Question And Answer
Subject: When a person desires of setting up a Private Trust where he is the sole beneficiary , whether provision of S. 56(2)(vii) is applicable ?
Querist: SANJAY
Answered by:
Tags: , ,
Date: May 15, 2021
Query asked by SANJAY

An individual holding OCI CARD is desirous of setting up a Trust in India and be the managing trustee and the beneficiary till he is alive . He is desirous of transferring his immovable property in India and also his income from abroad to the trust.
Will there be any levy of tax u/s 56 (2)(vii) as the recipient is  a trust or there will be no tax as he is the transferor and also the beneficiary

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As we understand,

The Settlor is the sole beneficiary of the Trust. Therefore, the doctrine of self to self will apply.

The Hon’ble High Court of Gujrat in the case of Bhavna Nalinkant Nanavati v. CGT [2002] 255 ITR 529 (Guj) (HC) in a case where settlor was the sole beneficiary held that though there is a transfer of property from the creator of the trust to the trustee, such transfer is without consideration, resulting in vesting of the property legally in the hands of the trustee, yet for the purpose of the provisions of the Act, it would not amount to a gift liable to tax under the Act in view of the fact that the trustee holds the property for the benefit of the beneficiary who in this case is the creator of the trust. In the absence of any other beneficiary it cannot be stated that effectively any interest in the property has passed. In other words, the necessary attributes of ownership remain unfulfilled, i.e., the ownership which the settlor had remains with her though in the capacity as the sole beneficiary. One may have to consider the provisions of General law including the stamp duty of respective State .

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