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2018 (2) TMI 1370 - AT - Income TaxReceipt of amount without consideration - income from other sources u/s 56(2)(vi) - Amount received from employer s various employee s welfare trusts - Held that - We are of the considered view that ld. CIT (A) has thrashed the controversy at hand at length by considering the aforesaid CBDT circular no.157 (F.No.228/8/73-IT (A-II) dated 26.12.1974 and judgment rendered by Hon ble Supreme Court in ITO vs. Atchaiah (1995 (12) TMI 1 - SUPREME Court) and when the income of all the aforesaid 12 discretionary trusts have been charged to tax, the same income cannot be taxed twice when fell into the hands of the assessee. So, when the AO has exercised his option once by taxing all the 12 trusts duly described in preceding para no.6, it is not open to the assessing authority to assess the same income for that assessment year in the hands of the other person i.e. the beneficiary of the trusts. - Decided against revenue.
Issues involved:
- Taxability of amounts received by employees from discretionary trusts under section 56(2)(vi) of the Income-tax Act, 1961. - Applicability of section 86 of the IT Act to the case. - Classification of income received from trusts as 'profit in lieu of salary' under section 17(3)(ii) of the IT Act. - Interpretation of circular no.157 regarding taxation of income from trusts. - Consideration of judicial precedents in similar cases. Issue 1: Taxability under section 56(2)(vi) of the Income-tax Act: The appellant, ACIT, and ITO sought to set aside the orders passed by the CIT (Appeals) deleting additions made under section 56(2)(vi) of the IT Act. The amounts received by employees from trusts were considered taxable as 'income from other sources.' The Revenue argued that the sums received without consideration from trusts were taxable, as section 56(2)(vi) brings such receipts within the ambit of taxation. However, the CIT (Appeals) had deleted the additions, leading to the Revenue's appeal. Issue 2: Applicability of section 86 of the IT Act: The Revenue contended that the trusts were discretionary and not covered under section 86 of the IT Act. They argued that the income received by employees from trusts should be taxed as salary income, as the trusts were welfare programs for employees. The Revenue also highlighted that the trusts had not paid taxes at the maximum marginal rate. However, the AR for the assessees argued that the case fell under sections 161, 164, and 167 of the Act, emphasizing that all income should be charged to tax only once. Issue 3: Classification of income under section 17(3)(ii) of the IT Act: The Revenue argued that the income received by employees from trusts could be classified as 'profit in lieu of salary' under section 17(3)(ii) of the IT Act, as the trusts were established by the employer company for employee welfare. The connection between the employee and the trust was based on the employment relationship. Issue 4: Interpretation of circular no.157 and judicial precedents: The AR for the assessees relied on circular no.157 to support their argument that the income should be taxed only once, either in the hands of the trust or the beneficiaries. Additionally, the AR cited the Supreme Court judgment in ITO vs. Atchaiah and a Tribunal case ACIT vs. Niranjan Narottam, which supported the position that income should not be taxed twice. The Tribunal agreed with the CIT (A) that the income of the trusts had already been taxed, and therefore, taxing the same income in the hands of the employees would be improper. In conclusion, the Tribunal dismissed the Revenue's appeals, upholding the CIT (A)'s decision. The Tribunal found that the income of the discretionary trusts had been taxed, and taxing the same income in the hands of the employees would amount to double taxation. The Tribunal considered the relevant provisions of the IT Act, circular no.157, and judicial precedents to reach this decision.
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