1993 (12) TMI 20 - HC - Income Tax

Discretionary Trust Eligible for Tax Deductions as Individuals

Commissioner Of Income-Tax Versus Deepak Family Trust No. 1 And Others

The court held that a discretionary trust is entitled to deductions under section 80L of the Income-tax Act. The trust, treated as an individual for ... Discretionary Trust, High Court, Income Tax Act, Special Deduction Issues Involved:1. Whether a discretionary trust is entitled to deductions u/s 80L of the Income-tax Act.2. Whether the status of trustees of a discretionary trust should be considered as an individual for the purpose of assessment.Summary:Issue 1: Entitlement to Deductions u/s 80LThe primary question was whether a discretionary trust is entitled to deductions u/s 80L of the Income-tax Act. The Income-tax Officer rejected the claim, stating that u/s 80L benefits are available only to individuals and Hindu undivided families. The Appellate Assistant Commissioner, however, held that the trust should be treated as an individual and thus entitled to the reliefs under section 80L. The Tribunal upheld this view, stating that the trustee, as a representative assessee, should be assessed in the same manner as the beneficiary, thereby entitling the trust to the same exemptions, deductions, and benefits.Issue 2: Status of Trustees for AssessmentThe Tribunal's decision was challenged by the Revenue, arguing that section 164, not section 161, should be the basis for assessment of a representative assessee. The Full Bench of the court in CIT v. Smt. Kamalini Khatau [1978] 112 ITR 652 had held that section 164 creates a charge, whereas section 161 contains general provisions. The court, however, noted that even if section 164 applies, it does not affect the entitlement to deductions u/s 80L. The court emphasized that the status of the trustees should be considered as an individual for the purpose of assessment, aligning with the Supreme Court's observations in various cases, including Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 and N. V. Shanmugham and Co. v. CIT [1971] 81 ITR 310.The court also referred to the Calcutta High Court's decision in Suhashini Karuri v. WTO [1962] 46 ITR 953, which held that joint trustees should be treated as a single unit and thus as an individual. The court concluded that the trustees of a discretionary trust should be assessed in the status of an individual, thereby entitling them to the benefits of deductions u/s 80L.Conclusion:The court held that 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 u/s 80L of the Act. The questions referred were answered in favor of the assessee and against the Revenue. No order as to costs.