1996 (2) TMI 23 - HC - Income Tax

Association Of Persons, Deduction In Respect, Discretionary Trust, Interest On Securities, Rate Applicable

Summary

Issues:
- Eligibility of a private trust for relief under section 80L of the Income-tax Act for the assessment years 1973-74 to 1975-76.

Analysis:
The High Court of Madras, in a case involving a private trust with indeterminate beneficiaries, addressed the issue of whether the trust was eligible for relief under section 80L of the Income-tax Act for the relevant assessment years. The Income-tax Officer contended that the trust should be treated as an association of persons due to the uncertainty regarding the beneficiaries' shares, making it ineligible for the relief. However, the Appellate Assistant Commissioner accepted the trust's plea, leading to an appeal. The Tribunal, in its decision, clarified that section 164 does not determine the trust's status but imposes a tax liability similar to that of an association of persons. The Tribunal interpreted sections 160, 161, and 162 to establish that the trust, acting as a representative assessee, could be treated as an individual or an artificial juridical person. The trustee, in this capacity, is responsible for the tax liability of individual beneficiaries, and the assessment is to be made on the trustee as an individual in a representative capacity. The Tribunal emphasized that the trust's eligibility for relief under section 80L should be considered in determining the total income. Consequently, the Tribunal upheld the orders passed by the Appellate Assistant Commissioner, granting relief to the trust under section 80L.

In a similar case previously adjudicated by the Madras High Court, it was held that the determination of total income considers deductions under section 80L, and the tax is charged based on the provisions of section 164(1), treating the income as that of an association of persons or at a rate of 65 per cent, whichever is more beneficial to the Revenue. The court concluded that the trust, represented by an individual trustee, is entitled to the deduction under section 80L of the Act. Relying on this precedent, the High Court in the present cases affirmed that the trusts were eligible for relief under section 80L. The court held that the Tribunal's decision to grant relief under section 80L was correct, answering the referred question in the affirmative for each of the assessees and against the Department. The court also ruled that no costs were to be incurred in this matter.