1. In this appeal, the assessee is contesting the order passed by the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act').
2. The assessee is a trust and is assessed in the status of an AOP. The assessment year is 1982-8 and the relevant previous year is Samvat year 2037.
3. One Shri Chandulal Manilal Thakkar executed a deed of settlement on 9-11-1977 by which he created a trust with an initial amount of Rs. 1,000. Under the said deed, 21 beneficiaries were entitled to the income of the trust at specified percentages. Shri Pankaj Jasubhai, Bhupendra Ratilal, Bharatkumar Shantilal, Kanubhai Natwarlal and Pareshkumar Jasubhai, the beneficiaries under the said deed executed deed of assignment all dated 19-10-1981 by which they transferred their beneficial interest in the trust to five different HUF assignees. For the assessment years 1978-79 to 1981-82, the ITO had framed the assessments in the hands of the assessee under Section 161 of the Act, treating it as 'specified trust'.
4. For the year under appeal, during the course of assessment proceedings, the ITO enquired of the assessee as to whether it would still be assessable under Section 161. Vide its letter dated 24-7-1982 (reproduced below), the assessee requested the ITO to assess the trustees and/or beneficiaries.
In continuation of the discussions we had today as desired by you, I am enclosing the deeds of assignment executed by the following beneficiaries in favour of the persons mentioned against their names.
2. You have appreciated that the beneficiaries under a trust have the right to transfer their beneficial interest under the trust being their properties. However, as desired by your honour we submit the following for your records : (1) The trust is a specific trust wherein the above persons as beneficiaries had definite share of interest in the trust in the income as well as in the corpus--under the deed of trust dated 9-11-1977.
(2) On 19-10-1981 the beneficiaries have assigned and transferred their property interest under the trust to the assignees mentioned above.
This is in accordance with Section 58 of the Indian Trusts Act, 1882 which reads as under : The beneficiary, if competent to contract, may transfer his interest, but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest: The owner of an equity by assignment, i.e., as an assignee is bound by all the equities which is assigned. An assignor can give what he himself has as equitable interest under the trust.
3. Your honor may kindly note that the assignors here were competent to contract being of full aged as required under the Indian Contract Act, 1872 and the trustees have been also kept informed and communicated of the said assignment.
4. The beneficial interest of a beneficiary under the trust is a property and as such it can be held, it can be enjoyed and which is an asset and subject-matter of wealth-tax and it could be disposed of as a property for the purpose of estate duty and the following important cases may also be noted for the purpose of record : (1) Mirza Mijaf AH Khan v. ACED  52 ITR (ED) 16 wherein the estate was being administered and managed by the committee for the benefit of certain persons and though the beneficiaries could not deal with the properties and enjoy them during the period of vesting in the committee, the High Court held that the rights of the beneficiaries were the properties, that cannot be destroyed and was the property passing on death of any beneficiary which they possessed and could be disposed as a property.
(2) CWT v. Her Highness Maharani Gayatri Devi of Jaipur  82 ITR 699 (SC) wherein the assessee was entitled under a trust to 50 per cent income of the trust fund. The Supreme Court has held that she was entitled to an aliquot share in trust and as a property. In the circumstances of the case it was held as a 'property' was liable for wealth-tax.
5. Much has been discussed about this concept in the case of Ahmed G.H. Ariffv. CWT  76 ITR 471 (SC) wherein their Lordships have to hold that 'property' is a term of widest import and subject to any limitation which the context may require, it signifies every possible interest, which a person can clearly hold or enjoy.
6. We do hope that the above submissions would be more than required in the instant case. We would request you to kindly assess the trustees and/or the beneficiaries as you may kindly decide upon.
However, for the purpose of information, we would submit that till past years, the beneficiaries have been assessed directly and the beneficiaries have also filed their return of income for this assessment year also as has already been submitted to your honour.
5. Thereafter on 27-7-1982, the ITO framed the assessment in the following manner : Return showing income of Rs. 2,62,690 was filed on 30-6-1982. Shri S.A. Sukhadia, advocate, represented the assessee in response to the notice issued under Section 143(2) of the Act. Assessee is a specific trust doing shroff business. After discussion and from the data made available, total income is worked out as under : Assessed under Section 143(3) of the Act. Issue D.N. & N.D. here as the assessee is a specific trust and the income is taxed in the hands of beneficiaries separately. Issue R.O. for TDS of Rs. 26,131.
Allocation of income is as per statement of assessee.
6. On an examination of the income-tax assessment proceedings in the assessee's case the Commissioner was of the view that 'by accepting the assessee's stand that it was a specific trust and the shares of the beneficiaries were determinate, the ITO had framed the assessment which was erroneous insofar as it was prejudicial to the interest of the revenue'. Vide his letter dated 9-7-1984, the Commissioner enquired of the assessee to show cause why action under Section 263 should not be taken in its case in view of the Explanation inserted in Section 164 of the Act with effect from 1-4-1980. The relevant portion of the said letter reads as under: It is noticed that out of the twenty persons shown as beneficiaries in the return, six persons mentioned below are not specified as beneficiaries in the trust deed.
4. An Explanation was inserted in Section 164 with effect from 1-4-1980 providing in effect that a trust shall be treated as a discretionary trust and in cases where the names of the beneficiaries are not identifiable as such on the date of the trust deed. In your case it is noticed that the six persons mentioned in para 3 above have not been specified as beneficiaries in the deed of trust. In view of this it appears that the Income-tax Officer erred in not determining the amount of tax payable by the trust as a discretionary trust. In the circumstances, the order of assessment passed by the Income-tax Officer appears to be erroneous insofar as it is prejudicial to the interests of revenue. I, therefore, propose to pass an order under Section 263 directing the Income-tax Officer to revise the assessment in the case of the trust for the assessment year 1982-83 by assessing the trust as a discretionary trust and determining the amount of tax payable by the trust.
7. In its letter dated 14-7-1984 the assessee objected to the proposal of the Commissioner as under : Without prejudice to the above and in the alternative the submissions are as under : We may bring to your kind notice that Jigna Natvarlal, one of the six persons alleged to have been not shown as beneficiary in the trust deed is not correct, Jigna Natvarlal is one of the beneficiaries in Group 'A' in the trust deed which can be verified by your honour from the notice given by you to us.
With reference to the para 4 of your notice, we have to respectfully submit that the instant case is a case of specific trust and not a discretionary trust. The Explanation referred to by you in your letter does not apply to this case. Further, the five persons have not been made beneficiaries by virtue of the exercise of discretion of the trustees which of course is not in the trust deed but because of assignment being made by some beneficiaries in their favour. In the facts and circumstances of the case and in law, the provisions of Explanation to Section 164 brought into effect from 1-4-1980 do not apply.
In the circumstances, the order of assessment passed by the Income-tax Officer is not erroneous and/or is not prejudicial to the interest of revenue. We, therefore, request you not to direct the Income-tax Officer to revise the assessment in the case of the trust for the assessment year 1982-83 by assessing the trust as a discretionary trust and to determine the amount of tax payable by the trust. We have, therefore, to strongly object to the action proposed to be taken by you and drop the proceedings proposed by you.
8. After considering the submissions made on behalf of the assessee, the Commissioner was of the view that the Explanation to Section 164 was clearly attracted in the assessea's case and that the ITO erred in not assessing the assessee-trust as discretionary trust. He, therefore, directed the ITO to revise the order of assessment by assessing the trust as discretionary trust and determine the amount of tax payable by it as such.
9. Being aggrieved by the order of the Commissioner, the assessee has come up in appeal before the Tribunal. The learned counsel for the assessee vehemently argued that the Commissioner was not justified in holding that the provisions of the Explanation to Section 164 were attracted in the case of the assessee. In this connection, he submitted since all along in the past, the assessee-trust was treated as 'specific trust', the Explanation to Section 164 cannot be invoked as the provisions of the main Section of 164 are not applicable in the case of the assessee. Thereafter inviting our attention to  123 ITR (St.) 18,  131 ITR (St.) 158 and  131 ITR (St.) 35-36, the learned counsel for the assessee wanted to impress upon us that the Commissioner had failed to appreciate the purpose of insertion of the Explanation in Section 164. According to the learned counsel for the assessee, prior to the said insertion, the discretionary trust used to become 'specific trust' by passing appropriate resolutions with a view to modify the provisions of the trust. However, after the insertion of the said Explanation, this mischief was 'plugged'. Since, in the instant case even prior to the insertion of the said Explanation the assessee-trust was never held to be a discretionary trust, the provisions of the Explanation to Section 164 have been wrongly applied by the Commissioner. In this connection, he further submitted that if we were to ignore the deed of assignment executed by the aforesaid five beneficiaries then the terms and conditions of the original trust would be restored and in that case the assessee-trust would still be 'specific trust'. In other words, the learned counsel for the assessee wanted to impress upon us that by taking action under Section 263, the Commissioner has started an exercise in futility. Thereafter, the learned counsel for the assessee invited our attention to Sections 3, 8 and 58 of the Indian Trusts Act, 1882, to urge that the beneficiaries under the trust are competent to transfer their interest to whomsoever they desire. In this connection he relied on the decisions of the Hon'ble Supreme Court in the case of CIT v. Smt. Kasturbai Walchand Trust  63 ITR 656 and CIT v. Nawab Mir Barkat Ali Khan Bahadur  97 ITR 246. He, however, hastened to state that this action of the beneficiaries would not in any way convert the desire of the settlor as on their own volition they have assigned their interest to the named assignees. In this view of the matter, he submitted that since not applicable of the main Section 164 were to be applied in the instant case, the Commissioner has wrongly passed his order under Section 263, keeping in mind the Explanation inserted in the said Section from 1-4-1980. He, therefore, urged that the order of the Commissioner should be set aside.
9.1 Relying on the decision in the case of Rai Saheb Seth Ghisalal Modi Family Trust v. CIT 149 ITR 724 (MP), the learned counsel for the assessee submitted that since the beneficiaries under the trust including the assignees were assessed by the ITO, the ITO cannot be asked to pass a fresh order as directed by the Commissioner.
9.2 Even assuming for the sake of argument that the main Section 164 is applicable in the instant case as held by the Commissioner, the learned counsel for the assessee submitted that only that parts of the income which are assigned to the five HUF - assignees could be taxed at the maximum marginal rate and not the entire income of the assessee-trust.
10. The learned representative for the department strongly relied on the order of the Commissioner and justified his action. In this connection, he invited our attention to Clauses 4, 6(i) and 6(m) of the deed of assignment in the case of Shri Pankaj Jasubhai with a view to impress upon us that by executing the said deed the assignor has tried to substitute a beneficiary in the deed of settlement dated 9-11-1977.
11. We have carefully considered the rival submissions of the parties as well as the material already available on record and we find considerable force in the submissions made on behalf of the assessee that in view of the provisions of Sections 3, 8 and 58 as well as the aforesaid two decisions of the Hon'ble Supreme Court, it cannot be denied that the beneficiary has right to assign his interest in a trust. We have carefully gone through the Finance Minister's speech, the notes on clauses, the memorandum explaining the provisions of Finance (No. 2) Bill, 1980 and the circular issued by the CBDT explaining the provisions of the Finance (No. 2) Act, 1980, and we entirely agree with the submissions made on behalf of the assessee that the Explanation inserted in Section 164 would be applicable to only those trusts which are discretionary in nature and not the trusts which are 'specific trusts'. In the instant case it cannot be disputed that the shares of the beneficiaries are determinate and specified. In fact all along in the past right up to the assessment year 1981-82, the ITO himself has framed the assessments under Section 143(3) read with Section 161 of the Act treating the assessee as 'specific trust'.
Therefore, the provisions of the main Section 164 are not attracted in the assessee's case. In this view of the matter, the Explanation to the said Section cannot also be attracted. Therefore, in our view, the Commissioner was not justified in passing order under Section 263 and giving directions to the ITO in the manner he did. We have, therefore, no hesitation in setting aside his order under appeal.
12. In view of our aforesaid decision, it is not necessary to deal with the other two submissions made on behalf of the assessee which are recorded above.