1984 (2) TMI 143 - AT - Income Tax

Summary

Issues:
1. Validity of order under section 263 of the IT Act, 1961 setting aside assessments made by the ITO.
2. Assessment of a trust in the status of AOP and distribution of income among beneficiaries.
3. Interpretation of relevant provisions of the IT Act regarding assessment of trustees and beneficiaries.
4. Application of precedents and case laws in determining the correct assessment method for trusts.

Analysis:

The judgment involves three appeals by the assessee challenging the order under section 263 of the IT Act, 1961, passed by the CIT setting aside assessments made by the ITO. The case revolves around a trust deed executed by Smt. Manjula Shah appointing her two sons as trustees for the beneficiaries, her grandsons. The ITO assessed the trust as an AOP and distributed income among beneficiaries equally. The CIT found these assessments erroneous and prejudicial to revenue, initiating proceedings under section 263. The assessee contended that assessments should be on individual beneficiaries, not as a single unit. The CIT rejected this argument, setting aside the assessments and directing the ITO to reframe them according to law.

The assessee appealed this decision, arguing that when beneficiary shares are determinate, assessments should be on individual beneficiaries, not as an AOP. The assessee cited relevant clauses of the trust deed and provided account copies showing equal division of profits among beneficiaries. The Departmental Representative supported the CIT's order, citing various legal precedents. After considering submissions, the Tribunal found the assessee's arguments well-founded. Referring to a Calcutta High Court decision, the Tribunal held that when beneficiary shares are determinate, assessments should be separate for each beneficiary. As such, the CIT erred in invoking section 263, and the Tribunal set aside the CIT's order, restoring the ITO's assessments for the years in question.

In conclusion, all three appeals by the assessee succeeded, and the Tribunal allowed them. The judgment clarifies the correct assessment method for trusts when beneficiary shares are determinate, emphasizing separate assessments for each beneficiary. The decision highlights the importance of interpreting relevant provisions of the IT Act and applying precedents to determine the appropriate assessment approach for trusts.