TMI Blog2017 (6) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficiaries at the time of formation of the Trust and expressed view that even after execution of the trust deed if the beneficiaries are identifiable and their shares are ascertainable it is sufficient compliance to hold the trust as determinate Trust. In the assessee s case the beneficiaries are identifiable with PPM and their shares are ascertainable as discussed earlier in this order. The facts of the case are similar to that of India advantage Fund [ 2014 (10) TMI 614 - ITAT BANGALORE ] - we hold that the assessee s Trust is a determinate trust and the appeal of the assessee is on this issue is allowed. Whether interest income of the trust should be assessed in the hands of the beneficiaries but not in the hands of the assessee? - Section 115U mandates that the nature of income which is received by the VCC or VCF from the Venture Capital undertaking and further distributed to the investor shall be taxable in the hands of the investor by treating the same nature of income like long term capital gain, short term capital gains, dividend or other income such as interest etc., and accordingly be taxed as per the provisions as applicable under different heads of the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit for taxes paid or collected by the Department. In this case, it appears that the AO has not allowed the credit for the taxes deducted at source. We direct the AO to allow the credit for taxes paid. This ground of appeal is allowed. Rectification u/s 154 - CIT(A) has changed the determinate trust to indeterminate trust by u/s.154 - HELD THAT:- The debatable issues which require verification and legal interpretation are not permissible to decide under section 154 and only the mistakes apparent from the record are permitted to decide under section 154. The issue on hand is not mistake apparent from record and the issue of law which require verification of several aspects both on law and facts. Therefore, we set aside the order of the Ld CIT(A) and allow the assessee s appeal. However, the issue relating to pass through of correct income is stands remitted to the file of the AO as discussed in earlier paragraphs. Disallowance u/s 40A - assessee is a trust carrying on the business of Venture Capital Fund and appointed the TVS Investments Capital Funds Ltd. as the manager, and paid the above amount to TVS Capital Fund Investment, which is a sister concern of the assessee - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO taken up the case for scrutiny and made the following additions: Disallowances Rs. ₹ 5,92,96,950/- u/s.40A(2)(b) relating to the payment made to TVS Capital Non-deduction of tax at source on provisional fee ₹ 6,77,269/- 2.1 The assessee s total income was loss of ₹ 17,26,32,448/- which was claimed as pass-through to the beneficiaries. The AO disallowed a sum of ₹ 5,99,34,183/- and assessed business loss at ₹ 11,26,98,263/-. 3.0 The assessee went on appeal before the CIT(A) and the Ld.CIT(A) allowed the assessee s appeal. However, the Ld.CIT(A) brought to tax the income in respect of income from investment in Venture Capital Undertaking (in short VCU ) amounting to ₹ 2,69,38,526/- stating that the assessee is an entity eligible for exemption u/s.10(23FB) and in the case of Trust registered as Venture Capital Fund under the Securities and Exchange Board of India Regulations, the income derived from the investments with VCU are alone exempted as per the Sec.10(23FB) r/w Sec.115(U) of the Income Tax Act. Hence, the Ld. CIT(A) brought to tax the interest income earned on fixed deposits with banks in the hands of the assessee. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on agreement and the Private Placement Memorandum. Clause 1.1.35 defines Unit as follows: Unit means a unit of any class evidencing beneficial interest of the contributors/beneficiaries in the respective scheme of the Trust issued by the Trustee/Investment Manager to a Contributor/Beneficiary on the making of a Capital Contribution and includes a fraction of a unit evidencing beneficial interest in the Contribution Fund of a value less than the face value of the respective class units. The entitlement of share of beneficial interest of each of the contributor to the Fund is ascertainable and well detailed in the Trust Deed itself vide Clause 3.5 of the Trust Deed as follows: Clause 3.5 of the Trust Deed All the Contributors/ Beneficiaries of various schemes under various PPMs will become the beneficial owner of the Trust Fund and the Contributors/Beneficiaries will be entitled to Beneficial Interest each and every year comprising of corpus and accretions thereto in proportion to their contribution under respective Schemes/PPMs. The Beneficial Interest of each such Contributor/Beneficiary in the Contribution Fund shall extend and be limited to the aggregate value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st deed sets out expressly the manner in which the beneficiaries are to be ascertained and also share to which each of them would be entitled without ambiguity, then it cannot be said that the Trust deed does not name the beneficiaries or that their shares are indeterminate. The persons as well as the shares must be capable of being definitely pin pointed and ascertained on the date of the trust deed itself without leaving these to be decided upon at a future date by a person other than the author at his discretion in the manner not envisaged in the trust deed. Even if the Trust deed authorises addition of further contributors to the trust at different points of time, in addition to initial contributors, then the same would not make the beneficiaries unknown or their share indeterminate. Even if the scheme of computation of income of beneficiaries is complicated, it is not possible to say that the share of income of the beneficiaries cannot be ascertained or known from the trust deed. The ITAT therefore, concluded that the identity by reference to the terms of the trust deed is sufficient and it is not necessary that the beneficiaries should be specifically named in the trust de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is assessment is completed prior in point of time and his assessment is an element of finality, it is no more permissible for the department to assess the trust again. This is also in line with the CBDT Circular No.157, dated 26.12.1974. The decision of Karnataka High Court in the case of CIT Vs Smt. Indramma (25 Taxmann.com 259) also affirms the above findings. On an identical facts and issue, the ITAT, B Bench, Bangalore in ITA No.178/Bang/2012 dt.17.10.2014 in the case of India Advantage Fund VII, has laid down following principles on applicability of Section 164(1) of the Act. a) Identification of beneficiaries b) Ascertainment of share of the beneficiaries The ITAT, Bangalore has held that all that is necessary is that the beneficiary should be identifiable with reference to the instrument or trust deed on the date or such instrument or trust deed which clearly lays sown that the beneficiaries means the persons, each of whom have made or agreed to make contributions to the trust in accordance with the contribution agreement. The above clause is sufficient to identify the beneficiaries. On the aspect of ascertainment of share of the beneficiaries, the ITAT, Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontributor. The beneficiaries of the Appellant have included the entire income earned by the Appellant in their return of income and offered to tax. The Appellant filed a NIL return of income since the income was offered to tax by the beneficiaries and also filed a list of beneficiaries, their PAN, Contributions made, their beneficial interest and income expenses apportioned to each beneficiary along with the return. The beneficiaries have confirmed that income from the Appellant, a SEBI registered Venture Capital Fund, has been offered to tax in their respective return of income by placing reliance on Form 64 which is issued with respect to income from VCUs. As per the statement of income which is issued with respect to other income from Non-VCU investments and credited to their Profit Loss account, the same has been assessed to tax vide PAN (samples placed as part of the paper book) The identical issue on identical set of facts was considered by ITAT, B Bench, Bangalore in the case of DCIT Vs India Advantage Fund VII (supra) while allowing the appeal has set the following principles to be applied to decide the status of the Trust whether a is determinate or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end upon future share of benefits or upon any future contingency is wholly misconceived. g. By no interpretative process, the explanation to Section 164 of the Act, can be read for determinability of the share of the beneficiary with the quantum on the date when the trust deed is executed. h. The real test is the determinability of the shares of the beneficiary and is not dependent upon the date on which the trust deed was executed. i. The real test is whether shares are determinable even when or after the Trust is formed or may be in future when the Trust is in existence. j. Beneficiaries are to share the benefit in proportion to the investment made. k. Once the benefits are to be shared by the beneficiaries in proportion to the investment made, any person with reasonable prudence would reach to the conclusion that the shares are determinable. l. Once the shares are determinable amongst the beneficiaries, it would meet the requirement of the law to come out from the applicability of Section 164 of the Act. m. Once the shares are determinate, the income is to be taxed of that respective sharer or the beneficiaries in the hands of beneficiary and not in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istered Venture Capital Fund and is a pass through Trust, such pass through status can be extended only to the extent of income earned on VCU investments since the assessee being a SEBI registered VCU is squarely covered by the provisions of Sec.10(23FB) r/w Sec.115(U) of the act. According to the Ld.AR the assessee is not a determinate Trust and it cannot be categorized so, since the conditions laid down in Explanation-1 of Sec.164 are totally absent. In order to classify as a determinate Trust, the shares of the beneficiaries should be expressly stated in the order of the instrument of the Trust and identifiable as such on the date of such instrument or the deed. 5.1 The Ld. DR referring to Page Nos. 87 107 of Paper Book stated that the beneficiaries are totally unknown and the beneficiaries of VCF are identified by the contribution agreement in the assessee s case that is Private Placement Memorandum(PPM). The Ld. DR also brought to our notice that the list of contributors for the AY 2009-10 (i.e. beneficiaries) were 664 in number and for the AY 2010-11, list of contributors increased to 675. The percentage of share of beneficiaries has undergone a change and the Ld.DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income earned by the beneficiaries from the TSGF. In the said document in page no.11 to 15 of paper book, it had categorized the distinction and non-VCU income. It had also narrated the principle by which the respective head of income, be it dividend or interest or capital gains that has to be offered to tax in the hands of the beneficiaries. The investment manger had stated that the interest income has to be included as income from other sources and pay tax at the applicable rates in the hands of the beneficiary. On the contrary, Form No.64 issued by the TSGF has misdirected the beneficiaries and thus beneficiaries have consolidated the income under the different heads into one head and offered the loss to tax. TSGF has not forwarded a single document wherein, the beneficiary had offered the interest income to tax as such. This contention is affirmed by the contents of Form No.64 being the net beneficial interest being loss was debited to the accounts of the beneficiaries and a Certificate issued to the beneficiaries to include the same in their return of income. The Ld.DR further argued that the interest income offered to be taxed in the hands of the beneficiaries has to be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT v. Emerging Sectors Funds ITAT Bangalore, CIT v. Dr.David Joseph 214 ITR 658 Kerala, CIT v. Smt. Indiramma 25 taxmann.com 259 Karnataka and CIT v. P. Sekhar Trust 321 ITR 304 (Mad). 6.1 Shri Gopala Srinivasan S/o. Late T.A.Srinivasan has created a a contributory trust in the name of TVS Shriram Growth Funds under the provisions of Indian Trust Act, 1882 and registered as Venture Capital Fund (VCF) under the Securities and Exchange Board of India Venture Capital Funds (Regulations), 1996. The IL FS Trust Co. Ltd., a company incorporated under Companies Act, 1956 having registered office at Mumbai has been appointed as Trustee as per the indenture of the Trust dated 01.02.2008. The objectives of the Trust was to carry on through various schemes, the activity of VCF as permissible under the VCF regulations and for the purpose of raising resources to make available venture capital assistance to investment companies so as to achieve long term capital appreciation for contributors/beneficiaries under respective schemes. The Trust shall invest in all securities including equity, quasi equity and equity related investment and would include other investments, such as preference w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Beneficial Interest of each such Contributor / Beneficiary in the Contribution Fund shall extend to and be limited to the aggregate value of the Capital Contribution made by that Contributor in the Contribution Fund under respective Private Placement Memorandums. All the contributors are the beneficiaries under this instrument and on fulfillment of all the terms and conditions stipulated in the contribution agreement such contributors will be included as the beneficiaries of the trust. The Fund is, shall be and remain determinate at all times with details of contributors along with their respective beneficial interest in the Fund in accordance with the respective contribution agreements. The Trust shall keep separate accounts in respect of the Capital Contribution including accretions thereto under each PPMs such that the Beneficiaries and their Beneficial Interest under each and every PPMs are determinate at all points of time. Thus, the Beneficial Interest of all the Beneficiaries / Contributors shall be determinate at all points of time. The Beneficial Interest on the income arising each year out of the investments made under respective PPMs will be intimated to the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributed by the trustee as per the provisions of the respective contribution agreement and the PPM. Based on the above clauses of the Trust Deed, the Ld.AR argued that beneficiaries are identifiable, beneficial interest is ascertainable w.r.t. the Trust Deed. Further, the distribution of income is not at the discretion of the assessee and is required as per the clause of the Trust Deed respective contribution agreement and PPM. Hence, the Ld.AR contended that the assessee satisfies all the requirements of the Act to qualify as determinate trust and the Hon ble High Court in the case of P.Sekar Trust squarely applies to the assessee. On identical facts, ITAT B Bench Bangalore in ITA No.178/Bang/2012 dated 17.10.2014 has held that the Trust is determinate trust and the decision of Hon ble ITAT Bangalore was followed by the ITAT Bangalore in M/s. ICICI Emerge Sector fund v. Director of IT in ITA No.179/Bang/2012 for the AY 2008-09 and held that the Trust is a determinate Trust. The order of the Hon ble ITAT Bangalore is affirmed by the Hon ble Karnataka High Court. The Hon ble ITAT Bangalore in the order cited supra considered all the issues raised by the Ld. DR with regard to id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust-property; and the instrument, if any, by which the trust is declared is called the instrument of trust . 44. We were initially doubtful, whether a person who contributes to the trust in accordance with the terms of a contribution agreement could be said to be beneficiary of the trust. It is no doubt true that the beneficiaries are identifiable in terms of the trust deed as persons who contribute under the contribution agreement. But can the beneficiaries be made to contribute to the trust? Beneficiaries are generally recipients of benefits under the deed of trust. Can the trust hold the money so contributed in trust for the contributors and can such contributors be called beneficiaries ? It appeared to us to be a venture undertaken by the Trust, author of the trust and the identified beneficiary at the time of creation of the trust who happens to be the beneficiary and the Investment Manager to whom without any option the management of the trust fund had to be entrusted. It is like any other form of business organization mobilizing funds for investments and promising returns to the contributors. Can such objective be achieved by forming a trust? 45. Similar que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (citing O.P. Agarwalla on Trust, p. 220-2), he also expressed his willingness to modify cl. 7(a) as follows in order to obviate any kind of objection :- 7.(a) The trustee shall during the trust period, have the power at their discretion to admit as beneficiary any institutional investor which agrees to enter into a contribution agreement. and, consequent on the above, to insert a definition of the expression institutional investor in cl. 1 to the following effect : (1) 'Institutional Investor' means any entity other than an individual, being a natural person including but not limited to financial institution, company or corporation, Government, State or Political sub-division or local authority, that trustees may consider a reputable investor. After a little discussion he was willing also to drop the last seven words which were considered to be somewhat vague. 9. One may pause here to consider whether there could be any valid objections to the constitution of a trust in this manner. The authors of the trust are the IC, the Indian financial service company and others contributing to the trust by the date of the trust deed. Indeed even institutional inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that, in the definition in cl. (a) proposed to be inserted, the words being a natural person appears to be a surplusage and may be omitted without detracting from the meaning of the clause. But this has no impact on the validity of the trust deed. (emphasis supplied) 47. We agree with the aforesaid observations of the AAR and we proceed further to decide the various issues raised by the Revenue in its appeal. 48. Private Trusts could be Fixed or Discretionary Trusts. A fixed trust is a trust in which the beneficiaries have a current fixed entitlement to such income as remains after proper exercise of the trustee's powers. On the other hand, a discretionary trust is one in which the beneficiaries have no such current fixed entitlement, but only a hope (spes) that the trustees in carrying out their duty to consider how much income might be paid to such beneficiaries will in their discretion pay that income to a particular beneficiary or beneficiaries. The beneficiaries have no interest in possession under the trust. There are various reasons why a settlor prefers to establish a discretionary trust rather than a fixed trust. Some of the important one's bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which derives a comparatively low income, the incidence of tax on the income from property transferred to the several trusts is maintained at a low level. In such arrangements, it is often found that one or more of the beneficiaries of the trust are persons having high personal incomes, but no part of the trust income being specifically allocable to such beneficiaries under the terms of the trust, such income cannot be subject to tax at a high personal rate which would have been applicable if their shares had been determinate. 50. In order to put an effective curb on the proliferation of such trusts, and to reduce the scope of tax avoidance through such means, the Finance Act, 1970, has replaced s. 164 of the IT Act by a new section. Under s. 164 as so replaced, a 'representative assessee' who receives income for the benefit of more than one person whose shares in such income are indeterminate or unknown, will be chargeable to income-tax on such income at the flat rate of 65% or the rate which would be applicable if such income were the total income of an AOP, whichever course would be more beneficial to the Revenue. 51. When the Explanation was added in 1980, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O in the order of assessment did not consider the above argument nor has he given any reasons why the same are rejected. The submission made by the Assessee before CIT(A) on this aspect have been accepted by the CIT(A) but he has not discussed or given any reasons as to how the submissions are being accepted. The basic scheme of section 61 r/w section 62 and section 63 is as follows : where under a settlement any income arises to the settlor, it has to be assessed in the hands of settlor, whether the settlement is revocable or irrevocable. If under a settlement any income arises to any other person apart from the settlor such income can still be assessed in the hands of the settlor provided the settlement is revocable. Even if a settlement on the face of it is stated to be irrevocable, if the same provides for direct or indirect retransfer of income or assets of the settlement to the settlor or gives the settlor a right to resume power directly or indirectly over such income or asset, the settlement should be deemed to be revocable. 54. In Chapter X of the private placement memorandum issued by the investment manager inviting contribution from investors, the tax considerations i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iciary shall be at the sole discretion of the Trustees in consultation with the investment manager. 56. In the light of the aforesaid clauses in the contribution agreement, can it be said that transfer of funds by the beneficiary to the trust/fund is a revocable transfer? 57. The answer to the above question cannot be given by merely reading the clauses in the contribution agreement alone. The contention of the learned counsel for the Assessee before us was that the Contribution agreement has to be read along with the Trust Deed as well as the Investment Management agreement and offer document for private placement issued by the Investment Manager. Article-13 of the Trust Deed provides for termination of the Trust. Though such a power is not with the beneficiary/transferor, it is not the requirement of Sec.61 that the power of revocation must be at the instance of the beneficiary/transferor. The power of revocation under Clause13 of the Deed of Trust is a general power of revocation and the same would be sufficient for construing the transfer in the present case as a revocable transfer. As rightly contended by the learned counsel for the Assessee it is not necessary that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the reasons given above we hold that Sec.61 read with Sec.63 of the Act which mandates that income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income tax as income of the transferor will apply to the facts and circumstances of the present case and therefore the assessment in the hands of the transferee/representative assessee was not proper. 60. The issues raised by the Revenue in Grounds 4 to 7 of the grounds of appeal is with regard to applicability of provisions of Sec.164(1) of the Act. In view of the conclusion on Ground No.3 the adjudication of other grounds may not be necessary. Since the order of the AO is based on the applicability of the provisions of Sec.164(1) of the Act, we deem it appropriate to adjudicate on the issues raised in ground No.4 to 7 as well. The provisions of Sec.164(1) of the Act and Expln.-1 to Sec.164 are relevant in this regard. Sec.164(1) lays down that where any income or any part thereof in respect of which the persons mentioned in cl. (iv) of subsection (1) of Section 160 is liable as representative assessee or any part thereof (i) is not specifically receivable on behalf or for the bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficiaries are not identifiable or the individual shares of the persons on whose behalf and for whose benefit the income is receivable are indeterminate or unknown, such income, again, will be taxed at the maximum marginal rate . (c) In certain other circumstances, set out in the proviso to s. 164(1), the relevant income will be assessable not at the maximum rate but at the rate applicable to it as if it were the total income of an AOP. 62. In the present case the AO has not invoked the provisions of Sec.161(1A) of the Act or the proviso to Sec.164(1) of the Act and therefore, we need not examine those provisions. As far as identification of individual shares of the Sec.164(1) of the Act will not get attracted for the reason that the beneficiaries are not identifiable. 63. The question for our consideration therefore is regarding applicability of Sec.164(1) of the Act. There are two aspects to be noticed in the above provisions. The first aspect is the identification of the beneficiaries. The second aspect is with regard to ascertainment of the share of the beneficiaries. 64. On the aspect of identification of the beneficiaries, it is the plea of the learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve aspect, we find the AAR in the case of Companies Incorporated in Maurities In re (supra) has considered similar clause in a trust deed with specific reference to the provisions of Sec.164(1) of the Act and has held that if the trust deed sets out expressly the manner in which the beneficiaries are to be ascertained and also the share to which each of them would be entitled without ambiguity, then it cannot be said that the Trust deed does not name the beneficiaries or that their shares are indeterminate. The persons as well as the shares must be capable of being definitely pin-pointed and ascertained on the date of the trust deed itself without leaving these to be decided upon at a future date by a person other than the author either at his discretion or in a manner not envisaged in the trust deed. Even if the Trust deed authorises addition of further contributors to the trust at different points of time, in addition to initial contributors, than the same would not make the beneficiaries unknown or their share indeterminate. Even if the scheme of computation of income of beneficiaries is complicated, it is not possible to say that the share income of the beneficiaries cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act, 2002 has inserted w.e.f. 1st April, 2003 an Explanation to clarify that object of deriving income is not necessary for AOP, BOI, local authority or an artificial juridical person in order that such entity may come within the definition of Person in section 2(31). If income results than they are liable to be taxed as AOP if the other conditions laid down by judicial decisions are satisfied. In the light of the above definition of AOP, let us examine the facts of the present case. (i) The Assessee is a trust constituted under an instrument of trust dated 25/9/2006. M/S.ICICI Venture Funds Management Company Limited (hereinafter referred to as Settlor ) by an indenture of Trust dated 25.9.2006 transferred a sum of ₹ 10,000/- to M/S. The Western India Trustee and Executor Company Limited (hereinafter referred as the Trustee ) as initial corpus to be applied and governed by the terms and conditions of the indenture dated 25.9.2006. The trustee was empowered to call for contributions from the contributors which will be invested by the Trustee in accordance with the objects of the trust. The objective of creation of the trust was to invest in certain securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year did not contain a clause for filing return of income by a Trust in the status other than AOP. The CBDT realised this difficulty faced by 'private discretionary trusts' having total income exceeding ten lakh rupees facing problem in filing their return of income electronically in cases where they are filing their return in the status of an individual because status of a private discretionary trust has been held in law as that of an 'individual' gave instructions in Circular No.6/2012 dated 3.8.2012 to the effect that it will not be mandatory for 'private discretionary trusts', if its total income exceeds ten lakh rupees, to electronically furnish the return of income for assessment year 2012-13. Form No.49A which was the prescribed form of application for allotment of Permanent Account Number (PAN) also did not contain a separate status Trust but contained a column AOP (Trust) . The revised Form No.49A later notified contains a column for status as Trust . Therefore the argument of the revenue that all Trusts are AOPs is not correct. If the contention of the Revenue as raised in Ground No.9 is accepted than the provisions of Sec.161(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Department in directly assessing beneficiary in respect of the income, the other was no longer available to the Department. It was contended on behalf of the Revenue that the option was of the ITO who was assessing the trust to decide whether he would assess the income in the hands of the trustees or directly in the hands of the beneficiary. This contention was rejected by the Hon'ble High Court which held that Sec. 41 was a special enabling provision which permitted the assessment in the hands of the trustees but did not preclude the direct assessment in the hands of the beneficiaries. There is nothing in s. 41 which would indicate that the choice between the alternative methods provided therein has to be made only at the time of the assessment of the trustees or that the choice only belongs to the ITO who is assessing the trust. In Circular No.157 dated 26.12.1974 of CBDT the CBDT has clarified on assessment of trust where share of beneficiaries are unknown. It has been clarified therein that the ITO should at the time of raising the initial assessment either of the trust or the beneficiaries adopt a course beneficial to the Revenue. Having exercised his option once, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... implication permits assessment of either the beneficiary or the Trustee. When the Trustee is assessed as representative assessee in respect of income received on behalf of the beneficiary, the section provides that tax shall be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. In our view, therefore, the decision of the Hon'ble Supreme Court in the case of Ch. Atchaiah (supra)will not be of any assistance to the plea of the revenue in the present case. 6.6 The Hon ble Karnataka High court confirmed the order the tribunal in the above case reported in[2017] 78 taxmann.com 301 (Karnataka).Honble high court in the cited case held as under: 10. In our view, the contention is wholly misconceived for three reasons. One is that by no interpretative process the Explanation to Section 164 of the Act, which is pressed in service can be read for determinability of the shares of the beneficiary with the quantum on the date when the Trust deed is executed and the second reason is that the real test is the determinability of the shares of the beneficiary and is not dependent upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage Fund Supra and the decision rendered by the Hon ble ITAT Bangalore squarely applies in this case. Respectfully following the decision of the Co-ordinate Bench of Bangalore and Hon ble Karnataka High court Supra we hold that the assessee s Trust is a determinate trust and the appeal of the assessee is on this issue is allowed. 7.0 The second issue in this appeal raised by the assessee having determinate trust, the interest income of the trust should be assessed in the hands of the beneficiaries but not in the hands of the assessee. Sec.161(1),provides for assessment of income in the hands of the beneficiary and in certain circumstances in the hands of the trust in representative capacity, If the shares are unknown as per Sec.164 the income required to be assessed in the hands of the trust at maximum marginal Rate. 7.1 We have decided that the assessee is determinate trust in the earlier paragraphs. Having held the trust as determinate trust we hold that the income of the trust required to be assessed in the hands of the beneficiaries or in the hands of the Trust in the representative assessee u/s.161(1) of IT Act. However, the assessee is trust registered as Venture Cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term capital gain, short term capital gains, dividend or other income such as interest etc., and accordingly be taxed as per the provisions as applicable under different heads of the income. Hence, section 115U prescribes the principle of pass through by treating the VCC or VCF as a pass through vehicle and further, grants some concession in the shape of non-applicability of provisions of Chapter XIV-D, XII E or XVII B. 7.2 The assessee is duty to bound to furnish the correct information regarding the income paid or credited to the beneficiary from each source which required to be included by the beneficiary under the same head as if the beneficiary has derived income from investment in venture capital under taking as per Rule 12C and Sec.115U of IT Act. The assessee has issued the Form 64 showing the dividend income, Income from interest and the loss from the fund as follows: State Bank of India Form No.64 Dividend ₹ 7,837/- Interest ₹ 24,99,979/- Less Expenditure ₹ 1,85,28,645/- Net loss from the sources of Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cide the issue afresh on merits. The assessee is also directed to collect information from the beneficiaries regarding the inclusion of income relating to the TSGF and submit the same to the AO for early completion of the assessment. On completion of the enquiries the Assessing Officer directed to allow pass through of the income, if the same is admitted correctly and in case of non-admission or incorrect admission, it may be assessed in the hands of the assessee in representative depending on facts. Accordingly, the appeal of the assessee set aside and is is allowed for statistical purposes. 8.0 In Ground No.1.8, the assessee has raised the issue with regard to set off of the proportionate amount of expenditure relating to interest income, in case the pass through status is not allowed with regard to interest income. The assessee was argued that the assessee is eligible for pass through of entire income irrespective of Venture Capital income or income from other sources as per Sec.161(1) of IT Act. In case, the assessee is liable for taxing the other income separately, the proportionate expenditure required to be allowed. We have set aside the issue of determining the income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g given by the Ld.CIT(A) in the order passed u/s.250(6) of the IT Act is reversed in the order u/s.154 which is not permissible. The issue with regard to the determinate and indeterminate trust involves lot of debate and analysis of facts and law and lengthy discussion and revisiting the issue. Therefore, the debatable issue cannot be decided u/s.154. On the other hand, the Ld. DR argued that the Ld.CIT(A) has made clear in the Appellate Order that the assessee is a determinate Trust and the income of the assessee is taxable as per the provisions of Sec.1023(FB) and Sec.115U of IT Act. Ld.CIT(A) though held that the assessee is a determinate Trust but clearly held that the other income of the assessee is taxable in the hands of the assessee. There is no change in the stand of the Ld.CIT(A) regarding taxation of income. Therefore, the Ld. DR argued that there was no mistake in the order u/s.154 which require the interference by the Tribunal. 13.0 We heard the rival submissions and perused the material placed before us. We have already decided the issue in the main Appeal Nos.981 982 holding that the assessee is a determinate trust and the income of the assessee is to allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of expenditure to the tune of Rs,5,99,34,183/- is deleted and thus, the appellant succeeds on grounds of appeal (d) and (e), as well and the same is allowed. 16.0 We heard both the parties and perused the material placed before us. Sec.40A(2)(b) deals with the expenses or payments not deductible under the head profits and gains of business or profession. In the assessee s case, the income is only from three segments income from other sources, dividend income and capital gains. There is no income to be computed under the head profits and gains of business or provision. Therefore, we are of the considered opinion that the Ld.CIT(A) rightly held that the disallowance contemplated under Chapter-III of IT Act cannot be under taken while computing the income under Chapter-IV of the IT Act. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The Revenue s appeal on this ground for the AYs 2009-10 2010-11 are dismissed. 17.0 The next issue for the AY 2009-10 was disallowance u/s.40(a)(i) of IT Act. 18.0 The AO disallowed a sum of ₹ 6,77,269/- paid towards legal and professional fee for non-deduction of tax at source u/s.40 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
