1988 (12) TMI 136 - AT - Income Tax

Summary

Issues:
1. Refund of tax deducted at source under s. 237 of IT Act, 1961.
2. Taxation of dividend income in the hands of settlor versus trustee's claim for refund.
3. Interpretation of Sec. 61 of the IT Act, 1961 regarding revocable trusts.

Analysis:
The appeal before the Appellate Tribunal ITAT BOMBAY-B centered around the refusal of refund to the assessee in relation to tax deducted at source amounting to Rs. 10,350, citing provisions of s. 237 of the IT Act, 1961. The primary contention was that the dividend income, although assessed in the settlor's hands, had been received by the trustee, justifying the claim for refund. However, the Tribunal examined the nature of the trust, established by Shri S.R. Shah with trustees Shri R.M. Shah and Smt. Charu S. Shah, holding assets for the benefit of M/s Jaideep Investment & Trading Co. The Tribunal noted that the trust was revocable after 73 months by the settlor or, in case of his demise, by his wife or eldest son. The Tribunal highlighted Sec. 61 of the IT Act, 1961, which stipulates that income from a revocable transfer of assets is chargeable to the transferor. As the dividend income was assessed in the settlor's hands and the trust was revocable, the Tribunal concluded that only the settlor, not the trustee, was entitled to claim the refund of tax deducted at source on the dividend income.

The crux of the dispute revolved around the interpretation of Sec. 61 of the IT Act, 1961, and the application of its provisions to the revocable trust in question. The Tribunal emphasized that the settlor's right to revoke the trust after 73 months meant that the income, including the dividend income, was to be treated as the settlor's income for tax purposes. Despite the trustees' claim for refund based on the tax deducted at source, the Tribunal reiterated that the settlor, being the transferor of assets, was the rightful claimant for such refund. The Tribunal further reinforced its decision by pointing out that the dividend income had already been assessed in the settlor's hands, leaving no legal basis for the trustee to seek the refund. Therefore, the Tribunal upheld the decisions of the lower authorities, emphasizing the settlor's exclusive entitlement to claim the refund on the tax deducted at source on the dividend income.

In conclusion, the Tribunal dismissed the appeal, affirming the authorities' stance that the trustee was not entitled to the refund of tax deducted at source on the dividend income assessed in the settlor's hands. The judgment underscored the legal principle that income from a revocable trust is attributed to the transferor, necessitating the settlor's exclusive right to claim such refunds. The decision rested on a strict interpretation of the IT Act, 1961, and the specific provisions governing revocable trusts, ultimately upholding the settlor's legal entitlement to the refund in question.