Facts of the Case:
The assessee, Buckeye Trust, is a discretionary private trust created under the Indian Trusts Act, 1882. The trust was established by a trust deed dated 23.01.2018. The trustee of the trust was Buckeye Management Private Limited. On 31.03.2018, the settlor settled interest in certain partnership firms and investments in unlisted shares in favour of the trust through a settlement deed. The value of the assets transferred to the trust was approximately Rs. 669,27,63,437. The assessee trust recorded the said transfer in its financial statements under the head “Trust Fund”, and as investment in partnership firms/unlisted shares.
The trust filed its return of income for AY 2018-19 on 31.10.2018 declaring Nil income. The case was selected for complete scrutiny under CASS. The AO completed the assessment without making any addition and accepted the assessee’s claim regarding non-taxability of the amount received by the trust.
Subsequently, the Principal Commissioner of Income Tax (PCIT) examined the assessment records. The PCIT observed that the AO had failed to examine the taxability of Rs. 669,27,63,437/- received by the trust. The PCIT observed and held that the amount received by the trust should have been examined under Section 56(2)(x) which taxes receipt of money or property without consideration. According to the PCIT the exemption under the 4th proviso to Section 56(2)(x) applies only when property is received from an individual by a trust created solely for the benefit of the relative of the individual.
The PCIT noticed that Clause 6 of the trust deed empowered the trustee to add any person or class of persons as beneficiaries at any time. In the instant case since the trust was not created solely for the benefit of relatives, the exemption under Section 56(2)(x) would not apply. Therefore, the amount received by the trust could be taxable under “Income from Other Sources”. Under such circumstances, the PCIT concluded that the AO failed to make proper enquiries, and the order passed was erroneous and prejudicial to the interest of revenue. Accordingly, the assessment order was set aside under Section 263, directing the AO to make a fresh assessment. The assessee trust challenged the validity of the revisionary order before the Hon’ble Bangalore Tribunal
Contention of Assessee:
The assessee contended that invoke section 263 twin conditions should be satisfied i.e.,. the order of the AO should be erroneous and it should be prejudicial to the interests of the revenue. However, the said conditions are not satisfied in the present case and therefore, the PCIT had no jurisdiction to invoke Section 263.
The Assessee contended that trust was created “solely for the benefit of relatives,” making the receipt exempt under the 4th proviso to Section 56(2)(x) of the Act.
The Assessee further contended that although Clause 6.1 of the trust deed allowed adding beneficiaries, it was intended only for family members, and no non-relative had actually been added.
Contention of Revenue:
The Revenue contended that the AO has grossly failed in verifying the taxability of a massive Rs. 669 crore receipt and clause 1.6 and Clause 6 of the trust deed allowed for “other objects or persons” to be added as beneficiaries. Thus, the trust was not established solely for the benefit of relatives.
The Revenue contended that the Trust does not fall within the exclusion of the 4th proviso and therefore the receipt should have been taxable
Ruling:
The Tribunal has ruled in favour of the assessee by giving following observations stated hereunder:-
- It upheld the PCIT’s revisionary order, concluding that the original assessment was erroneous and prejudicial to the revenue.
- The Tribunal remarked that an AO is not expected to “put blinkers on his eyes” and mechanically accept claims; they must act as an investigator to ascertain the truth.
- The ITAT noted that the assessee executed a Supplementary deed in May 2025, which highlighted that the issues ignored by the AO were indeed critical.
- The Tribunal refrained from deciding on the merits of the case, instead sending it back to the AO to allow the assessee another chance to substantiate its claims.
Editor’s Note:-
The case highlights the tax implications of broad beneficiary clauses in private trust deeds. Even a potential power to add non-relatives can defeat exemptions available under Section 56(2)(x). This suggests that subsequent amendments to documents may not cure deficiencies in the original deed for earlier assessment years. The ruling strongly emphasizes that the Assessing Officer must conduct meaningful enquiry. A mechanical acceptance of the return may invite revision under Section 263.
Citation:- Buckeye Trust Vs PCIT-2 Bangalore (ITA No.1051/Bang/2024) of Hon’ble Bangalore Tribunal