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2015 (4) TMI 259 - AT - Income TaxTrust assessed as an AOP - whether Asset Management entity came into existence by virtue of a Trust deed? - whether the assessee trust , is a revocable trust and it need not be subjected to tax, as the tax obligation have been fully discharged by the beneficiaries of the assessee trust? - whether names of the Beneficiaries and the shares of the beneficiaries are not identifiable in the original trust deed? - applicability of the provisions of Sec.60, 61 and 63 of the Act to the facts and circumstances of the case - Held that - Sec.61 read with Sec.63 of the Act which mandates that income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income tax as income of the transferor will apply to the facts and circumstances of the present case and therefore the assessment in the hands of the transferee/representative assessee was not proper. As we have already mentioned, the terms of the Trust Deed, the Contribution Agreement and the Memorandum of private placement are identical in substance and there is no dispute on this aspect either before the Revenue authorities or before the Tribunal. Assessment of trust - applicability of Sec.164(1) - Held that - CBDT Circular No.281 dated 22.9.1980 wherein the CBDT has explained the scope of Sec.164 with regard to stating the name of the beneficiaries in the trust deed. In the said circular the provisions of Expln.-1 to Sec.164 of the Act regarding identification of beneficiaries has been explained to the effect that for identification of beneficiaries it is not necessary that the beneficiary in the relevant previous year should be actually named in the order of the Court or the instrument of trust or wakf deed, all that is necessary is that the beneficiary should be identifiable with reference to the order of the Court or the instrument of trust or wakf deed on the date of such order, instrument or deed. We find that Clause 1.1.13 of the Trust Deed clearly lays down that beneficiaries means the Persons, each of whom have made or agreed to make contributions to the Trust in accordance with the Contribution Agreement. We are of the view that the above clause is sufficient to identify the beneficiaries. The persons as well as the shares must be capable of being definitely pin-pointed and ascertained on the date of the trust deed itself without leaving these to be decided upon at a future date by a person other than the author either at his discretion or in a manner not envisaged in the trust deed. Even if the Trust deed authorises addition of further contributors to the trust at different points of time, in addition to initial contributors, than the same would not make the beneficiaries unknown or their share indeterminate. Even if the scheme of computation of income of beneficiaries is complicated, it is not possible to say that the share income of the beneficiaries cannot be determined or known from the trust deed. In view of the aforesaid decision of the AAR 1996 (8) TMI 512 - AUTHORITY FOR ADVANCE RULINGS , with which we respectfully agree, we hold that the provisions of Sec.164(1) of the Act would not be attracted in the present case Assessment as an AOP - whether there is no separate status of Trust for making assessment envisaged under the Act? - Held that - There is no inter se arrangement between one contributory/ beneficiary and the other contributory/beneficiary as each of them enter into separate contribution arrangement with the Assessee. Therefore it cannot be said that two or more beneficiaries joined in a common purpose or common action and therefore the tests for considering the Assessee as AOP was satisfied. The beneficiaries have not set up the Trust. Therefore it cannot be said that the beneficiaries have come together with the object of carrying on investment in mezzanine funds which is the object of the trust. The beneficiaries are mere recipients of the income earned by the trust. They cannot therefore be regarded as an AOP The form of return of income as it existed for the relevant assessment year did not contain a clause for filing return of income by a Trust in the status other than AOP. The CBDT realised this difficulty faced by private discretionary trusts having total income exceeding ten lakh rupees facing problem in filing their return of income electronically in cases where they are filing their return in the status of an individual because status of a private discretionary trust has been held in law as that of an individual gave instructions in Circular No.6/2012 dated 3.8.2012 to the effect that it will not be mandatory for private discretionary trusts , if its total income exceeds ten lakh rupees, to electronically furnish the return of income for assessment year 2012-13. Form No.49A which was the prescribed form of application for allotment of Permanent Account Number (PAN) also did not contain a separate status Trust but contained a column AOP (Trust) . The revised Form No.49A later notified contains a column for status as Trust . Therefore the argument of the revenue that all Trusts are AOPs is not correct. If the contention of the Revenue as raised in Ground No.9 is accepted than the provisions of Sec.161(1) of the Act would become redundant. The charge to tax in the hands of the representative Assessee has to be in accordance with Sec.161(1) of the Act and therefore the status of the Assessee cannot be that of AOP In the present case, however, we are concerned with a case of assessment of representative assessee or the person in respect of whom some other person is considered as representative assessee. Sec.161(1) by implication permits assessment of either the beneficiary or the Trustee. When the Trustee is assessed as representative assessee in respect of income received on behalf of the beneficiary, the section provides that tax shall be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. Refund of TDS - application u/s.154 - CIT(A) allowed the claim - Held that - We are of the view that the CIT(A) rightly directed the AO to allow the application of the Assessee u/s.154 of the Act. We may also point out that the Assessee has not filed any revised return in this case and had declared Nil taxable income in the return of income filed and did not file any revised return of income. Therefore the issue raised by the revenue does not arise for consideration at all. - All the appeals by the revenue are dismissed.
Issues Involved:
1. Taxability of income in the hands of the trust or beneficiaries. 2. Determination of beneficiaries and their shares. 3. Applicability of provisions under Sections 60, 61, and 63 of the Income Tax Act. 4. Status of the trust as an Association of Persons (AOP). 5. Validity of assessment orders and rectification under Section 154. Issue-Wise Analysis: 1. Taxability of Income in the Hands of the Trust or Beneficiaries: The core issue was whether the income earned by the trust should be taxed in the hands of the trust or the beneficiaries. The Assessees argued that the income of the trust was included in the total income of the beneficiaries and offered to tax directly by them. The Tribunal upheld the CIT(A)'s decision that the trust was a revocable trust and need not be subjected to tax since the tax obligations had been fully discharged by the beneficiaries. The Tribunal concluded that Section 61 read with Section 63 of the Act mandates that income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income tax as income of the transferor. 2. Determination of Beneficiaries and Their Shares: The AO contended that the individual shares of the beneficiaries were indeterminate or unknown, invoking Section 164(1) of the Act, which would subject the trust to tax at the maximum marginal rate. However, the Tribunal found that the trust deed clearly identified the beneficiaries as those who contributed to the trust and that their shares were determinable based on the provisions of the trust deed. The Tribunal agreed with the CIT(A) that the names of the beneficiaries were identifiable and their shares were determinable, thus Section 164(1) did not apply. 3. Applicability of Provisions Under Sections 60, 61, and 63 of the Income Tax Act: The Tribunal examined the applicability of Sections 60, 61, and 63, which deal with revocable transfers. It was concluded that the transfer of funds by the beneficiaries to the trust was a revocable transfer. The Tribunal noted that the power of revocation need not be at the instance of the beneficiaries and could be at the instance of any person, including the settlor or trustee. The Tribunal also accepted the alternative submission that the provisions of Section 63(a) of the Act, which deem the existence of power of revocation in certain circumstances, were applicable. 4. Status of the Trust as an Association of Persons (AOP): The AO had assessed the trust as an AOP, arguing that the beneficiaries had joined in a common purpose. The Tribunal, however, found that the beneficiaries did not set up the trust and were mere recipients of the income earned by the trust. There was no inter se arrangement between the beneficiaries, and they entered into separate contribution agreements with the trust. Thus, the Tribunal held that the trust could not be assessed as an AOP. 5. Validity of Assessment Orders and Rectification Under Section 154: For AY 2008-09, the AO issued an intimation under Section 143(1), raising a tax demand without considering the trust's claim that its taxable income was nil. The Assessee filed an application under Section 154 for rectification, which was dismissed by the AO. The CIT(A) allowed the appeal, and the Tribunal upheld this decision, noting that the issue had been settled and the intimation under Section 143(1) could not be sustained after the order under Section 143(3). The Tribunal dismissed the appeal as infructuous, confirming that the CIT(A) rightly directed the AO to allow the application under Section 154. Conclusion: The Tribunal upheld the CIT(A)'s orders, confirming that the income of the trust should be taxed in the hands of the beneficiaries, the beneficiaries and their shares were determinable, the trust was a revocable trust, and it could not be assessed as an AOP. The Tribunal dismissed all the appeals by the Revenue.
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