1993 (11) TMI 112 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the status of the appellant as 'association of persons' (AOP) versus 'individual.'
2. Eligibility for deduction under section 80L of the Income-tax Act.

Detailed Analysis:

1. Determination of Status:
The primary issue in these appeals is whether the status of the appellant trusts should be treated as 'association of persons' (AOP) or 'individual' for taxation purposes. The appellants, which are discretionary trusts settled by companies for the welfare of their employees, argued that they should be assessed as individuals. The Assessing Officer and the first appellate authority determined the status as AOP, leading to the denial of the deduction under section 80L.

The appellants contended that the essential element of an AOP, i.e., two or more persons joining in a common purpose or action with the object of producing income, was not present. They argued that section 164 of the Income-tax Act, which creates a fiction, only relates to the rate of tax and does not affect the computation of income or the status of the appellant.

The Tribunal considered the decision of the Calcutta High Court in CIT v. Shri Krishna Bandar Trust, which held that the status of a discretionary trust should be that of an individual, and consequently, the deduction under section 80L should be allowed. The Tribunal noted that the fiction created by section 164(1) is limited to determining the rate of tax and should not extend to the computation of income.

2. Eligibility for Deduction under Section 80L:
The second issue is whether the appellant trusts are eligible for deduction under section 80L. The appellants argued that if their status is determined as individuals, they should be eligible for the deduction. The Tribunal agreed, noting that section 164(1) only prescribes the rate of tax and has no connection with the computation of income, which must be done under sections 143(3) or 144 of the Income-tax Act.

The Tribunal also referred to the decision of the Calcutta High Court in Shri Krishna Bandar Trust, which clarified that the word "individual" in tax laws can refer to a group of individuals acting as a single entity. The High Court observed that in the case of a discretionary trust, neither the trustees nor the beneficiaries come together for a common purpose of earning income, and thus, the trustees should be assessed in the status of an individual, making them eligible for the deduction under section 80L.

Conclusion:
The Tribunal, after considering the rival submissions and judicial pronouncements, concluded that the appellant trusts should be assessed in the status of an individual and are consequently entitled to the deduction under section 80L. The Tribunal followed the decision of the Calcutta High Court in Shri Krishna Bandar Trust, which is a later decision and implicitly overruled the earlier decision in Smt. Santimoyee Bose's case. The appeals of the assessees were allowed, directing the revenue to assess the appellants as individuals and allow the deduction under section 80L.