2021 (8) TMI 599 - AT - Income Tax

Additions u/s 164 r.w.s 160 - Share of the beneficiaries as taxable in the hands of the assessee trust - HELD THAT - The assessee is a special purpose trust created for the benefit of its beneficiaries and there were 38 members who were having definite shares as beneficiaries in the trust. During the course of assessment proceedings, the assessee has submitted that the shares of the persons who are entitled to are determinate and known and the recipients are only to be subjected to tax. As submitted that the trust in fact is only escrow mechanism in the form of specific trust created for the purposes. As submitted that assessee was liable to distribute such income to its beneficiaries which was claimed as expense by the assessee. As noticed that same group of beneficiaries comprising of five members have also not claimed their share of income on account of similar dispute with the assessee trust as was in the earlier assessment year 2013-14 and 2015-16. The Co-ordinate Bench held that revenue cannot pick and choose certain amounts representing the share of the beneficiaries and tax in the hands of the assessee and simultaneously not charging the tax in the hands of the assessee with respect to majority of the beneficiaries. The facts of the case and issue involved in the present appeal are identical to the assessment year 2013-14 and 2015-16, therefore, respectfully following the decision of the Co-ordinate Bench of the ITAT 2017 (5) TMI 1411 - ITAT CHENNAI , on similar issue and identical facts, this ground of appeal of the assessee is allowed.

Summary

Issues:
- Addition of income in the hands of the assessee trust based on the share of beneficiaries not claimed in their return of income.

Analysis:
1. The appeal pertained to the addition of income by the Assessing Officer in the hands of the assessee trust for the assessment year 2014-15. The Assessing Officer observed that the trust earned interest from bank deposits and distributed it among beneficiaries. However, five beneficiaries refused to accept their share, leading to the Assessing Officer taxing the unclaimed amount in the trust's hands.

2. The CIT(A) upheld the Assessing Officer's decision, stating that since the beneficiaries did not disclose the income in their books or returns, the interest income was considered from other sources and taxable in the trust's hands.

3. The ITAT, in its analysis, highlighted that the trust was created for the benefit of specific beneficiaries, and the income was distributed based on their agreed shares. Referring to a previous ITAT decision on a similar issue, the ITAT emphasized that the revenue cannot selectively tax the share of certain beneficiaries in the trust while not taxing others. The ITAT also cited relevant provisions of the Income Tax Act regarding the taxation of trust income and the role of trustees as representative assessees.

4. The ITAT further explained that for a trust to be considered determinate, the beneficiaries must be specified in the trust deed, and their individual shares ascertainable. In this case, the trust had accounted for the unclaimed shares in its books, and the ITAT found no fault in the trust's accounting entries. Therefore, the ITAT directed the Assessing Officer to delete the addition made, ruling in favor of the assessee trust based on the principles of consistency and proper application of tax laws.

5. The ITAT's decision was influenced by the fact that the issue and facts in the present appeal were identical to previous assessment years where similar disputes with beneficiaries had arisen. By following precedent and ensuring equitable treatment, the ITAT allowed the appeal of the assessee trust, emphasizing the importance of fair and consistent tax assessments.

6. Ultimately, the ITAT allowed the appeal of the assessee trust, setting aside the CIT(A)'s decision and directing the Assessing Officer to delete the addition made, based on the principles of fairness, consistency, and proper application of tax laws.

7. The judgment was pronounced in an open court on 30-07-2021, with the ITAT ruling in favor of the assessee trust, highlighting the importance of adherence to legal provisions and equitable tax treatment.