TaxTMI 
TaxTMI 
2018 (4) TMI 1062
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.... was completed u/s. 143(3) accepting the claim u/s.166 that the income is not assessable in the hands of the Trust, the observation that exemption was originally claimed u/s.26 is merely a change of opinion and this does not justify the reopening of the assessment. 5. The finding of the Commissioner of Income Tax (Appeals) that the income is assessable in the hands of the Trust is against the provision of the section 166.The Commissioner of Income Tax (Appeals) ought to have held that the income of the beneficiaries only can be assessed in the hands of the Trust in the capacity of representative assessee. 6. The Commissioner of Income Tax (Appeals) has gone wrong in not giving a clear finding on the ground regarding levy of interest u/s.234B & 234C and in respect of granting of interest u/s.244A. 7. For these and other grounds that may be permitted to be adduced at the time of hearing of the case, it is prayed that the orders of the lower authorities may be ordered to be modified to the extent prayed for in the appeal." 3. The brief facts of the case are as follows:- 3.1 The assessee is a family trust with 14 beneficiaries having equal shares. The r....
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....st cannot be assessed at the maximum marginal rate but only at the normal rate. The CIT(A), however, dismissed the assessee's claim that the reopening of assessment as not legal. On merits, the CIT(A) held that the income of the trust was not to be liable for tax at the maximum marginal rate but only normal rate applicable to an AOP. However, the claim for determining tax as a representative assessee of the beneficiaries was rejected by the CIT(A), and he confirmed the action of the A.O. in taxing the rental income in the hands of the assessee-trust. 5. Aggrieved by the order of the CIT(A), affirming the A.O.'s view to tax the rental income in the hands of the assesseetrust, the assessee has filed the present appeal before the Tribunal. 5.1 The learned Counsel for the assessee submitted that the trust as such cannot be assessed to tax. It was submitted that separate assessments for each beneficiary has to be framed on the trustee as the representative assessee. It was contended that the tax to be paid by each beneficiary has to be paid by the trustee from the funds of the trust and debited to the accounts of the beneficiaries. It was submitted by the learned AR that the asset....
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.... shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income. For the purposes of this section, in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section." 6.1 According to the above provision, where a building and land appurtenant thereto are owned by two or more persons and respective shares are definite and ascertainable, the share of each of such person's shall be computed in accordance with sections 22 to 25, and be included in the total income of such persons individually. In other words, if the co-owner's share in a property is ascertainable, the coowner's shall not be assessed as A.O.P. The A.O. held that the beneficiaries of the Trust are not the owners of the property and hence the share of the benefit cannot be assessed in the hands of the beneficiaries. To examine whether the A.O.'s view is....
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....ficiary would never be liable to wealth-tax. The fundamental rights attributed to ownership would be the right to possess, enjoy and transfer the property or its income. In law the trustee has no power to either enjoy property or its income or transfer the property for his own benefit. Though he undoubtedly comes into possession of the property, the possession is for the benefit of another, i.e., the beneficiary. The trust is, thus seen, merely a conduit pipe or a vehicle by means of which the donor passes on the interest which the donor had in the trust property in favour of the beneficiary. The effect is that a trust is a gift of trust property or interest in the trust property to the beneficiary. The apex court was called upon to deal in the case of State Bank of India v. Special Secretary Land [1995] Suppl 4 SCC 30, with a situation where the State Bank of India was executor/trustee of certain properties under wills of individuals who were owners of the said properties. Some of the properties were vacant lands. A question arose as to whether the provisions of the Urban Land (Ceiling and Regulation) Act, 1976, could be applicable or not and whether exemption under secti....
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....tled to receive on behalf or for the benefit of any person, the trustee would be considered as a representative assessee in terms of the provisions of section 160(1)(iv) of the Act. In terms of section 161(1) of the Act, every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income ; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. To the above rule laid down in section 161(1) of the Act, there are three exceptions. They are : (a) Under section 161(1A), this rule of apportionment and determination of proportionate tax attributable to the beneficiary will not apply to any income earned by the trustee as profits and gains ....
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....ciaries are also determined and this fact is also acknowledged by the CIT(A) at para 8.4 of the impugned order. 6.8 Section 161 of the I.T.Act, as stated in earlier paragraph, encompasses the liability of a representative assessee in relation to a trust. The said section reads as follows: "Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him." (emphasis given by us) 6.9 Section 161 suggests that a representative assessee shall be subject to same duties and responsibilities as that of the identifiable beneficiaries of a trust. In other words, the share of ....
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.... the option to assess the beneficiary directly. This does not make any difference to the quantum of tax which is liable to be paid. But the income cannot be taxed in the hands of the trustees as one unit under section 161(1)." 6.11 In the case of CIT v. T.A.V.Trust [(2003) 264 ITR 52 (Ker.), the Hon'ble Kerala High Cout was considering a case where assessee-trust was having business income as well as rental income from the building owned by the trust. The assesseetrust had claimed deduction of rental income. The A.O. however disallowed the claim of the assessee holding that the building in question was asset of the trust and the income there from has to be assessed in the hands of the trust. The A.O. accordingly treated the assessee-trust as a representative-assessee u/s 161(1A) of the I.T.Act and tax was charged on the whole income at the maximum marginal rate. In appeal, the CIT(A) allowed the appeal of the assessee. The ITAT confirmed the view taken by the CIT(A). The Revenue being aggrieved, filed reference application raising the following question of law:- "Whether, on the facts and in the circumstances of the case and also in view of the provision contained in se....
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....ame of the trustee in terms of the sub-section can be made in two ways. The Assessing Officer may make as many assessments in the name of the trustee as there are beneficiaries and levy the tax appropriate to such income at the rate of tax applicable to total income of each beneficiary. The assessing authority, in the alternative, can make a single assessment on the trustee, but has to indicate in the order the share income of each beneficiary and tax attributable to it. Section 161(1A) is an exception to the above rule. Under section 161(1A) this rule of apportionment and determination of proportionate tax attributable to the beneficiary will not apply to any income earned by the trustee as profits and gains of a business. The whole of such income shall be taxed at the maximum marginal rate. A similar proviso occurs in section 161(1) restricting the benefits where business income is involved. Under section 164(1) if the individual shares of the persons on whose behalf and for whose benefit the income is receivable are indeterminate or unknown, such income, gain, will be taxed at the maximum marginal rate. In certain other circumstances, set out in the proviso to section 164(1), th....
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....n section 161(1A) of the Act, in a case where a trust is having income by way of profits and gains of business, income from property, income from interest, income from dividend and also income from capital gains, the entire income so received has to be treated as one and tax has to be levied at the maximum marginal rate. This according to us, is against the very scheme of the Act as also beyond the scope of section 161(1A) of the Act. If we accept the stand taken by the Department, it will result in arbitrariness and discrimination attracting article 14 of the Constitution also. The effect would be that a trust which is not having income by way of profits and gains of business but income under other heads will be entitled to the benefit of section 161(1), while a trust which is having income by way of profits and gains of business and also the income falling under other heads of income is being treated differently with a higher burden to the trust, which will amount to clear discrimination. That apart under the scheme of the Act, under section 14 of the Act, all income, for the purpose of charge of income-tax and computation of total income, is classified under different heads, sal....