2023 (5) TMI 274 - AT - Income Tax

Assessment of trust - Deduction u/s 57(iv) - interest received on compensation by the assessee from Govt. of Rajasthan in respect of compulsory acquisition of land - whether Income of the trust is inclusive of all the income and no separate deduction is allowable while determining the income u/s 11? - HELD THAT - We have perused the provisions of Section 56(2)(viii) which provides that income by way of interest received on compensation or on enhanced compensation would be treated as income u/s 56(1) as income from other sources and provisions of Section 57(iv) provides that in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income would be allowed and no deduction shall be allowed under any other clause of this section. It is apparently clear from perusal of the provisions of section that the interest received by the assessee on compensation is taxable under the head income from other source and while computing the income of the assessee a deduction has to be allowed 50% and no other deduction shall be provided under any other clause of this Section but there is no bar in claiming exemption of compensation income u/s 11 of the Act as the section specifically provides that under this section which is 57 of the Act no other deduction shall be allowed. Besides the case of the assessee finds supports from couple of decisions namely DIT(E) Vs. Jasabai Foundation 2015 (4) TMI 305 - BOMBAY HIGH COURT wherein it has been held that income which the assessee trust has not included by virtue of section 10 could not be considered under section 11. The underlying facts in this case are that the dividend income which was claimed as exempt u/s 10(33) of the Act. According to the AO the said income formed a part of income from trust property and therefore can only be claimed to be exempt u/s 11 of the Act if applied for charity and not u/s 10(33) of the Act. On this basis the AO disallowed the exemption u/s 10(33). The order of the AO was confirmed by ld CIT(A) but tribunal seta side the same. The Hon ble High Court on appeal upheld the order of the tribunal. In ACIT Vs Saurashtra Trust 2006 (10) TMI 381 - ITAT MUMBAI wherein it has been held that in the case of the trust income should be classified under various heads such as house property, capital gain and other sources and held that the assessee would be entitled to deductions on account of income computed under each head. Therefore we do not find any infirmity in the order of Ld. CIT(A) and accordingly the appeal of the revenue is dismissed.

Summary

Issues involved:
The appeal by the revenue and the cross-objection by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) regarding the deduction u/s 57(iv) of the Act from interest received on compensation and the inclusivity of income of the trust while determining income u/s 11 of the Act.

Deduction u/s 57(iv) of the Act:
The revenue challenged the Ld. CIT(A)'s order allowing the deduction u/s 57(iv) from the interest received on compensation by the assessee from the Govt. of Rajasthan for the compulsory acquisition of land. The AO rejected the claim of the assessee u/s 57 of the Act, stating that no claim of deduction under Chapter IV is allowable under Section 11 of the Act. However, the Ld. CIT(A) allowed the appeal of the assessee, holding that the deduction claimed by the appellant was supported by evidence and in line with the provisions of the Income Tax Act.

Inclusivity of income of the trust under Section 11:
The revenue also challenged the order of Ld. CIT(A) on the ground that income of the trust is inclusive of all income, and no separate deduction is allowable while determining the income u/s 11 of the Act. The Ld. CIT(A) allowed the appeal of the assessee, stating that there is no bar in claiming exemption of compensation income u/s 11 of the Act, as Section 57 specifically provides that no other deduction shall be allowed. The order was supported by legal precedents such as DIT(E) Vs. Jasabai Foundation and ACIT Vs. Saurashtra Trust, which upheld the entitlement of deductions on income computed under each head for a trust.

Conclusion:
After considering the contentions and perusing the material on record, the Tribunal dismissed the appeal of the revenue and the cross-objection by the assessee. The order pronounced on 4th May, 2023, upheld the Ld. CIT(A)'s decision regarding the deduction u/s 57(iv) and the inclusivity of income of the trust under Section 11 of the Income Tax Act.