2021 (7) TMI 874 - AT - Income Tax

Tribunal deems trust revocable, income taxed to beneficiaries. Books rejected, expenses disallowed, interest levy incorrect.

The tribunal allowed the appeal, determining that the trust is revocable, and income should be taxed in the hands of beneficiaries. Consequently, the ... Status of a trust/AOP - Valid status of trust - revocable trust - allegation that trust was a colourable device to evade taxes - Holding the trust as a non-revocable trust - Revocation of Contributions Taxability of the Income at the right place and in right hands - Holding assessee trust as an indeterminate Trust (discretionary trust) - HELD THAT:- Since the issue has already discussed and decided in the case of M/s. Scheme A1 of ARCIL CPS 002 XI Trust [2020 (9) TMI 465 - ITAT MUMBAI] the facts narrated above is quite similar to the facts of this case, therefore, we are of the view that the assessee has revocable trust and the income is liable to be treated in the hands of the beneficiary. Accordingly, we set aside the finding of the CIT(A) on this issue and decide this issue in favour of the assessee. Issues Involved:1. Trust not assessed as per provisions of sections 61 to 63 of the Income Tax Act.2. Rejection of books of the appellant.3. Disallowance of acquisition expense and protection, preservation, and insurance expense.4. Disallowance of Impairment Provision.5. Disallowance of excess management fees.6. Disallowance of expenses under section 40(a)(ia).7. Taxation of interest on Fixed Deposits as Income from Other Sources.8. Incorrect levy of interest under section 234B.Issue-wise Detailed Analysis:Issue No. 1: Trust not assessed as per provisions of sections 61 to 63 of the Income Tax ActThe assessee argued that the trust is revocable and income should be assessed in the hands of the beneficiaries, not the trust. The tribunal noted that the Department had accepted the assessee’s claim as a revocable trust in previous years. The trust deed clauses, particularly those regarding the revocation of contributions, were examined. The tribunal referred to the case of ITO Vs. M/s. Scheme A1 of ARCIL CPS 002 XI Trust, where it was held that the trust is revocable and income should be taxed in the hands of the beneficiaries. The tribunal concluded that the assessee trust is a revocable trust, and thus, the provisions of sections 61 to 63 of the Act apply, meaning the income should be taxed in the hands of the beneficiaries.Issue No. 2: Rejection of books of the appellantThe CIT(A) had rejected the books of account despite the appellant following the accrual method of accounting with no qualifications in the Audit Report. The tribunal did not provide a detailed analysis for this issue, deeming it academic in nature due to the resolution of Issue No. 1.Issue No. 3: Disallowance of acquisition expense and protection, preservation, and insurance expenseThe CIT(A) upheld the disallowance made by the AO for want of details. The tribunal did not address this issue in detail, considering it academic in nature after resolving Issue No. 1.Issue No. 4: Disallowance of Impairment ProvisionThe CIT(A) confirmed the disallowance of the provision for impairment. The tribunal did not provide a detailed analysis for this issue, considering it academic in nature due to the resolution of Issue No. 1.Issue No. 5: Disallowance of excess management feesThe CIT(A) upheld the disallowance of excess management fees, ignoring the appellant’s submissions. The tribunal did not address this issue in detail, deeming it academic in nature after resolving Issue No. 1.Issue No. 6: Disallowance of expenses under section 40(a)(ia)The CIT(A) upheld the disallowance made by the AO, ignoring the appellant’s submissions. The tribunal did not provide a detailed analysis for this issue, considering it academic in nature due to the resolution of Issue No. 1.Issue No. 7: Taxation of interest on Fixed Deposits as Income from Other SourcesThe CIT(A) considered the interest accrued as income from other sources. The tribunal did not address this issue in detail, considering it academic in nature after resolving Issue No. 1.Issue No. 8: Incorrect levy of interest under section 234BThe CIT(A) incorrectly levied interest under section 234B. The tribunal did not provide a detailed analysis for this issue, deeming it academic in nature due to the resolution of Issue No. 1.Conclusion:The tribunal allowed the appeal filed by the assessee, setting aside the CIT(A)’s findings on the main issue of the trust's revocability and the taxability of income in the hands of the beneficiaries. Issues 2 to 8 were considered academic and did not require adjudication due to the resolution of Issue No. 1.