TaxTMI 
TaxTMI 
1990 (8) TMI 223
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....T. Shankar was the grandfather (mother's father) of the assessees. A copy of the trust deed dated 17-11-1978 was furnished to me. The validity of the trust deed was never disputed either before this Tribunal or before any of the lower authorities. Therefore it is sufficient for our present purposes to consider the broad aspects of the terms of the trust deed so far as they are relevant for our purposes in these appeals. It is stated that the trust was created with a view to respect the desire of late Shri S.N. Subramanian at the time of his death that the interest of his minor children should be adequately safeguarded by the creation of a trust with a view to administer and augment the properties of the minors. The trust created should be called as 'S.N. Subramanian Family Trust'. An amount of Rs. 5,000 was contributed by the founder of the trust towards its corpus. Smt. Leelavathi, the widow and mother of the children assessees, who were minors by the date of the trust deed, was appointed as the sole managing trustee to administer the trust. It is stated that the income of the trust should be apportioned at the end of each accounting year into four equal shares and each of the min....
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....ach of these assessees admitted their income share in the net profit derived by the trust by filing their returns all on 26-7-1984. Master S. Vijayakumar, the assessee in ITA No. 2135 (Mds.)/1987 besides having 1/4th interest in the net profit derived by the trust, derived business income from a hotel, Venkateswara Rice Mills and SLNS Bus Service. Admittedly the whole of the income thus disclosed by each of these assessees, except in the case of Vijayakumar, represent their share of interest as beneficiary under the trust M/s. S.N. Subramanian Family Trust. In the accounting year in question the trust derived income from its own business, the share income and also derived income from 'capital gains' as well as 'other sources'. The trust derived a total income of Rs. 2,58,311 for which the break up is as under :-- Business (own) Rs. 1,71,822 Business (share) Rs. 41,811 Capital gains Rs. 23,000 Bank interest Rs. 21,678 Rs. 2,58,311 A donation of Rs. 3,500 was paid. Section 80G deduction of Rs. 1,750 was claimed. Under section 80T while submitting their returns each of these assessees claimed an amount of Rs. 5,300 as exempt. So also under section 80L each of these assessees cla....
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....equal shares. In pursuance of the trust deed, the assessee received interest from the bank and her claim for deduction of Rs. 3,000 under section 80L of the Income-tax Act, 1961, and also for the credit of the tax deduction by the bank at source was disallowed by the ITO on the ground that the assessee was not the owner of the securities from which she received the interest income. On appeal, the AAC allowed the deductions claimed by the assessee. On further appeal by the revenue, the Tribunal upheld the claim of the assessee. On reference : Held, that all that was required to entitle the deduction under section 80L was that the gross total income of an assessee should include income by way of interest on the securities of the type mentioned in clause (i) of sub-section (1), viz., interest on any security of the Central Government or a State Government. The fact that the income was received by the assessee as a beneficiary under the trust deed and not as the owner of the securities was not relevant for purposes of granting relief under section 80L. Therefore, the assessee was entitled to the deduction of Rs. 3,000. " On the other hand the contention of the learned departmental repr....
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.... subject to prior charges or not, and either together or in lots, by public auction or private contract, and either at one time or several times, unless the instrument of trust otherwise directs." Therefore from the above section it may be seen that the trustee alone would be the legal owner of the property and he is entitled to sell the property because in the facts and circumstances of the case the trustee is given full authority to sell the property and realise the sale proceeds. On the basis of the authority of the Honble Supreme Court in James Anderson v. CIT [1960] 39 ITR 123, in Chaturvedi & Pithisaria's Income-tax law, Third Edition, Vol. 2, at page 1677 the legal position as to in whose hands the capital gains arise is explained as follows: "If, however, the administrator under a will sells the capital assets for the purpose of distributing the sale proceeds amongst the legatees, and the sale brings in capital gains, the clause has no application and the capital gains so brought in shall be taxable in the hands of the administrator because under this clause assets are required to be transferred in specie and not in the form of their sale proceeds." Their Lordships were con....
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....orrectly laid down the principle that part income only cannot be assessed in the hands of any assessee. The question, is can the capital gains resulted on the sale of the trust property be divided equally among the beneficiaries of the trust and can a part or a share in the capital gains be divided, allotted and can be assessed in different hands of the beneficiaries. According to Shri K. Srinivasan, the learned counsel for the assessee, the plain language used in sections 161(1) and 166 would clearly show that a direct assessment can be made against each of the beneficiaries, with regard to his beneficial interest derived from the trust and it is enough if such beneficial interest in the trust derived by each of the beneficiaries would include income in the nature of capital gains to entitle each of the beneficiaries to claim exemption under section 80T and the ratio of the Allahabad High Court decision cited by him in Smt. Shakuntala Banerjee's case supports his contention. On the other hand the learned departmental representative contended that the word 'assessment' convey different meanings and one of the meanings conveged by that expression is determination of the amount of t....
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....ow the question is whether the words 'direct assessment' occurring in section 166 should bear a wider meaning as canvassed by Shri K. Srinivasan, or a restricted meaning as canvassed by the learned departmental representative. The present section 166 of the Income-tax Act is found out to be analogous to section 41(2) of the Income-tax Act, 1922. So also the latter portion of section 161 is found to be analogous to section 41(1) of the Income-tax Act, 1922. The scope of the erstwhile section 41 of the Income-tax Act, 1922 was considered by the Bombay High Court in its authoritative judgment in CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187. Tracing out the procedure in which a trustee should be assessed, the Bombay High Court at page 194 of the reported decision held as follows : " Now it will be noticed that this section deals with levy and recovery of tax, section 3 having charged a particular income to tax and sections 6 to 12 having dealt with computation of income. Section 41 deals with the liability to pay tax and the person from whom the tax is to be recovered. It should also be noticed that section 41 imposes a vicarious liability upon the trustees and that liability i....
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....e trustee, section 161 would apply and if the assessment is to be completed against the beneficiary, the provisions of section 166 would apply and the tax liability would be determined according to those respective provisions. The decision of the Bombay High Court in 34 ITR 187, cited supra, was approvedly quoted by the Supreme Court in CIT v. H.E.H. Mir Osman Ali Bahadur [1966] 59 ITR 666. After quoting section 41(1) & (2) of the Income-tax Act, 1922 their Lordships stated the following at page 682 of the reported decision : " Under this section the revenue has the option to levy or collect tax from the trustee or the beneficiary ; the tax can be levied upon and recoverable from the trustee in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable. In short, it imposes a vicarious liability on the trustee. The expression 'all the provisions of this Act shall apply accordingly' indicates that there is no distinction in the matter of assessability of the income in the hands of a trustee or the beneficiary, as the case may be. [Emphasis supplied] Indeed, section 41 of the Act co....
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.... proceedings, I have to hold that the words 'direct assessment' occurring in section 166 of the Income-tax Act are intended to convey only a meaning in a restricted sense 'of determining the amount of tax payable' but not in a wider sense of conveying the whole procedure laid down in the Act for imposing the liability on the tax payee'. The interpretation sought to be put by the learned departmental representative against these words should be preferred as against the interpretation sought to be put by the learned counsel for the assessee in a wider sense. 4. As regards section 80G deduction, the present assessees, who are only beneficiaries under the trust, are not entitled to claim it for they are not the persons who made the donation and admittedly it was the trustee who made the donation. Section 80G(2) makes the position very clear. According to the said provision, the exemption is available only as regards the sums paid by the assessee in the previous year as donations to the institutions enumerated in the said section. The assessees who are only beneficiaries under the trust did not pay the donations and therefore each of them would not be entitled to a separate deduction u....