2017 (5) TMI 250 - AT - Income Tax

LTCG - Deduction u/s 54F claimed by the Trust assesseed u/s 161 on behalf of beneficiary - Appellant is Association of Persons (AOP) - AO denied the deduction on the ground that deduction u/s 54F is applicable only to Individual or HUF - whether the assessee trust, which is for the sole benefit of an individual, will be entitled to deduction u/s. 54F or not, when its status is that of A.O.P.? - Held that - As per Section 54F the benefits of this section is available to individual or Hindu undivided family (HUF). Hon ble jurisdictional High Court in the case of Mrs. Amy F. Cama (1998 (6) TMI 60 - BOMBAY High Court ) has elaborately considered the same issue and held that the assessee trust was entitled for the same. The Hon ble Court had expounded that Section 161 of the I.T Act, 1961, makes a representative assessee subject to the same duties, responsibilities and liabilities as if the income was received by him beneficially. The fiction is created as it was never the object or intention of the Act to charge tax upon persons other than the beneficial owner of the income. Whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him under section 161. From the above case laws it is amply clear that by virtue of Section 161 of the I.T. Act the representative assessee is subject to the same duties, responsibilities and liabilities as if the income was received by him beneficiary, and whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him u/s. 161. It is clear that it is only by virtue of u/s. 161 that the trust has been assessed for the income that is for benefit of sole beneficiary. According respectfully following the precedent we hold that the assessee is principally entitled to deduction u/s. 54F and it cannot be said that since it is a AOP and not a individual or HUF the said exemption/deduction should be denied.

Summary

Issues Involved:
Denial of deduction under section 54F to a specific trust due to its status as an Association of Persons (AOP) and failure to consider the trust's eligibility based on the status of the ultimate beneficiary.

Detailed Analysis:

Issue 1: Denial of Deduction under Section 54F
The assessee, a private non-discretionary trust, sold unquoted equity shares and received consideration partly in cash and partly in kind. The trust claimed exemption under section 54F for the amount invested in a residential flat. The Assessing Officer (AO) disallowed the deduction under section 54F, stating it is only applicable to individuals or Hindu Undivided Families (HUFs). The AO also mentioned that possession of the flat was not taken within the stipulated time frame. The Commissioner of Income Tax (Appeals) upheld the AO's decision, citing that as an AOP, the trust cannot avail of section 54F benefits. The assessee contended that the trust, established for the sole benefit of an individual, should be entitled to the deduction.

Issue 2: Legal Entitlement of Trust to Claim Deduction under Section 54F
The tribunal analyzed relevant case laws, including a decision by the Hon'ble jurisdictional High Court in a similar matter. The High Court ruled that trusts can claim deductions as per Section 161 of the Income Tax Act, treating the trustee as the beneficial owner for assessment purposes. The tribunal applied this ruling to the present case, emphasizing that the trust's status as an AOP should not preclude it from claiming deductions under section 54F, especially when the ultimate beneficiary is an individual. The tribunal highlighted that the trust, acting as a representative assessee, should enjoy the same benefits as the beneficiary. Referring to other High Court decisions, the tribunal concluded that the trust was legally entitled to the deduction under section 54F.

Final Decision and Remittance
The tribunal allowed the appeal for statistical purposes, directing the Commissioner of Income Tax (Appeals) to reconsider the merits of the deduction claim under section 54F. The tribunal emphasized granting the assessee a fair opportunity to present their case. The decision underscored the trust's entitlement to the deduction under section 54F based on legal precedents and the trust's structure for the sole benefit of an individual.

In conclusion, the tribunal's detailed analysis affirmed the trust's right to claim the deduction under section 54F despite its status as an AOP, emphasizing the legal principles governing representative assesses and the beneficial ownership of income.