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Issues:
Addition on account of clubbing of income under section 64(1)(a) arising to the minor children of the assessee by way of beneficial interest in a specific Trust. Analysis: The appeals revolve around the addition of income under section 64(1)(a) due to the clubbing of income from a Trust for minor children of the assessee. The assessee argued that the Trust and co-owners of a property are distinct entities, emphasizing that the Trust had not received any income benefiting the minors. The Trust operated on a cash basis, filing nil income returns. The assessee contended that interest payable by co-owners should not automatically be considered income for the Trust or its beneficiaries. The argument was supported by a precedent from the ITAT, Bangalore Bench. The Department, however, alleged a clandestine method where the assessee, as a co-owner, claimed interest expenses payable to a Trust where she was also a trustee, implying a circular flow of funds. The Department cited the McDowell case to challenge the legitimacy of the arrangement. The Tribunal examined the facts and arguments presented. It acknowledged the Department's position, emphasizing that the assessee was both the payer and receiver of the interest in different capacities. As per relevant sections, the Trustee is taxed as a representative assessee, and income accruing to minor children is to be included in the assessee's hands. The Tribunal rejected the scheme where the assessee incurred a liability but claimed not to have received the same, especially when the payment was to herself. The Tribunal found no legitimate tax planning in the arrangement and applied the principles from the McDowell case. Despite a subsequent judgment approving legitimate tax planning, the McDowell case's principles remained valid. Consequently, the Tribunal held that the interest expenses should be treated as paid to the Trustee (the assessee) herself, leading to the clubbing of income for the minor children under section 64(1A). Additionally, the Tribunal noted the mandatory and consequential nature of charging interest under sections 234A, 234B, and 234C. Ultimately, both appeals were dismissed, upholding the addition of income and the consequential interest charges.
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