TMI Blog2020 (10) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... arge of tax where the share of the beneficiaries unknown. That Section comes into play only where any income or any part thereof is not specifically receivable on behalf of or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown, and in such case, the relevant income, or part of the relevant income shall be charged at the maximum marginal rate. In order to attract Section 164(1) of the Act, the beneficiaries on whose benefit, such income or such part thereof is receivable are indeterminate and unknown. The legal position qua the applicability of provisions of Section 164(1) of the Act has been thoroughly examined by the Tribunal and by an elaborate order, the Tribunal has held in favour of the assessee. We find that the Tribunal rightly took note of the statutory provisions and the law governing this subject and arrived at a conclusion. - Decided in favour of assessee. - Tax Case Appeal Nos.890, 735, 736 & 916 of 2018, 473, 474, 480, 481, 569 & 570 of 2019 T.C.A.Nos.890 & 916 of 2018 - - - Dated:- 28-9-2020 - HONOURABLE MR. JUSTICE T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'C' Bench 04.04.2018 2010-11 2. T.C.A.Nos.735 and 736 of 2018 were admitted on 03.09.2020, on the following substantial questions of law:- 1. Whether the Tribunal was right in deleting the penalty levied under Section 271(1)(c) treating the assessee as a determinative Trust and allowing pass through status under Section 161(1) of the Act on the interest income earned by the assessee from the fixed deposit which is a non venture capital undertaking activity and as per the provision of Section 10(23fb) read with Section 115U do not allow the same with effect from 1st April, 2008? and 2. Whether the Tribunal was right in deleting the penalty by treating the assessee as a determinative Trust and allowing it to pass through status under Section 161(1) especially when the shares of the beneficiary are of incorporated in the deed of Trust by are only shown in the later contribution agreement which is in violation of Explanation 1(ii) to Section 164 of the I.T.Act? 3. T.C.A.Nos.890 and 916 of 2018 were filed raising the following substantial questions of law:- 1. Whether the Tribunal was right in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier given, which it had already decided on merits? 3. Whether the Tribunal was right in holding that the assessee is a determinate trust as per Section 161(1) assessable in the capacity of representative assessee, especially when the shares of the beneficiary are not incorporated in the deed of trust and had only been shown in the contribution agreement entered subsequently, which is in violation of the provisions of Explanation (1)(ii) to Section 164 of the Income Tax Act, 1961? and 4. Is not the reasoning and finding of the Tribunal perverse and bad by holding that the assessee is a determinate trust, allowing it to pass through status under Section 161(1) in respect of the interest income earned by the assessee from fixed deposits, which is a non VCU activity and is to be assessed in the hands of the assessee's beneficiaries by remitting the said issue back to the file of the Assessing Officer for computing the correct income under various heads in the hands of the beneficiaries especially when the fact remains that the provisions of Section 10(23FB) read with Section 115U do not allow any such benefit to be granted with effect from 01.04.2008? 6. Heard Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from business' and therefore, the same is liable to be taxed at maximum marginal rate. 11. It is stated that the assessee is a SEBI registered fund and has the resources to make investment decisions and therefore, the Assessing Officer held that it is hard to believe that the assessee has paid exorbitant figures to the investment manager M/s.TVS Capital Funds Ltd., and this was found to be on the higher side and accordingly, 50% of it was disallowed and the assessee was assessed under Section 37 of the Act. Other deductions were made and ultimately, the assessment was completed under Section 143(3) of the Act, vide order dated 31.12.2011. Aggrieved by such order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals)-4, Chennai (for brevity the CIT(A)) claiming that they are entitled for exemption under Section 10(23FB)of the Act. The CIT(A) directed the Assessing Officer to tax the interest income earned out of the Fixed Deposits with the banks in the hands of the assessee and the Assessing Officer also passed a giving effect order. Aggrieved by the order of the CIT(A), the assessee filed appeal before the Tribunal contending that it is a contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid or credited by the Venture Capital Fund to its beneficiary as required under Section 115U read with Rule 12C, it has been clearly signified that the other income such as interest from investment in Venture Capital Undertaking has only to be passed on to the beneficiary. 13. The learned Senior Standing Counsel further submitted that in respect of the assessee, M/s.TVS Investments I Fund, identical issue was considered by the Tribunal and in I.T.A.No.3339/Mds/2016 for the assessment year 2009-10 by order dated 19.04.2017, the Tribunal dismissed the appeal filed by the assessee. Thus, it is the submission of the learned Senior Standing Counsel that apart from the grounds raised above, the reasons assigned by the Tribunal in its order dated 19.04.2017 in the case of M/s.TVS Investments I Fund would, in fact, be the argument of the Revenue and would support their stand. 14. To be pointed out that as against the said order dated 19.04.2017, the said assessee has filed T.C.A.No.319 of 2018, which will be dealt separately and the outcome of the appeal would depend upon the decision taken in these appeals. 15. Mr.Percy Pardiwalla, learned Senior Counsel prefaced his submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed once over again. The third issue would be whether merely because the names of the beneficiaries are not mentioned in the Trust Deed, but shown as beneficiaries and are identifiable and having been assessed whether the Trust can be assessed again. In fact, the Tribunal ought to have followed the decision of the Division Bench of this Court in the case of P.Sekhar Trust (supra). However, the same has been distinguished by the Tribunal in the case of TVS Investments I Fund by observing that the said judgment is not applicable to the facts of the case because in it, the beneficiaries are incorporated on the day of the institution of the Trust Deed and moreover, they did not receive any income in that year. Unfortunately, the Tribunal in the case of TVS Investments I Fund, did not fully appreciate the finding rendered by the Hon'ble Division Bench of this Court and post a wrong question, which led to a wrong answer. For better appreciation, we quote the relevant paragraphs of the judgment in P.Sekhar Trust (supra) hereunder:- 11. Section 5 of the Act deals with the scope of the total income of any previous year of residents and non residents. Section 4 of the Act deals wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t specifically provides that the tax to be levied on the representative assessee and to be recovered from him is to be 'in the like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him.' (emphasis supplied) 17. Section 164 of the Act gets attracts only when the shares of the beneficiaries are unknown, which is manifest from the marginal heading of that Section itself, viz., Charge of tax where the share of the beneficiaries unknown. That Section comes into play only where any income or any part thereof is not specifically receivable on behalf of or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown, and in such case, the relevant income, or part of the relevant income shall be charged at the maximum marginal rate. 18. From this, it is clear that in order to attract Section 164(1) of the Act, the beneficiaries on whose benefit, such income or such part thereof is receivable are indeterminate and unknown. 19. The legal position qua the applicability of provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the law, to come out from the applicability of Section 164 of the Act. 11. Under the circumstances, we cannot accept the contention of the Revenue that the shares were non-determinable or the view taken by the Tribunal is perverse. On the contrary, we do find that the view taken by the Tribunal is correct and would not call for interference so far as determinability of the shares of the beneficiaries are concerned. 12. Once the shares of the beneficiaries are found to be determinable, the income is to be taxed of that respective sharer or the beneficiaries in the hands of the beneficiary and not in the hands of the Trustees which has already been shown in the present case. 13. Under the circumstances, in any case, it cannot be said that the Tribunal has committed error. Accordingly, the question is answered in affirmative against the Revenue and in favour of the assessee. 20. Thus, in the light of the above, the substantial questions of law framed for consideration in these appeals are required to be answered against the appellant/Revenue. 21. Insofar as T.C.A.Nos.569 and 570 of 2019 are concerned, substantial question of law Nos.1 and 2 relate to the jur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
