1984 (9) TMI 124 - AT - Income Tax

Trustee's Capital Loss Cannot Offset Assessee's Gains

The Tribunal upheld the AAC's order, ruling that the capital loss determined in the trustee's hands could not be set off against the capital gains in the ... Capital Loss, Sale Proceeds, Set Off Against Capital Gains Issues Involved:1. Set off of long-term capital loss against long-term capital gains.2. Assessment of income and capital gains in the hands of the trustee versus the beneficiary.3. Applicability of statutory provisions related to representative-assessees.4. Right of the beneficiary over the corpus and capital gains of the trust property.Issue-wise Detailed Analysis:1. Set off of Long-Term Capital Loss Against Long-Term Capital Gains:The assessee, an individual deriving income from property, interest, and deposits, claimed a set off of a long-term capital loss of Rs. 75,000 determined in the case of a trust against a long-term capital gain of Rs. 34,024 from the sale of ownership flats. The Income Tax Officer (ITO) allowed the set off of Rs. 34,024 against the long-term capital gains determined in the assessee's own case for the assessment year 1977-78, resulting in nil long-term capital gains. The assessee contested this, preferring the set off of the loss determined in the trust's case for the assessment year 1976-77. The ITO disallowed this claim, stating that the trust's assessment could not be set off against the assessee's income as they were different entities, and the trust was assessed as an Association of Persons (AOP) due to multiple trustees. The Appellate Assistant Commissioner (AAC) confirmed this view, leading to the present appeal.2. Assessment of Income and Capital Gains in the Hands of the Trustee Versus the Beneficiary:The assessee argued that the income from the trust property had been assessed in his personal assessments in the past and that the capital loss determined in the trustee's hands should justify the set off against long-term capital gains, regardless of whether the gains were assessed in the trustee's or the beneficiary's hands. The assessee cited statutory provisions under sections 161, 166, and 167 of the Income-tax Act, 1961, and the Supreme Court's decision in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555, emphasizing that the trustee's assessment should be in the status of the beneficiary and that the ultimate liability should be the same.3. Applicability of Statutory Provisions Related to Representative-Assessees:The assessee's representative relied on the statutory provisions related to representative-assessees, asserting that the trustee's liability should be 'in like manner and to the same extent' as the beneficiary. The representative argued that the authorities had overlooked the settled position of law by taking a technical stand that the assessee and the trust were different entities. However, the Tribunal noted that the trust deeds conferred only a life interest to the assessee, with no right over the corpus, and that the capital gains or losses could only be assessed in the trustee's hands.4. Right of the Beneficiary Over the Corpus and Capital Gains of the Trust Property:The Tribunal concluded that the assessee had no right over the corpus or the capital gains from the trust property, as the trust deeds and subsequent agreements only conferred a life interest to the assessee. The Tribunal referenced the Gujarat High Court's decisions in Kum. Pallavi S. Mayor v. CIT [1981] 127 ITR 701 and Anarkali Sarabhai v. CIT [1982] 138 ITR 437, which held that capital gains could only be assessed in the trustee's hands, not the beneficiary's, even if the beneficiary was the sole beneficiary. The Tribunal also cited its own decision in Mrs. A.V. Rajani Reddy [IT Appeal Nos. 75 to 83 (Hyd.) of 1983], emphasizing that the beneficiary's right was limited to the income and not the corpus.Conclusion:The Tribunal upheld the AAC's order, concluding that the capital loss determined in the trustee's hands could not be set off against the capital gains in the assessee's hands, as the assessee had no right over the corpus or capital gains of the trust property. The appeal was dismissed.