entitled to deduction under section 54F and it could not be said that since it was a AOP and not an individual or HUF the said exemption/deduction should be denied. – [Mrs. Amy P. Cama, Trustee of the Estate of Late M. R. Adenwalla v. CIT (1999) 237 ITR 82 (Bom)]

Section under which return of income is required to be filed

Whereas charitable/religious/electoral trust is required to e-File return of income under section 139(4A), securitization trust is required to e-File under section 139(4C), and business trust under section 139(4E) but Private trust is required to file / e-File return of income under section 139(1).

Representative assesses – Charge of tax – Beneficiaries unknown – Unregistered trust – Trustees filing their return showing taxable income – Trust is to be assessed as an AOP and the income would be taxable at maximum marginal rate

Dismissing the appeal of the assessee, the Tribunal held that in case of unregistered Trust, if Trustees are having taxable income, Trust is to be assessed as an AOP and its income would be brought to tax at Maximum Marginal rate as per provisions of section 164(1). (Related Assessment year : 2011-12) – [Basil Mendes Memorial Educational & Charitable Trust v. ITO (2018) 173 ITD 390 : 98 taxmann.com 474 (ITAT Bangalore)]

Income earned by a fund set up as a revocable trust to be taxed only in the hands of the beneficiaries as per the provisions of sections 61 to 63

It was held that income arising to a trust where the contributions made by the contributors are revocable in nature, shall be taxable at the hands of the contributors. It was further held that if the beneficiaries are identifiable, and share of each beneficiary is ascertainable through a mechanism/ formula prescribed under the trust deed, the trust cannot be said to be discretionary, and taxed at the maximum marginal rate (“MMR”). The Tribunal held that the trust was not an AOP, on the following reasoning:—

(i) the beneficiaries had not set up the trust;

(ii) the beneficiaries contributed money to the trust under separate agreements, and there was no inter se  arrangement between either of the beneficiaries;

(iii) it could not be said that two or more beneficiaries joined in for a common purpose or common action;

(iv) therefore, they could not be regarded as an AOP. The fact that the trust had its PAN under the status of an AOP was irrelevant. The fact that the trust filed the return of income as an AOP/ BOI was irrelevant. – (Related Assessment year : 2008-09) – [DCIT v. India Advantage Fund-VII – Date of Judgement : 17.10.2014 (ITAT Bangalore)]

Dissolution of trust – Equal distribution of asset – Amount received by a person as beneficiaries not be termed as amount received ‘without consideration’, hence, no addition could be made

Assessee and his wife were trustees and their two daughters were beneficiaries in a private trust created by assessee’s mother. Subsequently, assessee and his wife were added as additional beneficiaries and their daughters, on being major, relinquished their rights, etc. on property of trust. On dissolution of trust, assets were equally distributed between assessee and his wife. It was held that amount received by a person as beneficiaries on dissolution of trust cannot be termed to be an amount received ‘without consideration’ and, hence, no addition could be made. (Related Assessment year : 2007-08) – [Ashok C. Pratap v. Addl. CIT (2012) 150 TTJ 137 : 139 ITD 533 : 79 DTR 9 (ITAT Mumbai)]