1991 (6) TMI 88 - AT - Income Tax

Summary

Issues:
1. Tax assessment of income from a discretionary trust.
2. Obligation of a trust to deduct tax at source on interest payments.

Issue 1: Tax assessment of income from a discretionary trust:
The judgment involves three appeals, where the Department and the assessee contested the tax assessment of K.C. Trust, Ahmedabad for the assessment year 1984-85. The trust had eight determinate beneficiaries and a discretionary trust, Kishorechand Family Trust, holding 15% share. The Department taxed the income from the discretionary trust at the maximum marginal rate. The CIT(A) allowed the appeal, stating that the income should not be taxed at the maximum rate. However, the Tribunal found that the will creating the discretionary trust was not produced before the assessing officer. Therefore, the matter was remanded to the assessing officer to consider the will and make a decision in accordance with the law.

Issue 2: Obligation of a trust to deduct tax at source on interest payments:
In another appeal, the K.C. Trust had paid interest to various parties without deducting tax at source under section 194A of the Income Tax Act. The assessing officer levied interest under section 201(1A) for the default. The CIT(A) ruled that section 194A was not applicable as the assessments were done on the beneficiaries, not the trust. The Department appealed, arguing that the trust was obligated to deduct tax at source. The Tribunal referred to a previous decision where it was held that in a specific trust with known individual or HUF beneficiaries, tax deduction at source was not required. However, since one of the beneficiaries was a discretionary trust, the obligation to deduct tax applied. Therefore, the Tribunal set aside the CIT(A) order and upheld the interest levy by the assessing officer.

In a similar case involving Jain Family Trust, where one beneficiary was a discretionary trust, the Tribunal confirmed the levy of interest under section 201(1A) for failure to deduct tax at source on interest payments.

In conclusion, ITA No. 2409 was allowed, ITA No. 3093 was dismissed, and ITA No. 2410 was treated as allowed for statistical purposes.