2022 (9) TMI 309 - HC - Income Tax

Assessment of income of trust - income of the Trust as taxable in the hands of the Trust or the beneficiaries - monies received by the assessee were 'perquisites' under Section 17(3) or taxable under Section 56(2) - As contended that under Section 161 of the Act, the Income of the Trust could be taxed either in the hands of the Trust or in the hands of beneficiary under Section 166 - whether Appellate Tribunal erred in law in not appreciating that the income has been offered in the hands of the Beneficiary Trusts and applicable taxes have been paid by the respective Trusts and consequently taxing the amounts which has already been taxed again in the hands of the appellant amounts to double taxation on the facts and circumstances of the case? - HELD THAT - Having considered the very Circular No.157 F.No.228/8/73-IT (A-II) dated 26.12.1974 the ITAT, New Delhi has recorded in para 9 of its order the contention of the assessee therein that the income of the Trust can be taxed only once. In the result, the ITAT has dismissed the appeal filed by the Revenue challenging the order passed by the CIT(A) in that case. As per Section 161 of the Act the Trust can be assessed in its own name. Section 166 of the Act provides for assessment of income in the hands of the beneficiary. In view of unambiguous language used in the Circular clarifying the question of law and the fact that individual Trusts have filed return of income and paid the taxes, the order of remand by the ITAT directing the Assessing Officer to pass fresh orders by classifying the tax under different heads, is unsustainable - Question of law is answered in favour of the assessee and against the Revenue.

Summary

Issues:
Whether the Income Tax Appellate Tribunal erred in law in not appreciating double taxation on the income offered by the assessee, which had already been taxed in the hands of the Beneficiary Trusts?

Analysis:

1. Background and Facts:
The appellant, an employee with a company, was a beneficiary of several Trusts assessed to tax. Initially, the Assessing Officer considered the monies received by the appellant as perquisites under the Income Tax Act, which was challenged in subsequent appeals leading to varied interpretations by different authorities.

2. Contentions of the Parties:
Shri. Shankar, representing the appellant, argued that the income of the Trust should be taxed only once, either in the hands of the Trust or the beneficiaries, citing Circular No.157 and a relevant ITAT order. On the other hand, Shri. Aravind, for the Revenue, defended the Assessing Officer's decision to assess the income under a specific section of the Act.

3. Consideration by the Court:
The High Court examined the Circular emphasizing the principle of taxing income only once, whether in the hands of the Trust or the beneficiaries. It also referred to a similar ITAT order supporting the appellant's stance on single taxation of Trust income.

4. Legal Provisions:
The Court highlighted Section 161 allowing assessment of Trusts in their name and Section 166 for assessing income in the hands of beneficiaries, reinforcing the concept of single taxation.

5. Decision and Rationale:
Based on the unambiguous language of the Circular and the legal framework, the Court concluded that the ITAT's order for reclassification of tax was unsustainable. Consequently, the question of law was resolved in favor of the appellant, leading to the allowance of the appeal without costs.

In summary, the High Court's judgment clarified the principle of taxing Trust income only once, either in the hands of the Trust or the beneficiaries, thereby ruling against the concept of double taxation as argued by the Revenue.