1995 (5) TMI 42 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction
2. Merits
3. Protective Order
4. General
5. Applicability of Section 164A and Validity of Statement under Explanation 1 to Section 160(1)
6. Additional Ground for Credit of Taxes Paid by Main Trust

Issue-Wise Detailed Analysis:

I. Jurisdiction:
The appellants argued that the invocation of provisions under Section 263 by the CIT was without jurisdiction, invalid, and unwarranted. The CIT's orders were challenged as being contrary to law. The Tribunal held that the original assessments were patently erroneous and prejudicial to the interest of the Revenue. The CIT validly assumed jurisdiction under Section 263, as supported by judgments in cases like Smt. Tata Devi Aggarwal vs. CIT and Addl. CIT vs. Mukur Corporation.

II. Merits:
The CIT held that the beneficiaries of the deferred trusts had no vested right, title, or interest in the income for the years under review. The income was to be accumulated for 19 years and was not receivable by the beneficiaries. The Tribunal concurred with the CIT's view that the deferred trusts should be treated as discretionary trusts liable to tax at the maximum marginal rate under Section 164(1). The Tribunal relied on the decision in Neo Trust vs. IAC, which held that income not receivable for the benefit of any person in the relevant year is subject to tax at the maximum marginal rate.

III. Protective Order:
The appellants argued that no adverse order could be made in the hands of the deferred trusts once the CIT had directed the inclusion of the entire income in the hands of the main trust. The Tribunal upheld the CIT's direction to charge tax at the maximum marginal rate in the hands of the deferred trusts on a substantive basis, as the income of the main trust had been assessed in the hands of the deferred trusts.

IV. General:
The appellants contended that the order under Section 263 was bad in law and on facts. The Tribunal found that the CIT had given elaborate reasons and relied on relevant judgments. The CIT's findings were upheld, and the order under Section 263 was not quashed.

V. Applicability of Section 164A and Validity of Statement under Explanation 1 to Section 160(1):
For assessment years 1981-82 and 1982-83, the CIT held that the statement in writing signed by only one trustee was not valid, and provisions of Section 164A were applicable, resulting in tax at the maximum marginal rate. The Tribunal noted that the defect in the statement could be cured by submitting a revised statement signed by all trustees. However, since the Tribunal upheld the levy of tax at the maximum marginal rate under Section 164(1), this issue was deemed academic.

VI. Additional Ground for Credit of Taxes Paid by Main Trust:
The appellants requested that income tax paid by the main trust on the income attributable to the deferred trusts be adjusted in their cases. The Tribunal found this request reasonable and directed the Assessing Officer to grant credit for taxes paid by the main trust on a proportionate basis in the cases of the deferred trusts. Interest adjustments were also to be made to ensure no unwarranted gain or loss to either party.

Conclusion:
The Tribunal upheld the CIT's orders under Section 263, confirming the treatment of the deferred trusts as discretionary trusts liable to tax at the maximum marginal rate. The additional ground for credit of taxes paid by the main trust was allowed, subject to adjustments for interest. The appeals were disposed of accordingly.