1985 (4) TMI 158 - AT - Income Tax

Summary

Issues:
Assessment of trust as one unit under s. 164, justification of assessment method, application of case law, interpretation of trust deed, liability of assessment, relevance of specific provisions.

Analysis:
The appeals were filed against the CIT (A) order for the assessment years 1982-83 and 1983-84. The assessee, a trust with 4 trustees for 9 beneficiaries, conducted business to provide income to beneficiaries based on a mandate by the settlor. The ITO assessed the trust as an Association of Persons (AOP) under s. 164, disregarding the individual beneficiaries' returns filed elsewhere. The ITO's stance was that the trust should be assessed as one unit, citing Supreme Court judgments. However, the ITO failed to consider that each beneficiary had other income, necessitating exclusion of trust income in their assessments. The CBDT circular of 1967 cautioned against assessing trusts under s. 164, emphasizing the need for proper assessment methods. The CIT (A) upheld the ITO's decision, citing the McDowell & Co. case and endorsing the trust assessment as a unit. The appellant contended that the trustees operated under the trust deed independently, not on behalf of beneficiaries, and the assessment should align with s. 164(1) by considering individual beneficiary incomes. The Tribunal referred to a previous case, clarifying that trustees are representative assessees, and the trust should be assessed in a manner similar to beneficiaries' assessments. The Tribunal partially allowed the appeals, directing the ITO to compute the demand against the trust as per individual beneficiary assessments to avoid undue hardship.

In conclusion, the judgment addressed the issues of trust assessment under s. 164, proper assessment methods, interpretation of case law, and the significance of trust deed provisions. It emphasized the representative nature of trustees, the need to align trust assessments with individual beneficiary incomes, and the importance of avoiding undue hardship in assessments. The Tribunal's decision provided clarity on the liability of assessment for trusts and highlighted the importance of following specific provisions and legal principles in trust assessments.