1983 (12) TMI 148 - AT - Income Tax

Applied To, Association Of Persons, Beneficiaries Unknown, Body Of Individuals, Chargeable To Tax, Discretionary Trust, Total Income

Issues Involved:
1. Entitlement to deduction under section 80L of the Income-tax Act, 1961.
2. Interpretation of clause (c) of section 80L(1).
3. Determination of the correct status of the assessees.
4. Applicability of section 164A and section 164(1) of the Income-tax Act, 1961.

Detailed Analysis:

1. Entitlement to Deduction under Section 80L of the Income-tax Act, 1961:
The primary issue in these appeals is whether the assessees are entitled to the deduction claimed under section 80L of the Income-tax Act, 1961 in computing the total income. The income in question is derived by way of dividends on shares settled on trust, and the claim for deduction is made in terms of clause (iv) of section 80L(1).

2. Interpretation of Clause (c) of Section 80L(1):
The assessees argued that they are entitled to the deduction under clause (c) of section 80L(1), which states:
"80L(1) Where the gross total income of an assessee, being---
(c) an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa Daman and Diu."

The authorities below denied the assessees' claim on the ground that the qualifying clause applies to both an AOP and a BOI, and the assessees do not fall within this category. The Tribunal upheld this interpretation, citing a previous decision in the case of ITO v. Cosmos Co-operative Urban Bank Ltd., Pune, which held that the qualifying clause applies to both types of taxable entities.

3. Determination of the Correct Status of the Assessees:
The assessees contended that their status should be that of 'individual' and not an AOP. The Tribunal examined the characteristics of an AOP as defined by the Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546, which requires a common purpose or common action to produce income. The Tribunal concluded that the beneficiaries under the trusts do not constitute an AOP as there is no voluntary association or common purpose.

The Tribunal also considered whether the assessees could be classified as a BOI, referencing the Madras High Court's ruling in CIT v. Deghamwala Estates [1980] 121 ITR 684, which requires a common purpose and capacity to hold properties or income-producing assets. The Tribunal found that the beneficiaries do not meet these criteria either.

Finally, the Tribunal accepted the contention that the correct status of the assessees is that of 'individuals,' citing the Supreme Court's rulings in CIT v. Sodra Devi [1957] 32 ITR 615 (SC) and WTO v. C.K Mammed Kayi [1981] 129 ITR 307 (SC).

4. Applicability of Section 164A and Section 164(1) of the Income-tax Act, 1961:
The department argued that the income should be assessed under section 164A or section 164(1), which charge income at the maximum marginal rate and exclude the computation of total income. The Tribunal rejected this contention, stating that income must be computed and integrated into the total income before the charge of tax can be levied. The Tribunal emphasized that the scheme of the Act requires income to be assessed as part of the total income, and no separate provision excludes the computation of total income under sections 164A or 164(1).

Conclusion:
The Tribunal concluded that the correct status of the assessees is that of 'individuals,' and there is no impediment to their claim for deduction under section 80L. Consequently, the appeals were allowed.

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