2024 (8) TMI 1231 - AT - Income Tax

Taxability u/s 115BAA - assessee being a representative assessee, claimed to be taxed at same rate applicable to its beneficiary claim as dismissed as the assessee was not treated as a representative assessee. CIT(A) accepted the status of the assessee as a representative assessee and held that since the assessee is a determinate trust with RIIHL as its sole and 100% beneficiary and settler and as RIIHL has opted to be taxed under the new tax regime @22% being a representative assessee u/s 161 of the Act, the assessee is also liable to be taxed at the same rate i.e., @22% applicable surcharge and CESS. HELD THAT - Sub-Section (1) is the relevant sub-Section. It can be seen that the tax shall be levied upon and recovered from a representative assessee in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him which means that the trust will be subject to same rate of tax as applicable to the person represented by it i.e., RIIHL which was taxed u/s 115BAA. As in the case of Mrs. Amy F. Cama 1998 (6) TMI 60 - BOMBAY HIGH COURT assessee claimed purchase price of the flat should be deducted from the capital gain arising out of the sale of the said immovable property, under section 54. ITO negatived the assessees claim on the ground that the trust who was the owner was not residing in the said flat and the beneficiaries who resided therein were not the owners and, therefore, the assessee did not fulfil the conditions laid down in section 54. On appeal, the AAC also negatives the claim of the assessee. On second appeal, the Tribunal, dismissed of assessee s claim on the ground that the excess amount realised by the trustee would be income in her hands and the said income could not be said to be income receivable on behalf of the beneficiary. Tribunal came to the conclusion that the question of applicability of section 161 did not arise in the instant case. Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 115BAA to a trust.
2. Status of the assessee as a representative assessee under Section 161(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 115BAA to a Trust:
The primary issue was whether the income of the assessee, a discretionary trust, could be taxed under Section 115BAA of the Income Tax Act. The revenue argued that Section 115BAA applies solely to certain domestic companies and not to trusts. The assessee, however, contended that being a representative assessee for its sole beneficiary, a domestic company (RIIHL), it should be taxed at the same rate applicable to the beneficiary, i.e., under Section 115BAA.

2. Status of the Assessee as a Representative Assessee Under Section 161(1):
The second issue revolved around whether the assessee qualifies as a representative assessee under Section 161(1) of the Act. The revenue contended that the assessee, being a trust, does not fall within the definition of a representative assessee as per Section 160 of the Act. The assessee argued that it should be treated as a representative assessee since it holds the investments for its sole beneficiary, RIIHL.

Detailed Judgment Analysis:

1. Applicability of Section 115BAA to a Trust:
The Tribunal examined the provisions of Section 115BAA and noted that it is specifically applicable to domestic companies. The assessee, a discretionary trust, claimed that since its sole beneficiary, RIIHL, opted for taxation under Section 115BAA, the same rate should apply to the trust. The Tribunal, referencing the CIT(A)'s decision, upheld that the trust, being a representative assessee for RIIHL, should be taxed at the same rate as its beneficiary, i.e., under Section 115BAA.

2. Status of the Assessee as a Representative Assessee Under Section 161(1):
The Tribunal analyzed Section 160 and Section 161 of the Act to determine the status of the assessee. Section 160 defines a representative assessee and includes trustees appointed under a trust declared by a duly executed instrument. Section 161 states that a representative assessee shall be subject to the same duties, responsibilities, and liabilities as if the income were received by him beneficially. The Tribunal referred to the Bombay High Court's decision in Mrs. Amy F. Cama vs. CIT, which established that a trustee must be assessed for and on behalf of the beneficiaries and that tax can be levied and recovered from the trustee in the same manner and to the same extent as from the beneficiaries.

The Tribunal concluded that the assessee, being a trust with a sole beneficiary (RIIHL), qualifies as a representative assessee under Section 161. Therefore, the tax rate applicable to RIIHL under Section 115BAA should also apply to the trust. The Tribunal found no reason to interfere with the CIT(A)'s decision and dismissed the appeal of the revenue.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the assessee, a discretionary trust, qualifies as a representative assessee under Section 161 and should be taxed at the same rate as its sole beneficiary, RIIHL, under Section 115BAA. The cross-objection filed by the assessee in support of the CIT(A)'s order required no separate adjudication. The revenue's appeal was dismissed, and the order was pronounced in the Court on 2nd August 2024 at Mumbai.