TMI Blog2017 (8) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... 1974 and CBDT instruction F Nos. 45/78/66-IT J(5), dated 24.02.1967. See CIT vs. Kamalini Khatau [1994 (5) TMI 1 - SUPREME Court] - Decided against revenue - ITA No. 1651/Del/2011 - - - Dated:- 27-4-2017 - SH. N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER For The Appellant : Sh. Rajesh Kumar, Sr. DR For The Respondent : Sh. Sumit Mangal, Sh. Saksnam Singh, CAs ORDER PER BEENA A. PILLAI, J.M : 1. The present appeal has been filed by revenue against order dated 20.01.2011 passed by Ld. CIT (A)-30, New Delhi for assessment year 2007-08 on following grounds of appeal: ( i) deleting the addition of ₹ 1,50,00,000/- rightly made by the AO on account of ' profit in lieu of salary1 u/s 17(3)(ii) of the IT Act, 1961; not considering the fact that (a) the Trust was established by the settler/employer company for the welfare of the employees only, (b) the objectives of the trust make it amply clear that the sum received by the assessee is nothing but a reward for employment with the employer/settler company and (c) that the connection of the assessee with the Trust was only on account of his connection with the employer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid tax, the same would be taxable in the hands of assessee. He placed his reliance upon order passed by Ld. AO. 7. On the contrary, Ld. AR submitted that IL FS created Employees Welfare Trust for the benefit of its employees, as well as for the benefit of employees of subsidiaries and associates. He submitted that during year under consideration there was a deposit of ₹ 1,50,00,000/- in the bank account of assessee by trust, as assessee was eligible beneficiary of IEWT. Ld. AR submitted that status of IEWT is of a discretionary trust, as its beneficiaries keep on changing. On recruitment, the employee becomes a beneficiary and on retirement he ceases to be beneficiary. IEWT has been filing its return of income in status of a discretionary trust every year in the past. 8. Ld. AR drew our attention towards assessment order passed in the case of trust for the year under consideration, wherein it has been categorically observed by Ld. AO therein that beneficiaries of trust are employee s of company and employees of associate and affiliate companies without any specific ratio for sharing of income or trust fund. He also drew our attention to page 34 and 35 of small pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employer is taxable as profit in lieu of salary u/s 17(3)(ii). This is the first year, such a heavy amount is distributed to all employees from the welfare trust as per their duty/responsibility in the organization. Since the trust is discretionary trust, there is also a discretion with the trustees to share the profits and gains in the manner they liked at that time. The AO had relied on following case laws in his order u/s 143(3) in this case:- 1) CIT v. KamaliniKhatau[1994]209ITR 101 (SC) 2) CIT v. Dr.Anand Sarabhai Trust [231 ITR 524 (1998) 3) Emil Webber v. CIT (1978) 114 ITR 515 The AO had also clearly analysed section 17(3)(ii) and explanations therein for definition of profit in lieu of salary. This definition of profit in lieu of salary 'u/s 17(3)(ii) is an inclusive definition, which is given in para XI/page-9 of assessment order'. Her interpretation is that profit in lieu of salary includes any payment (other than...............from other fund to the extent to which it does not consist of contribution by the assessee. (emphasis added). The ARs are interpreting the assessment of trust and beneficiaries u/s 160 to 167 of the I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g term capital gains, and then part of profit is distributed to beneficiaries of the trust. Since the trust had already paid the taxes vide JCIT, R-19(3), Mumbai's order dated 18-11-2009 for A.Y.2007-08, where that AO had assessed the income of trust at ₹ 141,30,92,160/- where long term capital gain is ₹ 139,72,15,4807-, the major part of income is on business/long term capital gains on sale of such shares of Employer Company held by trust. The trust is filing income/expenditure statement in its return of income. Since, the trust had already been assessed u/s 143(3) by JCIT, Range 19(3), Mumbai, there is no need to tax the distribution of profits/dividends to the beneficiaries of the trust again, as per the existing law u/s 160 to 166 of I.T.Act,1961. The appellant being one of beneficiaries, got the receipt from trust as non taxable receipt, hence capital receipt in his hand. This is also confirmed by Hon'ble Supreme Court in the case of CIT vs. Kamalini Khatau 209 ITR 101(1994) the operating part of this judgement is produced as under:- The liability of a trustee of a discretionary trust to be assessed to tax in respect of its income and to recovery t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf or which accrues or arises to him. A person may be directly assessed in respect of such income. The income of a discretionary trust which is within the accounting year distributed to and received by the beneficiary would, therefore, be subject to assessment in his hands and tax thereon would be recoverable from him. Such income would squarely fall within the broad sweep of total income under section 5 and the beneficiary would be liable to assessment and recovery of tax thereon under section 4. In C. R. Nagappa's case [1969] 73 ITR 626 (SC) this was clearly stated. It was said that it was implicit in the terms of section 161(1) that the Incometax Officer could assess a representative assessee as regards the income in respect of which he was a representative assessee, but he was not bound to do so. He could assess the representative assessee or the person represented by him. It must also be remembered, as was said in the case of Nizam's Family Trust [1977] 108 ITR 555 (SC), that when a trustee is assessed to tax upon the income of the trust it is really the beneficiaries who are sought to be assessed in respect of their interest in the trust properties throu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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