Revocable trust income and TDS credit: binding treaty-based precedent barred taxation in India, while credit was remanded for verification.

Income from investments of a revocable trust settled by a non-resident settlor was treated as not chargeable to tax in India, following binding jurisdictional precedent applying sections 61, 63, 161 and 164 of the Income-tax Act, 1961 together with Article 24 of the India-UAE DTAA. In the absence of any change in facts or law, the tax addition was deleted. The claim for TDS credit was not finally adjudicated by the lower authorities and was restored to the Assessing Officer for verification and grant of credit in accordance with law, resulting in partial relief to the assessee.

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Issues: (i) Whether the income arising from investments made by the assessee-trust was taxable in India. (ii) Whether the claim for TDS credit required verification and grant by the Assessing Officer.

Issue (i): Whether the income arising from investments made by the assessee-trust was taxable in India.

Analysis: The trust was settled by ADIA on revocable terms. The jurisdictional High Court had already quashed the AAR ruling and held that the income accruing to the trust was not chargeable to tax in India. The High Court further held that sections 61 and 63 of the Income-tax Act, 1961 applied to the settlement, and that even on the alternative footing of assessment in the hands of the trustee, sections 161 and 164 read with Article 24 of the India-UAE DTAA protected the income from taxation in India. Following that binding precedent, and in the absence of any change in facts or law, the addition was not sustainable.

Conclusion: The issue was decided in favour of the assessee, and the addition was deleted.

Issue (ii): Whether the claim for TDS credit required verification and grant by the Assessing Officer.

Analysis: The claim of tax deducted at source was not adjudicated on merits by the lower authorities in the manner required for final allowance. The matter was therefore restored to the jurisdictional Assessing Officer for necessary verification and grant of credit in accordance with law.

Conclusion: The issue was decided in favour of the assessee by way of restoration for verification and grant of credit.

Final Conclusion: The addition on taxability was deleted, while the TDS credit issue was remanded for verification, resulting in only partial relief to the assessee.

Ratio Decidendi: Income arising from a revocable trust settled by a non-resident settlor is taxable, if at all, in accordance with sections 61, 63, 161 and 164 of the Income-tax Act, 1961 and the applicable treaty provisions, and a binding jurisdictional ruling on the same issue must be followed.

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