1993 (4) TMI 121 - AT - Income Tax

Assessing Officer, Association Of Persons, Body Of Individuals, Discretionary Trust, Representative Assessee

Summary

Issues Involved:

1. Status of the assessee-trusts (Individual, Association of Persons, or Artificial Juridical Person).
2. Entitlement to deduction under Section 80L of the Income-tax Act, 1961.

Detailed Analysis:

1. Status of the Assessee-Trusts:

The primary issue in this case is the determination of the status of the assessee-trusts for tax purposes. The Assessing Officer categorized the trusts as 'Association of Persons' (AOP), while the CIT (Appeals) classified them as 'Artificial Juridical Person'. The assessee-trusts argued that their status should be 'Individual' to avail the deduction under Section 80L.

The Tribunal examined the jurisprudence and statutory provisions regarding the status of trusts. It was noted that the term 'person' in Section 2(31) of the Income-tax Act includes 'every artificial juridical person'. However, the CIT (Appeals) erred in treating the trusts as artificial juridical persons since trustees do not fit this category purely from a jurisprudential perspective.

The Tribunal considered whether the status of the trusts should be 'Individual' or 'Representative Assessee'. The argument was made that trustees, even if plural, should be considered as 'Individual' since they constitute a single unit. However, the Tribunal found that the term 'Individual' in Section 2(31) signifies natural human beings and not entities like trusts.

The Tribunal also discussed the possibility of considering the trustees as a 'Body of Individuals' (BOI). The Madras High Court in N.P. Saraswathi Ammal v. CIT defined BOI as a group of individuals with a nexus to a source of income. The Tribunal concluded that the status 'Body of Individuals' is more appropriate for trustees of discretionary trusts, as it reflects the plurality of beneficiaries with a common source of income.

2. Entitlement to Deduction under Section 80L:

Section 80L allows deductions for certain categories of assessees, namely, Individuals, Hindu Undivided Families (HUF), and AOPs or BOIs consisting only of husband and wife governed by the system of community property. The assessee-trusts claimed the deduction under this section, arguing that their status should be 'Individual'.

The Tribunal analyzed the statutory scheme and concluded that the trustees of discretionary trusts, assessed in a representative capacity, do not fall under any of the specified categories in Section 80L. The Tribunal noted that the general rule under Section 164 is to assess the income of discretionary trusts at the maximum marginal rate, without the need to assign a specific status such as 'Individual' or 'AOP'.

The Tribunal rejected the argument that the scheme of the Act, which brings to charge total income after applying Chapter VIA provisions, entitles the assessees to Section 80L benefits. Since the trustees' status as 'Representative Assessee' is not specified in Section 80L, the deduction is not available.

Conclusion:

The Tribunal held that the status of the trustees of discretionary trusts should be 'Representative Assessee', a category not specified in Section 80L. Consequently, the trustees are not entitled to the deduction under Section 80L. The appeals were dismissed, upholding the orders of the CIT (Appeals), though for different reasons.