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2015 (2) TMI 1025 - AT - Income TaxApplicability of provisions of section 161(1A) or section 164 - the income is chargeable to tax in the hands of the appellant amounting to ₹ 7,95,15,873/- as the maximum marginal rate as held by CIT(A) - assessee trust was created by indenture of trust dated 01/02/2008 by its Settlor M/s. Infrastructure Licence & Financial Services Ltd. - Held that - It is pertinent to note that when the CIT(A) has held that the provisions of section 164 are applicable then the issue of treating the assessee as AOP under section 161(1A) is no more exist and accordingly, the decision of the Bangalore Bench of this Tribunal in India Advantage Fund-VII 2014 (10) TMI 614 - ITAT BANGALORE to the extent, of finding on the point of treating the trust as AOP, becomes irrelevant. As far as the question of applicability of section 164(1) is concerned, the CIT(A) has proceeded on the basis of fact that the name of IL & FS Financial Services is not appearing either in the deed of trust or in the supplementary deed of the trust. Further, there was also confusion about the fact that the Settlor and beneficiary are one and the same. This is a crucial factual aspect of the case and requires a proper verification by considering the relevant evidences as well as contentions of the assessee. Another crucial confusion as emerging from the records is regarding income arising from sale of shares by the assessee trust and distributed to the beneficiaries was offered to tax by IL & FS Financial Services Ltd. and assessed accordingly. Since these two factual aspects requires a clear and proper verification and examination as well as a clear finding, therefore in the facts and circumstances of the case we set aside this issue to the record of CIT(A) for deciding the same denovo after verification of the facts, consideration of the contentions as well as decisions relied upon by the assessee. Needless to say the assessee may be given appropriate opportunity of hearing before passing the fresh order. - Decided in favour of assessee for for statistical purposes.
Issues Involved:
1. Applicability of Section 164(1) and Section 161(1A) of the Income Tax Act, 1961. 2. Determination of the taxable entity (individual vs. Association of Persons). 3. Treatment of the trust as a revocable or irrevocable trust. 4. Double taxation of income. 5. Classification of income (business income vs. capital gains). 6. Levy of interest under Section 234B. Detailed Analysis: 1. Applicability of Section 164(1) and Section 161(1A) of the Income Tax Act, 1961: The assessee contended that the CIT(A) wrongly applied Section 164(1), which is applicable to discretionary trusts where the shares of the beneficiaries are not determinate. The assessee argued that their trust is a determinate trust, and the income should be taxed in the hands of the beneficiaries under Section 161(1). The AO, however, treated the trust as an Association of Persons (AOP) and applied Section 161(1A), considering the activities of the trust as business activities. The Tribunal noted that the CIT(A) and AO had different interpretations based on the same set of facts, leading to confusion. The Tribunal decided that the factual aspects needed proper verification and remanded the issue back to the CIT(A) for a fresh decision. 2. Determination of the Taxable Entity (Individual vs. Association of Persons): The assessee argued that the trust should be treated as an individual rather than an AOP. The AO treated the trust as an AOP due to the business nature of its activities. The Tribunal noted that the CIT(A) and AO had different views on the status of the trust. The Tribunal emphasized the need for clear verification of facts to determine the correct status of the trust and remanded the issue to the CIT(A) for re-examination. 3. Treatment of the Trust as a Revocable or Irrevocable Trust: The assessee claimed that the trust is irrevocable, and the income should be taxed in the hands of the beneficiaries. The CIT(A) and AO had differing views on this matter. The Tribunal noted that the trust deed and supplementary indenture needed proper examination to determine the nature of the trust. The Tribunal directed the CIT(A) to verify the relevant documents and make a clear finding on this issue. 4. Double Taxation of Income: The assessee argued that the income from the sale of shares and interest income was already taxed in the hands of the sole beneficiary, IL&FS Financial Services Ltd., leading to double taxation. The CIT(A) held that the income was claimed as exempt under Section 10(38) by the beneficiary. The Tribunal noted that this factual aspect needed proper verification and directed the CIT(A) to re-examine the issue and ensure no double taxation occurs. 5. Classification of Income (Business Income vs. Capital Gains): The AO treated the income from the sale of shares as business income, while the assessee claimed it as long-term capital gains. The CIT(A) supported the AO's view. The Tribunal emphasized that the nature of the trust's activities needed proper examination to determine the correct classification of income. The Tribunal remanded the issue to the CIT(A) for a fresh decision after proper verification. 6. Levy of Interest under Section 234B: The assessee contested the levy of interest under Section 234B, arguing that it was not justified. The Tribunal noted that this issue was dependent on the outcome of the other issues and directed the CIT(A) to reconsider the levy of interest after re-examining the other aspects of the case. Conclusion: The Tribunal set aside the order of the CIT(A) and remanded the case for a fresh decision after proper verification of facts, consideration of the assessee's contentions, and examination of relevant documents. The Tribunal directed the CIT(A) to provide an appropriate opportunity of hearing to the assessee before passing a fresh order. The appeal was allowed for statistical purposes.
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