2004 (7) TMI 53 - HC - Income Tax

Trust income assessed individually for beneficiaries, not as association of persons. Trustees don't need beneficiary consent.

Commissioner of Income-Tax Versus TSK. Enterprises.

The appeal involved the assessment of a trust as an association of persons for the assessment year 1984-85. The court upheld the decision that the trust ... 'Whether Tribunal was right in holding that the Assessing Officer was not correct in assessing the assessee-trust in the status of association of persons for the assessment year 1984-85?' - CIT found that the order of AO was erroneous and prejudicial to the interests of the Revenue inasmuch as AO has not assessed the trust in the status of association of persons and levied tax at the minimum marginal rate. The CIT, therefore, set aside the assessment with the direction to the Assessing Officer to levy the tax in the status of association of persons. - income which comes to the share of a beneficiary has to be assessed as if it were the income of the beneficiary, and tax has to be levied accordingly. Section 161(1) makes no distinction between the business income of a trust and any other income of a trust. Hence, all kinds of income of a trust have to be assessed under section 161(1) – revenue appeal dismissed Issues involved:Assessment of a trust as an association of persons for the assessment year 1984-85.Analysis:The judgment pertains to an appeal against the order of the Income-tax Appellate Tribunal, Madras Bench, regarding the assessment of an assessee-trust for the assessment year 1984-85. Initially, the assessment was completed under section 143(1) with the total income determined at Rs. 1,99,940. However, the Commissioner of Income-tax found the Assessing Officer's order erroneous as the trust was not assessed as an association of persons. Consequently, the assessment was set aside, and a reassessment was completed under section 143(3) in 1990.Subsequently, the assessee appealed before the Commissioner of Income-tax (Appeals), who, following a previous decision involving a similar issue, held that the trust income should be assessed in the hands of the beneficiaries individually, not as an association of persons. The Revenue then appealed to the Income-tax Appellate Tribunal, Chennai Bench, which upheld the decision of the Commissioner of Income-tax (Appeals), leading to the current appeal.The substantial question of law raised in this appeal was answered against the Revenue by referring to a Division Bench judgment of the Bombay High Court in CIT v. Marsons Beneficiary Trust [1991] 188 ITR 224. The Bombay High Court held that the income of a trust should be assessed as if it were the income of the beneficiary, without distinguishing between different types of trust income. The judgment emphasized that trustees, under the authority of a trust deed, are not equivalent to receivers and do not require consent from beneficiaries to carry out their duties.This legal principle was reiterated by a Division Bench of the Madras High Court in a previous judgment. Consequently, the substantial question of law was answered against the Revenue, and the appeal was dismissed.