TMI Blog1995 (12) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ad) of 1979, dated June 30, 1980, in the case of three trusts, viz., Venu Suresh Sanjay Trust, Venu Suresh Ramya Trust, Madurai, and Ramesh Mahesh Radha Trust, Madurai, for the assessment years 1974-75 and 1975-76. Even though two questions were sought to be raised, the Tribunal referred only one question which would be comprehensive enough to satisfy both the questions. The assessee is a public trust of which Shri T. S. Krishna was the trustee. It is common ground that it is a discretionary trust in view of the fact that the shares of the beneficiaries are not ascertainable. Though the trusts are different trusts, this fact is common. The issue that arose for consideration was, whether the assessee would be eligible for relief under section 80L of the Income-tax Act, 1961 (hereinafter referred to as " the Act "). The Income-tax Officer was of the view that the assessee's status should be an association of persons, because there is more than one beneficiary, whose share in the trust is not definite. Since the assessee admittedly is not an association of persons envisaged under section 80L(1)(c) and is not an individual or a Hindu undivided family (HUF), the assessee is not eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of persons referred to in section 80L was the one which consisted only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu and not to any other association of persons. It was further submitted that since the assessee was assessed in the status of an association of persons other than the association of persons referred to in section 80L and was also not governed by the terms " individuals " or " Hindu undivided family " it was not entitled to deduction under section 80L. When the provisions of section 164 made applicable, in the case of the assessee, the assessment should be made in the status of an association of persons and there is no scope for other consequences. On the other hand, learned counsel for the assessee submitted that the association of persons referred to in section 80L was not the one governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, but was only an association of persons. According to learned counsel, a plain reading of section 80L(1)(c) will show that the association of persons o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of beneficiaries are not determined and, therefore, tax has to be charged in view of the provisions contained in section 164(1)(i), i.e., as the relevant income of the trust was the total income of an association of persons. The income of the trust included income of dividends and interest. Deduction under section 80L was claimed which has not been allowed by the Income-tax Officer. According to the Income-tax Officer, in view of the decision of the Gujarat High Court in the case of CIT v. Smt. Kamalini Khatau [1978] 112 ITR 652 [FB], the assessee is not entitled to get deduction under section 80L. According to the Income-tax Officer, the assessee was neither an individual nor a Hindu undivided family nor an association of persons or body of individuals of the type referred to in section 80L of the Act. The association of persons referred to in section 80L was the one which consisted only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu and not to any other association of persons. According to the Department, the assessee was assessed in the status of an association of persons ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n categories of persons either directly or in a representative capacity. Where assessments have been made in the representative capacity the assessees are known as representative-assessees. Representative-assessees have been defined in section 160 of the Act. Liabilities of the representative-assessees are given in section 161. Rights of the representative-assessee are given in section 162. Section 164 deals with the case of trust for the purpose of charging tax where the shares of the beneficiaries are unknown. A plain reading of sections 160 to 162 would go to show that a representative-assessee has either to be an individual or an artificial juridical person, who is also equated with an individual. Under section 160(1)(iv) it is the trustee, who is the representative-assessee. The trustee, therefore, has to be an individual or group of individuals. Section 161 provides that every representative-assessee, as regards the income in respect of which he is a representative-assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were the income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f is actually received by a beneficiary, then at the rate applicable to the total income of the beneficiary if such course benefits the Revenue. Put differently, section 164 states that tax shall be levied upon the income of a discretionary trust as if it were the total income of an association of persons, except that if it or part of it is actually received by a beneficiary it or that part of it become chargeable to tax at the rate applicable to the total income of the beneficiary if that course is beneficial to the Revenue. Section 164 does not create a charge on the income of a discretionary trust. The word ' charged ' in the context, in which it is used in section 164 means only ' levied '. Section 164 does not make the trustee of a discretionary trust liable to assessment or the recovery of tax on the income of the trust. Section 164 harks back to section 161 when it refers to ' persons .... liable as representative-assessees '. It is section 161, therefore, which has to be read to make the trustee even of a discretionary trust liable to assessment and recovery of tax on income received by him as a trustee. Further, section 161, as pointed out above, protects the representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act, 1961. Since the determination of the status of an assessee is a part of the process of computation of income, it is necessary to look into the general principles for determining whether the status of the trustees of a discretionary trust can be taken to be as " an association of persons " or as " individual ". It is now well-settled that the word " individual " does not necessarily and invariably always refer to a single natural person. A group of individuals may as well come in for treatment as an individual under the tax laws if the context so requires. The word " association " means " to join in any purpose " or " to join in action ". Therefore, " association of persons " as used in section 2(31)(v) of the Income-tax Act, 1961, means an association in which two or more persons join in a common purpose or common action. The association must be one the object of which is to produce income, profits or gains. In the case of a discretionary trust, neither the trustees nor the beneficiaries can be considered as having come together with the common purpose of earning income. The beneficiaries have not set up the trust. The trustees derive their authority under the terms of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act does not mean a single living human being but would include in its ambit, a body of individuals constituting a unit for the purposes of the Act, Even though the assessment of income is in the hands of the trust, it had to be made in the same manner and to the same extent as it would have been made in the hands of the beneficiaries. The representative-assessee in the case of a discretionary trust must be regarded as an individual and thus would be entitled to the benefit of deductions under section 80L--CIT v. Shri Krishna Bandar Trust [1993] 201 ITR 989 (Cal) followed ; WTO v. C. K. Mammed Kayi [1981] 21 CTR (SC) 345 ; [1981] 120 ITR 307 (SC) ; CIT v. Sodra Devi [1957] 32 ITR 615 (SC) and Lalchand Tikamdas Makhija v. J. K. Kuriyan, CIT [1991] 188 ITR 253 (Bom) relied on ; CIT v. Smt. Kamalini Khatau [1978] CTR (Guj) 327 [FB] ; [1978] 112 ITR 652 (Guj) [FB] held no longer good law (as can be seen from the headnote). Reliance was placed upon a decision of the Calcutta High Court in Smt. Santimoyee Bose v. CIT [1969] 74 ITR 133. According to the facts arising in that case a suit for maintenance filed by the assessee on behalf of herself and her minor sons and daughters a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court held that " even if the beneficiaries themselves were indeterminate or unknown, sub-section (4) of section 21 would apply and the assessees would be liable to be assessed in respect of the totality of the beneficial interest in the remainder as if it belonged to one single beneficiary. When the beneficiaries are indeterminate or unknown, obviously their shares would also be indeterminate and unknown." In the abovesaid decision, the Supreme Court was not concerned with the deduction to be given under section 80L of the Act. Learned standing counsel submitted that the decision reported in CIT v. Shri Krishna Bandar Trust [1993] 201 ITR 989 (Cal) was concerned with law as it stood after the amendment was introduced by the Finance (No. 2) Act, 1980, which has done away with the deeming provisions whereby a trust under section 164(1) of the Act could be assessed as though it were an association of persons. The fiction of the association of persons as contained in sub-section (2) or, for that matter, sub-section (3) of section 164 relates only to a charitable or public religious trust, but not to a discretionary private trust dealt with by sub-section(1) of section 164. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
