TaxTMI 
TaxTMI 
2018 (4) TMI 1062
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....me 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 return of income for assessment year 2007-2008 was filed on 31.07.2007 declaring 'nil' inco....
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...., 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 assets of the trust are held by the trustees not as an owner of the same, but as the trusted person for and ....
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.... 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 correct, we need to be looked into what is the inter se relationship between the trust, beneficiaries and the trustees. T....
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....r 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 section 19 of the said Act would be available to the bank in relation to land of such private trusts. Dealing with the provisions of the Trusts Act and....
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....0(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 of a business. The whole of such income shall be taxed at the "maximum marginal rate". A similar proviso occurs also in section 164(1) restricting benefits where busine....
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.... 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 income from the trust which devolves on the beneficiary is to treated as if it were the income of the beneficiary. This reiterates the language of the law which uses the terms in like manner and to th....
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....t 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 section 161(1A) of the Income-tax Act, the Tribunal is right in law and fact in holding that the income from the trust properties has to be assessed in the hands of the beneficiaries ?" 6.12 The Hon'ble High Cour....
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....e 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), the relevant income will be assessable not at the maximum rate but at the rate applicable to it as if it were the total income of an association of persons. These are the only three exceptions to the rule in section 161(1) of th....
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....ived 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, salaries, income from house property, profits and gains of business, etc., and income from other sources. For each head of income separate computation provisions are also made. So far as the income from house property is concerned, sections ....