2017 (6) TMI 384 - AT - Income Tax

Exemption of income under sections 61 and 161 - revocable trust - assessee is a trust set up by the Government of Tamilnadu - Held that - Reference to extractions from the trust deed and the contributor s agreement, it is evident that the assessee is not carrying on any business with commercial motive. The beneficiaries of the trust are identifiable and the shares are determined by contributor s agreement and the contributors are free to call upon the trust to cancel any units held by them and return the value. Therefore, the trust is revocable trust and squarely covered by section 61 of Income-tax Act. Accordingly, we hold that trust is a revocable trust and the income derived by the assessee required to be taxed in the hands of the beneficiaries in accordance with the provisions of sections 61 and 161(1) of Income-tax Act. This view is supported by the decision of the co-ordinate Bench in the case of Deputy CIT v. India Advantage Fund-VII 2014 (10) TMI 614 - ITAT BANGALORE relied upon by the assessee. The assessee also filed evidence regarding the admission of income by the beneficiaries in page Nos. 81 to 83 from the contributors ICICI Bank, IL&FS and the HDFC. - Decided in favour of assessee.

Summary

Issues:
Exemption of income under sections 61 and 161 of the Income-tax Act in the hands of the assessee.

Analysis:
The appeals were filed against the order of the Commissioner of Income-tax (Appeals) for the assessment years 2008-09 and 2009-10 regarding the exemption of income under sections 61 and 161 of the Income-tax Act. The assessee, a trust set up by the Government of Tamilnadu, claimed that the provisions of section 61 applied to them due to being a revocable trust. The Assessing Officer, however, brought the entire income at the maximum marginal rate in the hands of the assessee. The assessee contended that the surplus derived did not constitute income in its hands and should be taxed in the hands of the transferors. The appeals were based on the argument that taxing the same income twice would amount to double taxation. The trust was established for public interest and infrastructure development, not for profit. The trust's objectives included providing financial assistance for urban infrastructure projects and ensuring compliance with relevant legislation.

The trust deed and contributor's agreement highlighted that the trust was not engaged in business activities with a commercial motive. The contributors were free to cancel units held by them after three years, indicating a revocable trust structure. The trust's objectives focused on public utility and infrastructure improvement, not profit-making. The beneficiaries were identifiable, and their shares were determined by the contributor's agreement. The trust's income was required to be taxed in the hands of the beneficiaries under sections 61 and 161(1) of the Income-tax Act. The decision was supported by a previous case cited by the assessee, and evidence was provided regarding the admission of income by the beneficiaries. Consequently, the appeals of the assessee for the assessment years 2008-09 and 2009-10 were allowed, and the lower authorities' orders were set aside. The trust was deemed a revocable trust, and the income derived was to be taxed in the hands of the beneficiaries, as per the provisions of the Income-tax Act.