TaxTMI 
TaxTMI 
2002 (2) TMI 324
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Act. The details of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the trust consisting of pro- consisting of property perty income and income and interest interest receipts receipts. (3) Manner in which Intimation under section 143- No communication to Assessing Officer (1)(a) on 22-2-1995. the beneficiary from dealt with the return Assessing Officer. 5. After dealing with the returns filed by the beneficiaries in the manner detailed above, the Assessing Officer chose to issue notices under section 148 in the case of the assessee-trust, and in consequence of the said notices, proceeded to frame the impugned assessments for the years under appeal. On appeal, the CIT(A) upheld the action of the Assessing Officer in this behalf. 6. The learned counsel for the assessee pleaded before us that the Assessing Officer has option of making a direct assessment on the beneficiaries or making an assessment on the trustees in their capacity as representative assessee, in terms of section 161(1) read with section 166 of the Act. For this proposition, he relied upon the decision of the Apex Court in the case of CIT v. Smt. Kamalini Khatau [1994] 209 ITR 101. In this case, the Apex Court was considering the position in respect of a discretionary t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder section 4 ...... In the light of the above decision, it is pleaded that what is applicable to a discretionary trust is all the more applicable to a trust with determinate shares of the beneficiaries, like the assessee-trust. So, as the Assessing Officer has the option of making the assessment on the beneficiaries directly or on the trustees in their capacity as representative assessee, the Assessing Officer, having exercised the said option to make the assessment on the beneficiaries, cannot be permitted to back on the option exercised and to initiate proceedings under section 148 against the trustees, as done in the present case. For this proposition, he relied on the decision of the Kerala High Court in the case of CIT v. Dr. David Joseph [1995] 214 ITR 658; and also the decision of the Tribunal in Mirje Family Trust v. ITO [2000] 73 ITD 27 (Pune) (TM) to which one of us was a party as a Third Member. 7. The learned Departmental Representative on the other hand, pleaded that the assessee-trust carried on the business of construction and sale of flats, etc. and so, this is a case where the provisions of section 161(1A) are attracted, as held by the CIT(A) and so, a direct a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such income is so liable at the maximum marginal rate: Provided that the provisions of this subsection shall not apply where such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him." In terms of section 161(1) tax shall be levied upon and recovered from a representative assessee 'in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him'. In the light of the ratio of the decision of the Apex Court in the case of Smt. Kamalini Khatau, we have to hold that section 161(1A) does not impose the charge on the representative assessee. It applies in a specific situation, i.e. where the income of the trust consists of business income, and it only lays down the rate at which tax has to be levied on the income of the trust, when it includes profits and gains of business. So, the conditions laid under section 161(1) that the tax shal....