The taxation of private trusts itself a vexed issue: Inspite of various rulings including those of the Apex Court, there is no certainty in this area.

TAXATION OF PRIVATE TRUST.

The taxation of private trusts itself a vexed issue: Inspite of various rulings including those of the Apex Court, there is no certainty in this area.

Tax liability in the hands of trustee.

Sec 56(2)(x) levies on receipt of property without consideration. When a settlor settles the property in the trustee, there is an obligation on the trustee to use the property for the object of the trust and for the benefit of the beneficiaries.

When a Trustee is receiving the property, there is an obligation accepted by the Trustee and acceptance of such obligation would be an adequate consideration for the receipt of the property, thereby ousting the applicability of of S.56(2)x(x).

Trustee receives the property which is to be held in fiduciary capacity for the benefit of the beneficiaries. No gain, profit accrue in favour of the trustee in his personal capacity. In fact section 51 of the Indian Trust Act 1882, clearly stated that the Trustee may not use or deal with the trust-property for his own profit or any other purpose unconnected with the trust.

In such a scenario as in the case Rehman, it cannot be said that Trustee acquires a right in rem or any beneficial right in the property which would be sine qua non for being taxed u/s 56(2)(x).In the Judgement of Apex court in case of Nizam, wherein the court held ” the very concept of a trust connotes that though legal title vests with the Trustee, he does not own or hold the trust properties for his personal benefit but holds the same for the benefit of others, whether individuals or purposes. Further, in that case, the Court held that under Wealth Tax Act, 1957, what can be taxed in the hands of the trustee would be tbe value of the interest in the property and not the value of the property per se.

By extending this logic to Rehman’s case, one can state that whatever is held by the Trustee is for the beneficiaries and therefore nothing can be taxed in his hands.

The above reasoning would apply whether a Trust is determinate or indeterminate

IT officials with their sweeping powers normally harass assesses to fulfil their target obligations set by their department.

In a similar harassment made by the IT department with the Trustees of Shirdi Sri Sai Temple, the Court passed strictures against IT officials for the harassment.

N.GIRIRAJ

LEGAL POINT