Revocable trust income from transferred assets taxed in the settlor's hands, preventing duplicate taxation of the trust.

Income arising from a revocable transfer of assets is taxable in the hands of the transferor/settlor, not the revocable trust, because the trust deed permits revocation and reinvestment in the settlor; consequence: such income must be clubbed with the settlors total income and cannot be taxed again in the hands of the trust. Where the settlor has already offered and returned the capital gain, taxing the same income in the trust is arbitrary and impermissible. The assessment officer should have determined taxability in the settlor before treating the trust as taxable on that income.

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Issues:
The judgment involves challenging the addition of income earned from the purchase of mutual funds by a revocable private trust for the assessment year 2010-11.

Summary:
The appeal was filed against the order passed by NFAC Delhi for the quantum of assessment under sections 147 and 144. The trust, a revocable private trust settled by Mr. Burjor Hormosji Reporter and Mrs. Aloo Burjor Reporter, had purchased units of mutual funds amounting to Rs. 2,59,21,343 during the relevant financial year. The trust was identified as a non-filer and proceedings were initiated to assess the income. The trust argued that as a revocable trust, it was not required to offer the income earned for tax purposes, as it had already been offered to tax by the settler of the trust. The trust provided various submissions and cited relevant case laws to support its position.

The CIT(A) upheld the action of the Assessing Officer, stating that the trust did not explain the sources of investment and confirmed the addition of income from mutual funds. However, the tribunal found that the income arising from a revocable transfer of assets should be taxable in the hands of the transferor, i.e., the settler of the trust. As the settler had already offered the income to tax in their return, taxing the same amount again in the hands of the trust was deemed arbitrary. The tribunal criticized the casual way in which facts and materials were ignored, leading to the deletion of the entire addition confirmed by the CIT(A).

Therefore, the tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and deleting the addition made on account of income from the purchase of mutual funds.

Separate Judgement:
No separate judgment was delivered by the judges in this case.

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