1995 (11) TMI 121 - AT - Income Tax

Assessing Officer, Interest On Securities, Interest Payments, Liability To Deduct Tax, Tax At Source

Summary

Issues:
Interpretation of provisions of section 194A regarding deduction of tax at source by a trust, status of the assessee as an individual or trust for tax purposes, liability of trustees in relation to tax deduction, applicability of interest and penalty for non-deduction of tax by a trust.

Analysis:

1. The case involved a trust created by Shri Manjit Singh Sachdev, with Shri Paramjit Singh and his wife appointed as trustees. The trust credited interest amounts to certain entities without deducting tax at source as required by section 194A. The Assessing Officer levied interest and penalty for non-deduction of tax.

2. The CIT(A) accepted the assessee's plea that as the trust was to be assessed as an individual, there was no liability for tax deduction at source under section 194A. The Department appealed against this decision, arguing that the trust's status as an individual was incorrect.

3. The Departmental Representative contended that the status of the assessee was a trust, not an individual, and cited relevant case law to support this argument. The ITAT, Bangalore Bench decision in a similar case was referenced to justify the levy of interest under section 201(1A).

4. The Department argued that the responsibility for tax deduction lay with the trust, not the trustees or beneficiaries, citing various court decisions to support this position.

5. The counsel for the assessee argued that the trust should be equated with its sole beneficiary, treating the trust as an individual for tax purposes. Reference was made to relevant High Court decisions supporting this interpretation.

6. The ITAT analyzed previous court decisions regarding the responsibility for tax deduction in cases involving companies, firms, and partnerships, supporting the Department's argument that the trust, as the payer, was responsible for tax deduction.

7. The ITAT agreed with the Department's contention that the trust, as the payer, was responsible for tax deduction under section 194A. The status of the assessee as an individual was deemed irrelevant for tax deduction purposes.

8. The ITAT rejected the argument that the trust and trustees were separate entities, emphasizing that the trustees were representative assessees of the trust. The law recognized trustees and beneficiaries, similar to the relationship between a partnership firm and its partners.

9. Referring to High Court decisions, the ITAT concluded that the trust's status should be equated with its beneficiaries, treating the trust as an individual for tax purposes. The ITAT affirmed the CIT(A)'s decision to cancel the interest and penalty levied by the Assessing Officer.

10. The departmental appeals were dismissed, upholding the decision that the trust, treated as an individual, was not liable to deduct tax at source. The CIT(A)'s decision to cancel the levies was affirmed.

11. The cross-objections filed by the assessee were considered supportive of the CIT(A)'s order, and for statistical purposes, were treated as allowed.