2020 (10) TMI 665 - HC - Income Tax

Assessment of trust - whether the assessee Trust is a determinate Trust or indeterminate Trust? - status under Section 161(1) of the Act on the interest income earned by the assessee from the fixed deposit which is a non venture capital undertaking activity - AO came to the conclusion that it is an indeterminate Trust, as the list of beneficiaries has not been specifically set out in the Deed of Trust? - Whether the beneficiaries are assessed for the income arising from the Trust and whether it is determinate or indeterminate can the trust be assessed once over again? - whether merely because the names of the beneficiaries are not mentioned in the Trust Deed, but shown as beneficiaries and are identifiable and having been assessed whether the Trust can be assessed again? HELD THAT - As decided in India Advantage Fund-VII 2017 (2) TMI 722 - KARNATAKA HIGH COURT section 164 of the Act gets attracts only when the shares of the beneficiaries are unknown, which is manifest from the marginal heading of that Section itself, viz., Charge of tax where the share of the beneficiaries unknown. That Section comes into play only where any income or any part thereof is not specifically receivable on behalf of or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown, and in such case, the relevant income, or part of the relevant income shall be charged at the maximum marginal rate. In order to attract Section 164(1) of the Act, the beneficiaries on whose benefit, such income or such part thereof is receivable are indeterminate and unknown. The legal position qua the applicability of provisions of Section 164(1) of the Act has been thoroughly examined by the Tribunal and by an elaborate order, the Tribunal has held in favour of the assessee. We find that the Tribunal rightly took note of the statutory provisions and the law governing this subject and arrived at a conclusion. - Decided in favour of assessee.

Issues Involved:
1. Determination of whether the assessee Trust is a determinate or indeterminate Trust.
2. Assessment of interest income earned by the Trust from fixed deposits.
3. Powers of the Tribunal under Section 254(2) of the Income Tax Act.
4. Penalty levied under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars.

Issue-wise Detailed Analysis:

1. Determination of whether the assessee Trust is a determinate or indeterminate Trust:
The primary issue was whether the assessee Trust qualifies as a determinate or indeterminate Trust. The Assessing Officer (AO) concluded that the Trust was indeterminate since the list of beneficiaries was not explicitly set out in the Trust Deed. However, the Tribunal found that the Trust was a determinate Trust, as the shares of the beneficiaries were identifiable through the Contribution Agreement. The Tribunal's decision was supported by the High Court of Karnataka in CIT & Anr. vs. India Advantage Fund-VII, which held that the determinability of beneficiaries' shares does not depend on their explicit mention in the Trust Deed but on their identifiability. The High Court of Madras upheld this view, stating that the income should be assessed in the hands of the beneficiaries, not the Trust, referencing the Division Bench's decision in CIT vs. P.Sekhar Trust.

2. Assessment of interest income earned by the Trust from fixed deposits:
The Tribunal ruled that the interest income from fixed deposits should be assessed in the hands of the beneficiaries, not the Trust, since the Trust was held to be determinate. The AO had initially assessed this income as 'income from business' and taxed it at the maximum marginal rate, but the Tribunal remitted the issue back to the AO to compute the correct income under various heads in the hands of the beneficiaries as per Rule 12C and Section 115U.

3. Powers of the Tribunal under Section 254(2) of the Income Tax Act:
The Tribunal's jurisdiction under Section 254(2) was questioned, particularly whether it could reappraise evidence and readjudicate issues already decided. The High Court noted that since the substantial questions of law regarding the Trust's determinability were decided against the Revenue, the questions regarding the Tribunal's jurisdiction became academic and were left open.

4. Penalty levied under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars:
The appeals concerning the penalty under Section 271(1)(c) were dismissed. The penalty was initially imposed because the AO determined the Trust as indeterminate. However, since the Tribunal and the High Court upheld that the Trust was determinate, the basis for the penalty was nullified. Consequently, the Tribunal's decision to set aside the penalty was affirmed.

Conclusion:
The High Court of Madras dismissed all the appeals filed by the Revenue. The Trust was held to be determinate, and the interest income should be assessed in the hands of the beneficiaries. The Tribunal's powers under Section 254(2) were not addressed due to the academic nature of the issue. The penalty appeals were dismissed as the underlying issue was resolved in favor of the assessee.

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