1998 (6) TMI 60 - HC - Income Tax

Trustee Representative Assessee Beneficiary Capital Gains Sale Of Residential House Purchase Of Residential House

Summary

Issues Involved:
1. Whether the deduction under section 54 of the Income-tax Act, 1961, was available in computing the capital gain arising from the sale of the property known as 'Aden Hall'.

Issue-wise Detailed Analysis:

1. Deduction under Section 54 of the Income-tax Act, 1961:

The primary issue in this case revolves around the applicability of the deduction under section 54 of the Income-tax Act, 1961, for computing the capital gain from the sale of the property known as 'Aden Hall'. The relevant assessment year is 1962-63. The assessee, a trustee of a testamentary trust created by Mr. M. R. Adenwalla, sold the property 'Aden Hall' and subsequently used part of the sale proceeds to purchase a flat in the building "Wyoming". The assessee claimed that Rs. 1,47,775 used for the purchase of the flat should be deducted from the capital gain arising from the sale of 'Aden Hall' under section 54 of the Act.

Arguments and Findings:

The Income-tax Officer denied the assessee's claim on the grounds that the trust, which is the owner, was not residing in the flat, and the beneficiaries who resided therein were not the owners. This decision was confirmed by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, which held that the surplus from the sale was an accretion to the corpus of the trust and not income received on behalf of the beneficiary.

However, it was noted that Mrs. Tehmina, the sole executrix and trustee, was acting in a dual capacity, both as a trustee and a beneficiary. The property 'Aden Hall' was used by Mrs. Tehmina and her children for residence, and after its sale, they continued to reside in the newly acquired flat. The court highlighted that under section 161, the trustee is subject to the same duties, responsibilities, and liabilities as if the income were received by or accruing to the beneficiary, and the tax can be levied upon and recovered from the trustee in the same manner as it would be from the beneficiary.

Legal Precedents and Interpretations:

The court referred to several precedents, including the Supreme Court's decisions in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust and Mrs. Arundhati Balkrishna v. CIT, which established that the trustee holds the properties on behalf of the beneficiary and is liable to be assessed in the same manner as the beneficiary. The court also cited the case of CIT v. Kamalini Khatau, which reinforced that the assessment of a trustee must be made under sections 160 to 166 of the Act, treating the trustee as a representative assessee.

Conclusion:

The court concluded that the beneficiaries, including Mrs. Tehmina, were the real owners and were using the property for their residence. Therefore, the trustee, acting in a representative capacity, was entitled to the benefits of section 54 of the Act. The decision of the Income-tax Officer, Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal to deny the benefit of section 54 was erroneous. The court held that the assessee's claim for deduction of the purchase price of the flat from the capital gain was legal and proper.

Judgment:

The court answered the question referred to it in the affirmative and in favor of the assessee, thereby disposing of the reference with no order as to costs.