TaxTMI 
TaxTMI 
2017 (7) TMI 1396
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....e for the impugned assessment year disclosing income of Rs. 107,72,76,893/-. It seems that the return was initially taken up for complete scrutiny which was later modified to a limited purpose scrutiny, for examining the difference between turnover shown in the Income Tax return and turnover shown in Service Tax return. However, on 06.09.2016, the proceedings were again converted into a complete scrutiny based on an approval received from the Principal Commissioner of Income Tax, Chennai. Meanwhile, the JCIT, Non Corporate Range 2, Chennai passed an order u/s. 144A of the Act, on 24.08.2016, giving directions to the ld. Assessing Officer to treat a corpus donation of Rs. 25,00,000/- received by the assessee trust during the relevant previous year, as income under the head "income from other sources". Ld. JCIT was of the opinion that assessee being a Private Discretionary Trust, had to be considered as representing its beneficiariaries who were all individuals and thus governed by Sec. 160(1) (iv) of the Act. As per the ld. JCIT by virtue of Section 161(1) of the Act, in its capacity as a representative assessee, liability was cast on it in a like manner to the same extent as it app....
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....of the said term in that section. 5. However, ld. JCIT was not impressed by any of the above arguments taken by the assessee. According to him, Explanation to Sec. 2(31) of the Act, introduced by Finance Act, 2002, was only to bring within the ambit of taxation, religious and/ or charitable trusts which lost exemption u/s. 11 & 12 of the Act. Further, as per ld. JCIT none of the trustees of the assessee trust nor its beneficiaries had come together with a common purpose of earning income and therefore it could not be treated as an AOP. According to the ld. JCIT, definition of person u/s. 2(31) of the Act did not specify any specific category for trusts. Further, according to him, by virtue of judgment of Gujarat High Court in the case of CIT vs. Deepak Family Trust No.1 and others 211 ITR 575, that of Bombay High Court in the case of CIT vs. Marsons Beneficiary Trust 188 ITR 224, that of Gujarat High Court in the case of NITI Trust and Others vs. CIT 221 ITR 435, that of Delhi High Court in the case of CIT vs. SAE Head Office Monthly paid employees 271 ITR 159, that of Calcutta High Court in the case of CIT vs. Shri. Krishna Bandar Trust 201 ITR 989 and that of Apex Court in the c....
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....d by the Appellant Trust overlooking the fact that section 56(2)(vii) applies only to individuals and HUFs and ignoring the ratio decided in Cl'T vs Smt. Sodra Devi(1957) 32 ITR 615 on the contextual interpretation of the term individual and the decision of the Delhi Dalmia Parivar Trust vs. A.O (2016) 158 ITD 521 (e) The Assessing Officer erred in overlooking the fact that Section 56(2)(vii) applies only to what is actually received by individuals and HUFs. (f) The Assessing Officer erred in applying Section 2(24) (iva) to bring to tax voluntary corpus donations of sums of money received by the appellant trust ignoring the interpretation of the expression value of any benefit or perquisite, whether convertible into money or not, laid down by the jurisdictional High Court in the cases of CIT vs. G. Venkataraman (1978) 111 ITR 444 and CIT vs. A.R. Adaikappa Chettiar (1973) 91 ITR 90. Assessee also placed reliance on the following decisions:- (i) CIT vs. SRMT Staff Association 221 ITR 234 (AP High Court) (ii) Pentafour Software Employees Welfare Foundation vs. ACIT - Order dated 8.7.2008 of Chennai Bench in ITA Nos.751 & 752/Mds/2007. 8. Ld. Commissioner of Income Tax ....
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....y applied to any donation whether corpus or not received by the assessee. According to him, the ld. JCIT had taken a correct view in holding that income received on behalf of individual beneficiaries by a representative assessee was to be treated, for all purposes of the Act, as income received by an 'individual'. Ld. Commissioner of Income Tax (Appeals), also considered the effect of clause (x) introduced in Sec. 56(2) by Finance Act, 2017 w.e.f. 01.04.2017. According to him, insertion of the said clause was prospective in nature and could not come to the aid of the assessee in any manner. He thus, held that the corpus donation of Rs. 25,00,00,000/- received by the assessee was rightly considered as income u/s. 56(2)(vii) of the Act r.w.s. 2(24(xv) of the Act. Nevertheless he directed the ld. Assessing Officer to grant basic exemption of Rs. 50,000/- available u/s. 56(2) (vii) of the Act. 10. Now before us, ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that assessee had filed its return in the status of a 'trust'. As per the ld. Authorised Representative even in the assessment order the ld. Assessing Officer had mentioned the statu....
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....ng to him, it could not be considered as an 'individual' only for making an addition. Relying once again Coordinate Bench of the Tribunal in the case of Pentafour Software Employees Welfare Foundation (supra) ld. Authorised Representative submitted that voluntary contribution towards corpus of a trust could not be considered as income. Further, as per the ld. Authorised Representative, a private discretionary trust could not be equated with an individual. For this ld. Authorised Representative relied on decision of Co-ordinate Bench of this Tribunal in the case of Gopal Srinivasan Trust vs. ADIT 46 ITD 157. According to him, corpus contribution received could not be roped in as income even u/s. 2(24) (iva) of the Act, since assessee had not obtained the contribution by way of a legal right or claim but it was only a gratuitous payment received by it. Reliance was placed on the judgment of Hon'ble Jurisdictional High Court in the case of A.R. Adaikapa Chettiar (supra). According to ld. Authorised Representative the question as to how a gift received by a private discretionary trust had to be treated had come up before the Delhi Bench of this Tribunal in the case of Mridu Hari Da....
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....ssessee being a private discretionary trust with individuals as its beneficiaries, had to be considered in the status of an individual only. 17. Drawing a parallel with Sec. 50L, Sec.54F and Sec. 194A of the Act, where also the term "individual or HUF" was mentioned, Ld. Departmental Representative submitted that Hon'ble Jurisdictional High Court and Co-ordinate Benches of this Tribunal had in various judgments held that said terms included in it, a private discretionary trust also, whose members were individuals. Relying on the decision of Mumbai Bench of the Tribunal in the case of Balgopal Trust vs. ACTI (In ITA No.5661/Mum/2016, dated 03.05.2017), ld. Departmental Representative submitted that benefit u/s. 54F of the Act which was available only to an individual and HUF was given by the Tribunal to a private non discretionary trust. As per ld.DR, the Mumbai Bench in this decision had clearly held that a representative assessee had the same duties, responsibilities and liabilities as if income was received by him beneficially for an individual beneficiary. Relying on the Jurisdictional High Court in the case of CIT vs. Venu Suresh Sheela Trust and Others 233 ITR 99, ld. D....
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....16. Thus, clearly when the ld. JCIT passed his order under Sec. 144A of the Act, assessment proceedings were pending. We are in agreement with the contention of the ld. Departmental Representative that it mattered little whether such assessment proceedings was for a limited scrutiny or complete scrutiny assessment. At this juncture, it would be apposite to have a look at Section 144A of the Act which reads as under:- "A Joint Commissioner may, on his own motion or on a reference being made to him by the (Assessing) Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the (Assessing) Officer to enable him to complete the assessment and such directions shall be binding on the (Assessing) Officer." Section simply states that an assessment has to be pending and nothing more. We cannot read into the section, words which a....
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.... (id) .................."; (ii) .................... "; (iii) .................."; (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 84[but before the 1st day of April, 2017],- (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b) any immovable property,- (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a par....
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....ely:- (i) immovable property being land or building or both; (ii) shares and securities; (iii) jewellery; (iv) archaeological collections; (v) drawings; (vi) paintings; (vii) sculptures; (viii) any work of art; or (ix) bullion; (e) "relative" means,- (i) in case of an individual- (A) spouse of the individual; (B) brother or sister of the individual; (C) brother or sister of the spouse of the individual; (D) brother or sister of either of the parents of the individual; (E) any lineal ascendant or descendant of the individual; (F) any lineal ascendant or descendant of the spouse of the individual; (G) spouse of the person referred to in items (B) to (F); and (ii) in case of a Hindu undivided family, any member thereof; (f) "stamp duty value" means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property; Main contention taken by the ld. Authorised Representative is that assessee could not be considered as an individual or HUF within the meaning of Sec. 56(2)(vii) of the Act, since assessee had filed its return in th....
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....ure of protection by making it explicit that "he shall not, in respect of that income, be assessed under any other provisions of this Act". This is of significance for "any other provisions of this Act" must plainly mean any provision of the Act other than section 161. Section 164 states that where any income in respect of which a trustee is liable as representative assessee is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or part thereof is receivable are indeterminate or unknown, tax shall be charged as if such income were the total income of an association of persons or such course benefits the Revenue. Put differently, section 164 states that tax shall be levied upon the income of a discretionary trust as if it were the total income of an association of persons, except that if it or part of it is actually received by a beneficiary it or that part of it becomes chargeable to tax at the rate applicable to the total income of the beneficiary if that course is beneficial to the Revenue. Section 164 does not create a charge on the income of a discretionary tr....
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....h income". The section is clearly 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 more of the beneficiaries or not at all. But that is not to say that the beneficiary of a discretionary trust, because he does not fall within the ambit of section 166, may not be assessed upon income received by him and tax recovered from him thereon if that is permissible under any other provisions of the Act for, as aforestated, section 166 is merely clarificatory. Section 5 of the Act defines the total income of any person to include income received by him or received on his behalf or which accrue....
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....erpretations were in relation to a relief giving provision benefiting the assessee, and not a provision charging tax on an assessee. It is trite law that relief giving provisions are to be interpreted liberally whereas charging provisions are to be applied strictly. Section 56(2) of the Act is not akin to a relief giving provision like section 80L, 54F of the Act. It is a charging section wherein certain type of receipts, that may not otherwise be considered as income is roped in for taxation. 25. That apart, the definition of 'relative' given in Explanation (e) to said section leaves no room for doubt, that the term 'individual' used implied only a natural person. Thus irrespective of the status in which assessee was considered for assessment, in our opinion it could not be considered as an individual for application of Sec. 56(2)(vii) of the Act. The term individual as used in the said section, by necessary implication only can bring in natural persons. Thus, we are unable to accept the argument of the ld. Departmental Representative that the term individual having been defined to include an artificial juridical person as also a private discretionary trust u/s. 80L, 54F and 194A....
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....s', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. Then comes subsection (2) of section 56 which provides in particular and without prejudice to the generality of the provisions of sub-section (1) that the incomes discussed under various clauses of this sub-section shall be chargeable to income-tax under the head 'Income from other sources.' Clause (vi), which is relevant for our purpose, reads as under : "(vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 but before the 1st day of October, 2009, the whole of the aggregate value of such sum: Provided that this clause shall not apply to any sum of money received (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any f....
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....relative as defined in the Explanation, that shall not be chargeable to tax u/s 56(2)(vi). Coming back to the aforenoted four conditions bringing receipt within the charging provision, we find that the first condition, namely, receipt of money in excess of Rs. 50,000/- is satisfied. The second condition is that such amount should be received without consideration. This condition is also satisfied because the assessee trust received a sum of Rs. 1.60 crore from Smt. Abha Dalmia as gift, which is obviously without any consideration. The fourth condition about the receipt of such amount from any person or persons before the designated date is also satisfied. Now we espouse the third condition as per which the receipt of such sum should be by an individual or HUF. This condition is obviously wanting because as per the AO's own version the status of the assessee is association of persons, which is other than an individual or HUF. Section 2(31) defines "person" as including (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not,(vi) a local authority, and (vii) every artificia....
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....ideration or for inadequate consideration. The existing definition of property for the purpose of this section includes immovable property, jewellery, shares, paintings, etc. These anti-abuse provisions are currently applicable only in case of individual or HUF and firm or company in certain cases. Therefore, receipt of sum of money or property without consideration or for inadequate consideration does not attract these anti-abuse provisions in cases of other assessees. In order to prevent the practice of receiving the sum of money or the property without consideration or for inadequate consideration, it is proposed to insert a new clause (x) in subsection (2) of section 56 so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head "Income from other sources". It is also proposed to widen the scope of existing exceptions by including the receipt by certain trusts or institutions and receipt by way of certain transfers not regarded as transfer under section 47". A reading of the above explanatory note clearly....
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....d of the relevant previous year is reproduced hereunder :- Details of Investments As on 31.3.14 As on 31.3.13 Dividend Investment in preference Shares 2,24,67,248 2,24,67,248 2,29,794 Investment in Equity Shares --- Shriram Auto Mall land holdings Pvt. Ltd. 55,89,940 30,89,940 --- Shriram Financial Ventures Pvt. Ltd 1,34,37,25,300 1,34,37,25,300 --- Shriram Investment Holdings P. Ld. 2,25,010 2,25,010 --- Shriram Retail and franchisees Pvt Ltd. --- 99,990 --- Shriram Chits Hyderabad P. Ltd 8,52,05,000 8,52,05,000 --- Shriram Chits Karnataka Pvt Ltd 3,99,99,000 3,99,99,000 --- Shriram Chits Tamilnadu Pvt Ltd 11,99,99,800 11,99,99,800 --- Shriram Capital Ltd ---- 1 4,30,863 Shriram value services P. Ltd 1,49,80,600 1,49,80,600 --- TVS Shriram Growth 3,29,60,621 3,42,89,158 12,179 Fund IB TVS Shriram Growth Fund IA 39,18,91,446 39,74,94,530 2,45,217 UTI Liquid plan 5,75,94,331 10,69,783 Shrilakha Financial Services - Firm 7,49,701 ---- --- UTI Money Market MF ---- ---- 53,48,579 Total 2,05,77,93,666 2,11,99,19,608 73,36,415 In the deci....