Section 56(2)(vi) – Amount received by a Trusteecum- Beneficiary of a discretionary trust, on dissolution of a trust, is not chargeable to tax u/s 56(2)(vi).
Facts:
The mother of the assessee was settlor of a private discretionary trust, created vide trust deed dated 19th January, 1978, wherein the assessee and his wife were the trustees and the two daughters of the assessee (viz. grand daughters of the settlor) were the beneficiaries. By letter dated 15th January, 2001, the assessee and his wife were added as beneficiaries to the said trust. On 30th March, 2001, two daughters of the assessee, both being major, signed the document of release whereby they relinquished their right, title, interest, share and benefits in and from the property and assets of the said trust including accumulated income. On 27th February, 2007, the said trust was dissolved and the assets were equally distributed amongst the two beneficiaries viz. the assessee and his wife. The assessee received Rs. 1,36,00,595. This sum of Rs. 1,36,00,595 was not included by the assessee in his returned income.
While assessing the total income of the assessee for AY 2007-08, the AO noticed that the trust was never registered u/s 12AA of the Act. He held that if the assessee claims to be a trustee, then his status will always be of a trustee and if he claims to be one of the beneficiaries, then he has no right to dissolve the trust. Accordingly, he held that, applying the provisions of section 77(b) of the Indian Trust Act, he included the said sum of Rs. 1,36,00,595 in the total income u/s 56(2)(vi).
Aggrieved the assessee preferred an appeal to CIT(A) who upheld the addition on the ground that the trust is not a relative of the assessee.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal noted that it is an un controverted fact that the trust had borne tax at maximum marginal rate on its income and also that the assessee had received the amount in the capacity of beneficiary. It held that amount received being in pursuance of dissolution of the trust cannot be termed to be an amount received by the beneficiaries “without consideration”. The addition made by the AO and upheld by CIT(A) was deleted.
