1984 (11) TMI 132 - AT - Income Tax

Summary

Issues Involved:
1. Status of the assessee-trust for tax purposes.
2. Denial of relief under Section 80L of the Income-tax Act, 1961.
3. Application of maximum marginal rate for certain assessment years.
4. Admissibility of additional grounds raised by the assessee.
5. Interpretation of Section 164 and its applicability to the assessee-trust.

Issue-wise Detailed Analysis:

1. Status of the Assessee-Trust for Tax Purposes:
The primary issue was whether the assessee-trust should be treated as an "Association of Persons" (AOP) or an "Individual" for tax purposes. The Income Tax Officer (ITO) had classified the trust as an AOP based on Section 164(1) of the Income-tax Act, 1961, which states that if the income is not specifically receivable on behalf of any one person or beneficiary, the status should be determined as an AOP. The Appellate Assistant Commissioner (AAC) upheld this view, stating that the trustees could be regarded as an AOP within the Supreme Court's ratio in CIT v. Indira Balkrishna. However, the Tribunal disagreed, emphasizing the Supreme Court's decision in Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust, which held that the status of the trustee under a discretionary trust should be that of an individual.

2. Denial of Relief under Section 80L:
The assessee contended that it should be granted relief under Section 80L, which is available to individuals and Hindu Undivided Families (HUFs), but not to AOPs. The AAC denied this relief, asserting that the trust could not be regarded as an individual or HUF. The Tribunal, however, ruled that the status of the trustees under the trust deed should be considered as that of an individual, thereby entitling the assessee to the deduction under Section 80L. This conclusion was supported by various tribunal decisions, including Gopal Srinivasan Trust v. ITO and Shri Rajesh B. Rathi Trust v. ITO, which held that the status of the trustee should be determined with reference to the status of the beneficiaries.

3. Application of Maximum Marginal Rate for Certain Assessment Years:
For the assessment years 1980-81 and 1981-82, the ITO mistakenly applied a maximum marginal rate of 65%, whereas the correct rate was 60% as per the Finance Acts of 1981 and 1982. The Tribunal agreed with the assessee's contention and granted relief by reducing the excess tax of 5% for these years.

4. Admissibility of Additional Grounds Raised by the Assessee:
The assessee raised an additional ground, arguing that the trust fell under clause (iii) of the proviso to sub-section (1) of Section 164, which would subject the income to tax as if it were the total income of an AOP, rather than at the maximum marginal rate. The Tribunal rejected this additional ground, both on admissibility and merits, stating that it was not a pure question of law and required a factual finding that the trust was created bona fide for the benefit of the relatives of the settlor, which was not established by the lower authorities.

5. Interpretation of Section 164 and Its Applicability to the Assessee-Trust:
The Tribunal examined the wording and amendments of Section 164 over the years, noting the differences in its application for the assessment years in question. The Tribunal concluded that Section 164 determines the rate of tax but not the status of the assessee. It emphasized that the status of the trustee under a discretionary trust should be that of an individual for the purposes of computing total income and allowing deductions under Chapter VI-A, including Section 80L.

Conclusion:
The Tribunal allowed all four appeals, ruling that the status of the trustees under the trust deed should be that of an individual, thereby entitling the assessee to the deduction under Section 80L. The Tribunal also corrected the application of the maximum marginal rate for the relevant assessment years and rejected the additional ground raised by the assessee.