N.M. Kasliwal, J.
1. Both the above reference applications are disposed of by one single order as common questions of law arise in both the cases except that the assessment years are different.
2. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as 'the Tribunal'), by order dated August 5,1981, has referred the following questions of law for the opinion of this court :
'(1) Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in holding that the Commissioner of Income-tax was justified in passing the order under Section 263 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the findings of the Commissioner of Income-tax that the trust was a discretionary trust ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the shares of beneficiaries were indeterminate or unknown and, as such, the provisions of Section 164 were applicable?'
3. Brief facts of the case are that pursuant to a notice issued under Section 143(2) of the Income-tax Act, 1961 (No. XLIII of 1961) (for short 'the Act'), by the Income-tax Officer, A-Ward, Kota, M/s. Moti Trust (hereinafter referred to as 'the assessee ') filed a return of its income as Rs. 68,100 for the assessment year 1976-77 and Rs. 41,860 for the assessment year 1977-78. The assessee declared its status as association of persons. A note was put in the return of income that the assessee was a determinatory trust ; no tax was leviable on the trust; beneficiaries, according to their shares, shall be taxed.
4. The Income-tax Officer completed the assessment of the assessee, i.e., Moti Trust, determining its status as association of persons. In the assessment order it was observed by tbe Income-tax Officer that the trust had been created by Sardar Mehtab Singh and Smt. Somawanti Sethi by settling a sum of Rs. .10,000. It was further observed by the Income-tax Officer that the trust property had been specified and the beneficiaries had also been mentioned along with their shares. As the shares had been determined, it was a specific trust. The trust became a partner in M/s. Ujagar Singh Sethi & Bros., Naya Pura, Kota, through its trustee, Shri Moti Singh. The Income-tax Officer determined the income of Moti Trust at Rs. 98,010 for the assessment year 1976-77 and at Rs. 41,860 for the assessment year 1977-78. The status in the assessment order was determined as association of persons. In the order, the Income-tax Officer further wrote 'Assessed. Issue necessary forms. Profit among the beneficiaries would be distributed as per ratio prescribed in the trust deed.'
5. The Commissioner of Income-tax, Jaipur, took the view that the Income-tax Officer had completed the assessment of the assessee in the Status of association of persons and had completed the assessment under Section 164 of the Act. The assessee itself had also declared the status as association of persons but the Income-tax Officer in the assessment forms did not tax the trust as provided under Section 164. The order passed by the Income-tax Officer was considered to be erroneous and as there was loss of lawful revenue and prejudicial to the interest of Revenue, action was taken under Section 263 of the Act. The Commissioner issued a notice to the assessee under Section 263 of the Act. The assessee filed a written reply. The Commissioner then heard the arguments of both the parties and after taking into consideration the relevant clauses of the trust deed, held that it was not a specific trust as observed by the Income-tax Officer in the assessment order. It was also observed by the Commissioner that it was a discretionary trust with very wide powers given to the trustee either to distribute the income or not to distribute the income. The provisions of the trust deed gave discretion to the trustee to distribute the income or accumulation within 20 years or after 20 years. The trustee was also given further powers in his absolute discretion to distribute the trust fund or accumulation thereon after 20 years. The discretion was entirely on the trustee to distribute or not to distribute the income even after 20 years as the :period for distribution of the trust fund had not been specified. It was also observed by the Commissioner that the trustee was further empowered to distribute the trust fund either partly or completely or individually or severally in his absolute discretion. These facts, according to the Commissioner, showed that it was an out and out discretionary trust and not a specific trust, as had been held by the Income-tax Officer. The Commissioner, thus, by order dated October 19, 1979, set aside the order of the Income-tax Officer in respect of the assessment year 1977-78 and by order dated October 23, 1979, set aside the order of the Income-tax Officer in respect of the assessment year 1976-77. The Commissioner directed the Income-tax Officer to charge tax on the assessee-trust under Section 164 of the Act and to issue necessary consequential notice of demand and challan and take steps to collect the same as per the provisions of the Income-tax Act, 1961.
6. The assessee, aggrieved against the orders of the Commissioner, filed two appeals before the Income-tax Appellate Tribunal. The learned Tribunal disposed of both the appeals by a common order dated November 24, 1980. The Tribunal agreed with the view taken by the Commissioner and dismissed both the appeals filed by the assessee. The Tribunal took into consideration Clauses 1, 2(i) and 3 of the trust deed. After taking into consideration the language used in the aforesaid clauses, the Tribunal held that the fund of the trust will be not only the initial contribution by the settlors at Rs. 10,000 and subsequent donations, but also the accumulations out of the income of these funds. After referring to the provisions contained in Clause (1) of the trust deed, the Tribunal observed as under :
'In our opinion, the trust fund consists of the original fund of Rs. 10,000, donations, if any, and the interest income arising out of such funds. Viewed from this angle, all the accumulations out of the shares of the beneficiaries would form the corpus of the trust and not of the individual beneficiaries as urged by learned counsel for the assessee. Again, the trustee in Clause (2) has been given the discretion to accumulate the entire share or a part of the share or to accumulate no share at all in the case of different beneficiaries. This is evident from the fact that for the two assessment years he has accumulated the entire shares of all the beneficiaries even though there were expenses of the nature referred to in Clause (2) in respect of the beneficiaries. Had it been the case that he has necessarily to meet such expenses of the beneficiaries out of their shares, he would have definitely spent the same out of his share. It is because of the discretion vested in him that he has not spent anything on any of the beneficiaries. The discretion exercised by the trustee in these two years may not be detrimental to the interests of the beneficiaries, but this discretion can be exercised by the assessee at any time even to the detriment of the interest of any beneficiary, depending upon his sweet will. In this view of the matter, we are in agreement with the learned departmental representative that the trust is a discretionary one. We also agree with him that such discretion vested in the trustee would contribute to the fluctuation of future earnings of different beneficiaries. We are also in agreement with him that ultimately when the corpus is to be distributed, the shares of the beneficiaries will vary depending upon the variations in the accumulations. Beneficiaries in whose cases no accumulations were at all made will also share accumulated profits out of the corpus to the detriment of the beneficiaries who had accumulated such shares. Lastly, we are also in agreement with the learned departmental representative that by Clause 3, absolute discretion has been given to the trustee even to vary the sharing ratios of the various beneficiaries. It does not specifically say that the trustee shall not vary the sharing ratios of the beneficiaries while ultimately distributing the corpus. This also gives discretionary powers to the trustee and, therefore, makes the trust a discretionary one.'
7. The alternative argument made by learned counsel for the assessee that so far as the two assessments in appeal were concerned, the trustee had not exercised any such discretion and, therefore, the two assessment years were not affected, was also repelled by the Tribunal. In this regard, it was held by the Tribunal that they had to consider from the various clauses of the trust deed as a whole, whether or not the trust was a discretionary one and not that in a particular year the trustee did not exercise that discretion.
8. The assessee then submitted an application under Section 256 of the Act for referring the questions of law for the opinion of this court. The Tribunal by order dated August 5, 1981, has thus referred the above-mentioned three legal questions for the opinion of this court.
9. In order to appreciate the arguments advanced by Dr. Dastoor, learned counsel for the assessee, and Mr. Surolia, appearing on behalf of the Department, it would be necessary to reproduce such clauses of the trust deed which would have a bearing for deciding the legal questions raised in these references :
'1. That the trustee shall invest the said sum of Rs. 10,000 (Rupees ten thousand) only in any one or more of the investments hereinafter authorised and collect the interest and income of the investments representing the said sum as well as of any other amounts which may be received by him to be held upon the trusts hereinafter contained as hereinafter provided (hereinafter referred to as the trust fund) as well as the share in profits in any business which may be carried on by him pursuant to the powers granted to him as hereinafter contained and pay therefrom all costs, charges and expenses, of collection of such interest and income as well as cost of management of the trust as well as and incidental to the appointment of new or additional trustee and/or trustees.
2. (i) The trustee shall divide the said interest, income and/or profits (hereinafter referred to as the ' net income') in the proportions as mentioned hereinafter and apply 12 per cent. for the maintenance, education (including education in foreign countries) and marriages and other social functions and customs among the community of settlors, as also for payment of life insurance premium on the life of the said S. Satjit Singh Sethi as well as for any other expenses which may have to be incurred for the said S. Satjit Singh Scthi, with powers to the trustee to accumulate the whole of the said income or such part thereof as may not be applied for such maintenance, education, marriage; and such other expenses as are hereinabove referred to and invest the same in one or more of the investments hereinafter authorised arid the resulting income of the investments so that all accumulations so made and the investments for the time being representing the same shall for all purposes be treated as corpus or capital and upon the expiration of the said period of 20 years or the period which the trustee may decide hereinafter, the trustee shall hand over and transfer or pay 12 per cent. of the trust fund as well as the whole of the accumulations of income, if any, to the said Sardar Satjit Singh Sethi absolutely and if he is not alive at the date of distribution, then the said 12 per cent. of the trust fund and the whole of the said accumulations of income shall be distributed equally amongst the persons who would have received the same as heirs of the said Sardar Satjit Singh if he had died intestate and possessed of the said whole of the trust fund but excluding the settlors if they happen to be one of such heirs, so that no part of the trust fund or the income thereof shall revert to the settlors.
3. Notwithstanding anything contained in Clause 2 hereof the trustee/trustees shall have absolute discretion to distribute the trust fund including the accumulated income thereon before the expiry of 20 years from the date hereof and in the event of the trustee/trustees so deciding the distribution shall be so effected individually, severally or completely which in the judgment of the trustee/trustees would be in the best interest in carrying out or in furtherance of the objects of the trust.
5. Without affecting the generality of the powers, provisions and authorities vested in the trustee/trustees under these presents the trustee/ trustees shall have in addition thereto and not in substitution thereof and shall be entitled to execute all acts, documents, and things necessary, ancillary or incidental thereto, that is to say : (j) The trustee/trustees shall be entitled to determine whether any money or property shall for the purpose of this trust be considered as capital or income and whether expenses, outgoings or loans ought to be paid or borne out of the corpus or income and any and every such determination of the trustee/trustees shall be conclusive.'
10. We may first discuss the fields of operation of Section 161(1) of the Act.
11. Section 161(1) applies only where the income is specifically receivable by the representative assessee on behalf, or for the benefit, of a single beneficiary or where there are more beneficiaries than one, the individual shares of the beneficiaries are determinate and known. Tax in such a case would be levied on the representative assessee on the portion of the income to which any particular beneficiary is specifically entitled in the same manner and to the same extent as it would be leviable upon the beneficiary and in respect of such portion of the income, the representative assessee would be assessed in a representative capacity as representing the beneficiary. On the other hand, where the income is not receivable or received by the representative assessee specifically on behalf of, or for the benefit of, a single beneficiary or where the beneficiaries are more than one and the individual shares of the beneficiaries are indeterminate or unknown, the last part of Section 161(1), which prescribes that tax shall be levied upon the representative assessee in the like manner and to the same extent as it would be leviable upon the person represented by him, would not be applicable. In such a case, the assessment on the representative assessee is to be made under and in accordance with the provisions of Section 164. Section 161(1) of the Act enacts the general law about the liability of representative assessees who shall be subject to the same duties, responsibilities and liabilities as the beneficiary.
12. Section 164 is a charging section, but Section 161 does not create a charge. Thus, for cases covered by Section 164, one has to look only to the special provisions of that section rather than to Section 161. If Section 164 is to be applied, then the income shall be assessed to tax in the hands of the trustees, either as if the relevant income or part thereof were the total income of an association of persons or at the flat rate of 65%, whichever course would have been beneficial to the Revenue.
13. Section 164 of the Act concerns private discretionary trusts. A 'discretionary trust' has been defined to mean' a trust under which the trustees have absolute discretion to apply the income and capital of the trust as they will. 'A discretionary trust is one which gives the 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 following passage in Gartside v. Inland Revenue Commissioners  70 ITR 663 succinctly brings out the nature of the interest of a beneficiary under a discretionary trust (p. 719) :
'No doubt in a certain sense a beneficiary under a discretionary trust has an 'interest' : the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion 'fairly' or 'reasonably' or 'properly', that indicates clearly enough that some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes. But that does not mean that he has an interest which is capable of being taxed by reference to its extent in the trust fund's income : it may be a right, with some degree of concreteness or solidity, one which attracts the protection of a court of equity, yet it may still lack the necessary quality of definable extent which must exist before it can be taxed.'
14. Now, we shall consider whether the trust in question is a discretionary trust or whether the shares- of the beneficiaries are determinate and known, or indeterminate and unknown.
15. Dr. Dastoor, learned counsel for the assessee, in this regard, contended that in accordance with the provisions contained in the trust deed, the share of each individual beneficiary is clearly defined as contained in the various sub-clauses of Clause 2. It has been clearly mentioned with regard to each individual beneficiary that his share would be 12%, 5%, 18%, 8%, 4% or 6%. It was submitted that even if the quantum of the actual share may change, the percentage of share will always remain the same. It was submitted that in Clause 1 of the trust deed, the trustee has been authorised to invest a sum of Rs. 10,000 in any one or more of the investments authorised in the trust deed itself and to collect the interest and income of the investments as well as of any other amounts which may be received by him to be held upon the trust and such, amounts alone have been referred as the trust fund. So far as the share in profit of any business which might be carried on by the trustee in pursuance of the power granted to him, it shall not be included in the trust fund. Under Clause 2(i), the trustee then will divide the said interest income and/or profits in the proportion as mentioned in the trust deed and apply a definite percentage of the net income for the maintenance, education, marriages and other social functions and customs among the community of settlors, and also for payment of life insurance premium and in case such income is not applied for the aforesaid expenses, then, the trustee has been empowered to accumulate the whole of the said income or such part thereof as may not be applied for such expenses and invest the same in one or more of the investments. It has also been provided that upon the expiration of the period of 20 years or the period which the trustee may decide hereafter, the trustee shall hand over and transfer of pay definite and determinate percentage of the trust fund as well as the whole of the accumulations of income to each of the beneficiaries. It was thus submitted that the trustee had no right to change the share of any individual beneficiary and their shares have been specifically made known and determinate under the various sub-Clauses of Clause 2 of the trust deed. There are 14 beneficiaries and in the 14 sub-clauses of Clause 2 of the trust deed, shares of each of the individual beneficiaries have been specifically defined and as such it cannot be considered as a discretionary trust as the shares are specified and known. Reliance was placed on Khimji Keshavji Trust Estate v. CIT : 113ITR751(Cal) , CIT v. K. Balakrishna Rao : 143ITR651(Mad) and CWT v. Trustees of Nizam's Family : 108ITR555(SC) .
16. On the other hand, it was submitted by Mr. Surolia, learned counsel for the Revenue, that according to Clause 1, the share in profits in any business which may be carried on by the trustee, shall also be included in the term 'trust fund'. It was also argued that under Clause 2(i), it has been clearly provided that not only the resulting income of the investments but all accumulations shall for all purposes be treated as corpus or capital. It has been left to the discretion of the trustee to hand over and transfer the trust fund and the whole of the accumulations of income to the beneficiaries before or after the expiration of 20 years or to defer the same even after 20 years for any period which the trustee may decide hereafter. Attention was drawn to the language of Clause 3 of the trust deed which starts with a non-obstante clause 'notwithstanding' and in this clause, it has been provided that notwithstanding anything contained in Clause 2, the trustee/trustees shall have absolute discretion to distribute the trust funds including the accumulated income even before the expiry of 20 years and distribution can be effected individually, severally or completely, which in the judgment of the trustee/trustees, would be in the best interest in carrying out or in furtherance of the objects of the trust.
17. Mr. Surolia also submitted that under Clause 5(j), it has also been provided that without affecting the generality of the powers, provisions and authorities vested in the trustee/trustees, they shall have an additional power to determine whether any money or property for the purpose of this trust shall be considered as capital or income and whether expenses, outgoings or loans ought to be paid or borne out of the corpus or income and such determination shall be conclusive. It was submitted by Mr. Surolia that on a combined reading of Clauses 1, 2, 3 and 5(j), it was abundantly clear that the trustee/trustees had full discretion even to vary the sharing ratios of the various beneficiaries, to distribute the trust fund and other accumulations before 20 years or after 20 years or to defer even thereafter and even in case of such distribution, to pay the same individually, severally or completely, which in the judgment of the trustee/trustees may be in the best interest in carrying out or in furtherance of the object of the trust. It was thus submitted that when such discretionary powers have been vested in the trustee/trustees, the share of the beneficiary remains unknown and indeterminate and the Tribunal has rightly taxed the assessee under Section 164 of the Act.
18. Much controversy was raised by learned counsel for both the parties on the interpretation of the language used in Clause 1 of the trust deed for holding as to what amounts should come within the purview of 'trust fund' and what amounts remain outside the purview of the trust fund. In our view, any interpretation of Clause 1 either way is not going to decide the matter in controversy. The important provisions are those which are contained in the various sub-clauses of Clause 2 and for which Sub-clause (i) of Clause 2 has been extracted by way of illustration and Clauses 3 and 5(j).
19. Under Sub-clause (i) of Clause 2, it has been clearly provided that the trustee shall have powers to accumulate the whole of the net income or such part thereof as may not be applied for expenses and invest the same in one or more of the investments authorised under the trust deed and the resulting income from the investments and all accumulations so made, shall for all purposes be treated as corpus or capital. It has also been provided that upon the expiry of the period of 20 years or the period which the trustee may decide hereafter, the trustee shall hand over and transfer or pay the trust fund as well as whole of the accumulation of income to the beneficiary according to the percentage of share mentioned therein. Then, under Clause 3 which starts with a non obstante clause and overrides whatever is contained in Clause 2, it has been provided in clear language that the trustee/trustees shall have absolute discretion to distribute the trust fund including the accumulated income before the expiry of 20 years, but in the event of such distribution, again the trustee/trustees have, been given discretion to effect the same individually, severally or completely, according to their judgment, and which would be in the best interest in carrying out or in furtherance of the object of the trust. The above provisions of Clause 3, in our view, clearly give power to the trustee/trustees to distribute the trust fund including the accumulated income to only one beneficiary, or to some of them or to all of them. This would certainly vary the sharing ratios of the various beneficiaries. When this power is read coupled with the discretion given under Clause 5(j), it also becomes clear that the trustee/trustees are also entitled to determine any money or property for the purpose of the trust to be considered as capital or income. There is no provision, as pointed out by Mr. Surolia, learned counsel for the Revenue, making it obligatory on the trustee to credit the income of each individual beneficiary in his individual account every year. The absence of such provision to credit the income in the share of each individual beneficiary every year and a provision giving power to determine any money or property as capital or income is bound to fluctuate the share of each individual beneficiary and in this view of the matter, the trust becomes a discretionary trust and the shares remain indeterminate and unknown.
20. Learned counsel for the assessee laid emphasis on the argument that the shares of all the 14 beneficiaries have been clearly specified in the sub-clauses of Clause 2, and irrespective of the point of time, i.e., before or after 20 years, at least this much was certain that whenever the trust fund and other accumulations would be distributed, the same will have to be done according to the definite percentage of shares mentioned in the trust deed. The argument appears to be convincing in the first impression, but while going deep into the various provisions of the trust deed and the wide powers and discretion given to the trustee/trustees, we are fully convinced, as already discussed above, that even the sharing ratios of the beneficiaries could be varied at the time of ultimate distribution of the trust fund and its accumulation.
21. We do not propose to discuss the cases relied upon by learned counsel for the assessee because every case depends on the language and provisions contained in each individual trust deed. Admittedly, the provisions of the trust deed, under consideration before us, are totally different from the provisions contained in the trust deeds considered in the cases cited by learned counsel for the assessee.
22. It was also argued by learned counsel for the assessee as an alternative argument, that the beneficiaries have already been assessed in their individual capacity and they cannot be assessed as an association of persons. Reliance in this regard was placed on CWT v. Kum. Manna G. Sarabhai : 86ITR153(Guj) , in which it was held that the assessment having been made in the hands of the trustees, it cannot be made again in the hands of the beneficiaries. Reliance was also placed on a decision of this court in Narnauli Jewel Corpn. v. CIT . In the above case, it was held that once the assessment of a partner or a member of an association having been made by taxing directly his proportionate share in the firm or association, the Income-tax Officer is precluded from assessing the firm in the status of an unregistered firm or an association of persons. Mr. Surolia, learned counsel for the Revenue, submitted that no such question was raised before the Tribunal and such question does not come within the purview of the legal questions referred to this court for opinion. It was also submitted by Mr. Surolia that he cannot be taken by surprise at this stage and he was not in a position to state whether all the beneficiaries or each of them have been assessed in individual capacity or not.
23. In our view, the assessee cannot be permitted to raise a new ground which does not arise out of the order of the Tribunal. A perusal of the order of the Tribunal goes to show that no such question was raised before the Tribunal and such controversy cannot be allowed to be raised for the first time in the reference.
24. As an alternative argument, it was also submitted by learned counsel for the assessee that in the relevant years of assessment, the individual share of beneficiaries has been credited in their accounts and for these years, the share should be taken as clearly known and determinate. We find no force in this argument.
25. The nature and character of the trust deed have to be determined as a whole by taking the entire provisions of the trust deed and once it is held that it was a discretionary trust and the shares of the beneficiaries were not known and determinate, it cannot be decided in a different manner for any particular assessment year.
26. So far as the question of taking action under Section 263 of the Act by the Commissioner is concerned, adequate reasons have been given by the Commissioner that there was loss of revenue and, as such, the Commissioner had jurisdiction to take action under Section 263 of the Act.
27. Thus, in our view, the Tribunal has correctly decided the questions of law raised before it.
28. In the result, all the legal questions referred to above are decided in the affirmative and against the assessee.
29. There will be no order as to costs.