2002 (10) TMI 27 - HC - Income Tax

The assessee s claim that it is only a representative assessee and that as the income is received for the benefit of the Aurobindo Ashram and the Ashram is exempt from tax, no liability will attach to the assessee, was not accepted by the Assessing Officer, the appellate authority and the Tribunal. - 1. Whether, on the facts and in the circumstances of the case, the assessee-trust is not entitled to exemption under section 11 read with section 161(1) of the Income-tax Act, 1961? - 2. Whether, on the facts and in the circumstances of the case, the Tribunal having held that the applicant cannot be treated as a private discretionary trust was right in holding that the benefit of assessment under section 161(1) of the Act is not available in view of the fact that moneys were not handed over in the previous year though entries were made and the amounts were disbursed subsequently over a period? Held that assessee, therefore, was entitled to be regarded as a representative assessee and, as such, the beneficiary being the Aurobindo Ashram, which was exempt from tax under section 11, the income which the assessee received for the benefit of the Ashram was also exempt.

Summary

Issues:
1. Whether the assessee-trust is entitled to exemption under section 11 read with section 161(1) of the Income-tax Act, 1961?
2. Whether the Tribunal was correct in holding that the benefit of assessment under section 161(1) of the Act is not available due to the timing of money disbursement?

Analysis:
The judgment dealt with the case of an assessee carrying on business for the sole benefit of a trust. The assessee declared the business was for the benefit of a specific Ashram and made credit entries in favor of the Ashram in its accounts. The main issue was whether the assessee was entitled to exemption under section 11 read with section 161(1) of the Income-tax Act, 1961. The Revenue did not question the genuineness of the declaration made by the assessee in 1968 and 1972. The court noted that the credit entries made in favor of the Ashram and the subsequent application of the majority of the amounts for the Ashram's benefit were accepted facts. Referring to precedents, the court held that the entire amount credited not being applied during the year did not disqualify the assessee from claiming that the money had been applied for charitable purposes.

Regarding the claim to be treated as a representative assessee under section 161(1), the court found it to be valid. The trust under which the assessee operated was for the benefit of the Ashram, which was a charitable trust exempt under section 11 of the Act. The court emphasized that the beneficiary being the Ashram and the assessee being its representative should be taxed in the same manner as the beneficiary. Citing legal precedents, the court highlighted that the trust deed mentioning contributions to various charitable institutions did not render the assessee ineligible for the claimed benefit. The court also noted that in cases covered by section 161(1), the option could be exercised based on the trust deed itself.

Consequently, the court ruled in favor of the assessee, stating that the assessee was entitled to be regarded as a representative assessee, and the income received for the benefit of the exempt Ashram was also exempt from tax. The questions raised were answered in favor of the assessee and against the Revenue.