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Computation of income for a minor beneficiary in a trust. Analysis: The case involves the computation of income for a minor beneficiary in a trust named Sulochana Family Trust. The minor, as a beneficiary, had a beneficial interest in the trust, which was created by M. Narasimha Shenoy with the parents of the minor as trustees. The trust had initially a property worth Rs. 1,000, which was later increased through additional contributions and invested in a business operated by the trust. The minor's guardian and father filed a return showing an income of Rs. 20,8409, claiming a set-off of a business loss of Rs. 19,443 incurred by the trust. However, the Income Tax Officer (ITO) computed the minor's total income at Rs. 58,073, disregarding the claimed loss. The ITO argued that the provisions of sections 161 and 166 do not allow for the set-off of losses, as they focus on tax liability, not loss adjustments. Upon appeal, the Appellate Assistant Commissioner (AAC) upheld the ITO's decision. It was noted that the trust itself had reported a loss of Rs. 1,16,660, and all beneficiaries, including the minor, had equal interests in the business. The ITO accepted the trust's loss return and finalized its assessment. The appellant's representative contended that the loss, though incurred by the trust, should be considered the minor's loss, allowing for set-off against other income. Reference was made to legal precedents, arguing that the term "income" includes losses, and the minor should not be denied this benefit. On the other hand, the Department's representative argued that there are distinct assessment procedures for beneficiaries and trusts, emphasizing that once an election is made regarding who to tax, the consequences must follow accordingly. The representative highlighted the differences between trusts and partnerships, stating that losses incurred by a trust can only be carried forward by the trust itself. The tribunal considered the arguments and legal precedents presented. It was acknowledged that the provisions of sections 161 and 166 are procedural and allow for direct assessment of beneficiaries by the Department. However, once an election is made, the consequences must be adhered to, and items of income or loss cannot be included or excluded arbitrarily. Referring to relevant case law, the tribunal emphasized that once a trust is assessed, the same income or loss cannot be claimed by the beneficiary. The tribunal rejected the appellant's argument that the loss should be allowed for set-off, concluding that the appeal was correctly dismissed by the AAC. In conclusion, the tribunal held that the loss incurred by the trust cannot be claimed by the beneficiary for set-off purposes, as the assessment procedures for trusts and beneficiaries are distinct, and once an election is made, the consequences must follow accordingly. The appeal was dismissed.
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