TaxTMI 
TaxTMI 
2002 (2) TMI 324
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....-trust in terms of section 161(1A) of the Income-tax Act, on the ground that the assessee-trust derived income from business, and that it has to be charged on the whole of its income at the maximum marginal rate. 3. The assessee-trust came into existence by an Indenture dated 3-10-1950, and the settlor was Shri T.L. Kapadia. The corpus of the Trust was an amount of Rs. 1,25,000. We need not bother about the life interest created under the Trust and the only relevant point for the purposes of these appeals is that during the years of account, relevant for the assessment years under appeal, the Trust had two beneficiaries, Shri Dhirajlal Kapadia and Shri Kirtikumar T. Kapadia, the sons of the Settlor, with, as mentioned hereinbefore, each one of them having 50 per cent beneficial interest in the income of the Trust. 4. The main contention of the assessee before us has been that assessments have already been made in respect of these two beneficiaries, including the share income from the Trust, and as such, the Department is barred from reopening the assessments of the assessee-trust, for the purposes of making a direct assessment on the Trust in terms of section 161(1A) of the A....
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....43(1)(a) issued on under section 143(1)(a) the return 20-10-1992 dated 28-8-1992. No (ii) Later, Assessing Intimation or further Officer issued notice action. under section 147 dated &n....
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....sp; passed order under section 143(3) on 10-2-1995. Assessment year 1992-93 (1) Date of filing of 4-3-1993 28-4-1993 return of income (2) Income declared in Personal income + Personal income + the return share from the share from the &nbs....
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....bsp; Personal income Personal income + the return share from the share from the income of the trust income of the trust consisting of pro- consisting of property &nb....
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....rust at maximum marginal rate in the hands of the trustees in their capacity as representative assessee. The relevant portion of the head-note of the said decision reads as under- "Section 164 cannot be read as being a code in itself applicable to the taxation of the income of a discretionary trust. Consequently, it cannot be held that the beneficiary of a discretionary trust, even if he has received its income in the accounting year, cannot be taxed thereon because section 164 does not provide for such contingency. Section 166 is clarificatory. It does not empower any assessment or recovery by itself. It only makes it clear that sections 160 to 165 do not bar the direct assessment of the person on whose behalf or for whose benefit the income is receivable or the recovery from such person of the tax payable thereon, provided that is permissible under any other provisions of the Act. Even so, since the word used in section 166 is "receivable", it cannot apply to a discretionary trust, for it cannot be said that the income thereon is "receivable" for one or more beneficiaries it being left to the discretion of the trustees whether or not the income should be distributed to one or ....
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....ment on the right person is barred. For this proposition, he relied upon the decision of the Apex Court in ITO v. Ch. Atchaiah [1996] 218 ITR 239. 8. The learned counsel for the assessee countered in his rejoinder by stating that the said decision of the Apex Court in the case of Ch. Atchaiah is distinguishable and applicable only in a case where the Assessing Officer has no option of making the assessment on either of the two specified persons, and has initially framed the assessment on wrong person and subsequently framed the assessment on the right person. As that is not the position in the present case inasmuch as the Assessing Officer has the option of framing the assessment either on the beneficiaries direct or on the trustees, the ratio of the decision of the Apex Court in the case of Ch. Atchaiah does not apply. He also clarified that even section 161(1A) does not stipulate that an assessment has to be made on the Trust adopting its status as AOP as done for all the three years, by the Assessing Officer in this case. It only stipulates that the income in respect of which a representative assessee is liable, shall be charged at the maximum marginal rate. According to him,....
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.... this view of the matter, we agree with the learned counsel for the assessee that section 161(1A) does not empower the Assessing Officer to frame a direct assessment on the trustees, including therein the entire income of the trust. We agree with him that the Assessing Officer has the option of making the assessment either directly on the beneficiaries or on the trustees in their representative capacity in the light of the decision of the Apex Court in the case of Smt. Kamalini Khatau. 10. We also find that the plea of the learned counsel for the assessee in this context finds support in the decision of the Hon'ble Kerala High Court in Dr. David Joseph's case and also the decision of the Tribunal (TM) in Mirje Family Trust's case, to which one of us was a party. In this decision of the Tribunal at page 46 of the Reports (73 ITD), it was held that the decision of the Apex Court in the case of Ch. Atchaiah is applicable only in a situation where there is no option for the Department to proceed against either of two or more entities and the assessment had been made initially on the wrong person. As per the relevant portion of the head-note of this decision, the Tribunal held in a s....