TMI Blog1998 (6) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... yds at Napean Sea Road, Bombay. The late Mr. M. R. Adenwalla left behind him a will dated May 17, 1939. By the said will, he created a settlement regarding rest and remainder of his properties. The late Mr. Adenwalla appointed his wife, Tehmina, as sole executrix and trustee of a will. The entire residual estate of the late Mr. Adenwalla was to vest in the trustee. As per will, the trustee was in an absolute discretion to deal with the properties without being responsible or accountable for any loss or any diminution. The trustee was to collect and recover all interest, dividends, rents, etc., and was to pay all rents, taxes, assessment, etc., in respect of the properties and the balance was to be utilised by her. On the death of Mrs. Tehmina or in the event of her predeceasing the testator, the entire properties were to be distributed between every child of the testator. The relevant clauses of the will are as under : Clause 2 : "I appoint my dear wife, Tehmina, hereinafter called 'my trustee', to be the sole executrix and trustee of this my will." Clause 4 : I devise and bequeath the rest and residue of all my property of whatsoever kind and wheresoever situate (hereinafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residence. The assessee claimed that Rs. 1,47,775 used for purchase of the flat should be deducted from the capital gain arising out of the sale of immovable property-Aden Hall. The assessee placed reliance upon section 54 of the Act for the said deduction. The Income-tax Officer, by his order dated February 17, 1967, negatived the assessee's claim for deduction of the amount used for purchase of the flat from capital gain on the ground that the trust who is the owner is not residing in the said flat and the beneficiaries who reside therein are not the owners. As per the Income-tax Officer, the assessee did not fulfil the conditions laid down in section 54 of the Act. The assessee filed an appeal before the Appellate Assistant Commissioner, who by his order dated February 5, 1969, dismissed the appeal by holding that the liability of the trustee is co-extensive with that of the beneficiaries and all exemptions and deductions can be claimed by the trustee which would have been available to the beneficiaries. The Appellate Assistant Commissioner further held that in the case of capital gains the surplus arising from the sale is merely an accretion to the corpus of the trust, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the respondents. Before dealing with the submissions of learned counsel it will be useful to refer to the relevant provisions of the Act. Chapter XV of the Act is titled "liability in special cases". Part B thereof sets out the general provisions applicable to the assessee. Section 160 defines a representative assessee for the purpose of the Act. Thus by reason of section 160, the trustee appointed under a trust deed or will is a representative assessee in respect of income which is received by the trustee, or which the trustee is entitled to receive. Under section 161 every representative assessee, as regards the income in respect of which he is a representative assessee is subject to the same duties, responsibilities and liabilities, as if the income were income received by or accruing to or in favour of the beneficiary, and shall be liable to assessment in his own name in respect of that income but such assessment is in a representative capacity only. Such assessment is deemed to be made upon the trustee only in his representative capacity and the tax can be levied upon and recovered from the trustee in the like manner and to the same extent as it would be le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a representative capacity. As per section 54, where the capital gain arises from the transfer of a capital asset to which the provisions of section 53 are not applicable, then upon fulfilling the conditions mentioned in the section the capital gain accrued to the assessee has to be dealt with under the said section. To deny the benefit of section 54 of the Act to the assessee the Revenue has placed reliance upon the decision of this court in the case of CIT v. J. B. Wadia [1963] 48 ITR 135. It is submitted on behalf of the Revenue that the beneficiary was not to receive the benefits of the property and it is the trustee who must be treated as having dealt with the property which the trustee has done in the present case. As per the Revenue, the capital gain would be taxable in the hands of the trustee as the sale price received by the trustee forms part of the corpus of the trust, the trustee was bound to reinvest it and the beneficiary could not lay claim to any part of it as income. As per the Revenue no part of the amount could be said to be receivable by the trustee on behalf of the beneficiary so as to make it liable for capital gain in the hands of the beneficiary. It was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though, for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary. Secondly, the assessment of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee. This was recognised and laid down by this court in N. V. Shanmugham and Co. v. CIT [1971] 81 ITR 310 (SC). And, lastly, the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest, if he were assessed directly." The Supreme Court has further observed that even where the beneficiaries of the remainder are indeterminate or unknown, the trustees can be assessed to wealth-tax in respect of the totality of the beneficial interest in the remainder, treating the beneficiaries fictionally as an individual. The Supreme Court in the case of Mrs. Arundhati Balkrishna v. CIT [1989] 177 ITR 275, has observed that what is assessable in the hands of the beneficiary of a trust is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustee it can be made only in terms of the provisions of sections 160 to 166 of the Act. The Act did not intend to levy tax except in relation to the person who received the income beneficially. Sections 160 to 166 were enacted to take care of a situation where the recipient of the income was not a person entitled to the beneficial enjoyment thereof and they created a concept of a representative assessee as also the fiction that he received the income beneficially. At the same time it was made clear that a representative assessee's liability does not extend beyond the limit of the direct assessee, implicitly recognising the liability of the direct assessee to be assessed. The Supreme Court has concluded by observing on pages 118, 119 and 120 as under : "Page 118.--As the judgments of this court referred to above lay down, a representative assessee may be assessed in respect of income received by him as such and tax recovered from him thereon only under and in the manner provided by the provisions in the statute dealing with representative assessees. A trustee may, therefore, be assessed in respect of the income of the trust and tax recovered from him thereon only under and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gatived the submission of the Revenue that in the Indian law a trustee is the full owner of the property and the distinction between the beneficial ownership and legal ownership is unknown to Indian law. The legal position that emerges from the aforesaid decisions of the Supreme Court, of this court, the Madras High Court and the Calcutta High Court is thus that under the Act, the Revenue has discretion either to assess the trustee or the beneficiary directly ; that the trustee is to be assessed for and on behalf of the beneficiary, the trustee being a representative assessee is subject to the same duties, responsibilities and liabilities as if the income was received by him beneficially and whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him under section 161 of the Act. In the facts of the present case by a will dated May 17, 1939, a trust was created and Mrs. Tehmina was appointed as executrix and sole trustee of the trust. She was also the beneficiary and was given the right to deal with the property in the manner she may deem fit. A life interest was created in her favour and after her death all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed from the trustee in the like manner and to the same extent as it would be leviable upon and recoverable from the person represented by the trustee. In the present case thus the Revenue can levy tax in the like manner and to the same extent as would be leviable upon the beneficiaries. The said levy can be made upon the trustee as a representative assessee. Thus in the present case on the facts found by the authorities as Mrs. Tehmina and the children of the testator were residing in the property sold and continued to reside in the property acquired, they are entitled for the benefit of section 54 of the Act. Thus the assessee's claim for deduction of purchase price of a flat from capital gain as per section 54 of the Act was legal and proper. In our judgment, the decision of the Income-tax Officer as confirmed by the Appellate Assistant Commissioner and the Income-tax Tribunal denying the benefit of section 54 of the Act to the assessee was wrong. The benefit of section 54 of the Act must be extended to the assessee. In the result, we answer the question referred to this court in the affirmative and in favour of the assessee. Reference to stand disposed of accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
