1993 (10) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Validity of assessment against the assessee-trust.
2. Applicability of maximum marginal rate of tax under section 161(1A).
3. Double taxation of the same income.
4. Alternative relief regarding tax paid by beneficiaries.

Detailed Analysis:

1. Validity of Assessment Against the Assessee-Trust:

The primary issue in this appeal is whether the assessment made against the assessee-trust is valid. The assessee, a private specific trust, argued that the beneficiaries had already been assessed directly under section 166, and those assessments still subsist. The beneficiaries had shown their respective shares of income from the trust in their returns and were assessed to tax under section 143(1). The assessee contended that once the Income Tax Officer (ITO) exercised the option to assess the beneficiaries directly, he could not thereafter assess the same income in the hands of the trust. This, according to the assessee, resulted in double taxation, which is contrary to the provisions of law and various judicial decisions.

2. Applicability of Maximum Marginal Rate of Tax Under Section 161(1A):

The learned Departmental Representative (D.R.) argued that the provisions of section 161(1A), which were inserted by the Finance Act, 1984, effective from 1-4-1985, apply to the trust carrying on business. Therefore, the entire income derived by the trust is assessable in the hands of the trust at the maximum marginal rate. The acceptance of the returns in the cases of the beneficiaries under section 143(1) does not amount to exercising the option, and the provisions of section 161(1A) cannot be nullified by the earlier circular of the Board.

3. Double Taxation of the Same Income:

The Tribunal noted that the income declared by the beneficiaries was accepted under the summary assessment scheme without considering the applicability of section 161(1A). It was held that the ITO had not exercised the option of assessing the beneficiaries in preference to the trust. The Tribunal emphasized that the same income cannot be taxed twice, once in the hands of the trust and again in the hands of the beneficiaries. The provisions of section 161(1A) clearly state that in the case of a trust carrying on business, tax is leviable at the maximum marginal rate, notwithstanding anything contained in section 161(1).

4. Alternative Relief Regarding Tax Paid by Beneficiaries:

The Tribunal directed the ITO to delete the share income from the trust in the respective assessments of the three beneficiaries to avoid double taxation. The tax paid by the beneficiaries in respect of their share income from the trust should be treated as tax paid by the trust. The Tribunal also directed the ITO to rectify the assessments in the case of all three beneficiaries by passing appropriate orders. This would ensure that the same income is not taxed twice, which is not permissible under the law.

Conclusion:

The Tribunal upheld the assessment of the entire income in the hands of the trust at the maximum marginal rate under section 161(1A). However, it directed the ITO to delete the share income from the trust in the hands of the respective beneficiaries to prevent double taxation. The tax paid by the beneficiaries should be regarded as taxes paid by the assessee-trust. This decision ensures a harmonious construction of the provisions of sections 161, 166, and 161(1A), aligning with the legislative intent and judicial precedents.