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Issues Involved:
1. Eligibility for deduction u/s 80L of the Income-tax Act, 1961. 2. Determination of the status of the assessee for tax purposes. 3. Application of section 164(1) in assessing the income of a trust with indeterminate beneficiaries. Eligibility for Deduction u/s 80L: The primary issue was whether the assessee, a discretionary trust, was entitled to deduction u/s 80L of the Income-tax Act, 1961. The Tribunal held that the assessee was eligible for the deduction, even though the income was to be taxed as if it were the total income of an association of persons (AOP) u/s 164(1). The Income-tax Officer initially denied the deduction, stating that the assessee was neither an individual nor a Hindu undivided family (HUF), nor an AOP as specified in section 80L(1)(c). Determination of the Status of the Assessee: The Tribunal found that section 164 of the Act does not determine the status of the assessee but merely imposes a liability at the same rate of tax as an AOP. Sections 160, 161, and 162 indicate that the assessee is a representative-assessee, which could be an individual or an artificial juridical person. The trustee, acting in a representative capacity, is responsible for the tax liability of each individual beneficiary. Thus, the assessment should be made on the trustee as an individual. Application of Section 164(1): Section 164(1) stipulates that where the shares of the beneficiaries are not definite, the tax has to be charged "as if the relevant income or part of relevant income were the total income of an association of persons." However, this does not imply that the status of the trust has to be taken as an AOP. The status of the trust should be governed by the trustee's status, which in this case was an individual. Therefore, the tax should be calculated as if the total income was that of an AOP, but the deduction u/s 80L should still be applicable. Court's Conclusion: The court concluded that the trustee's status as an individual should be adopted for tax purposes, and the assessee is entitled to deduction u/s 80L. The income should be computed considering the deductions, and then the tax should be charged as per section 164(1), treating the income as if it were the income of an AOP or at the rate of 65%, whichever is more beneficial to the Revenue. The Tribunal's decision to grant relief u/s 80L was upheld, and the question referred was answered in the affirmative and against the Department.
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