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TMI Blog1984 (9) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the assessee himself wanted. But the assessee is not satisfied with the order because the capital loss determined for the assessment year 1977-78 got reduced by Rs. 34,024 to Rs. 60,751. It appears, that the assessee has long-term capital gains in a later year and the decision taken by the ITO is likely to affect such other assessments, and consequently, the assessee's liability to tax. It is for this reason that the assessee preferred an appeal requiring that the set off should be of the loss determined in the trust's case for the assessment year 1976-77 as against the set off of loss in the assessee's own case for the assessment year 1977-78. The reason for the disallowance of the assessee's claim in the assessment was that the ITO considered that the trust's assessment, being different from the one of the assessee, there could not be a set off of the loss in one case against the income in the other. He also pointed out that the assessment in the hands of the trustee was in the status of an AOP, inasmuch as there was more than one trustee. The AAC confirmed the assessment. According to him, the trust's loss can be carried forward only in the trustees' case and cannot be set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in this context, he urged, that the fact that the trust's assessment was styled as one on AOP wrongly, should not make any difference as the assessee was undisputably the sole beneficiary and was, therefore, responsible solely for the capital loss or gains in respect of the trust property. He, therefore, urged that the authorities were wrong in trying to deprive the assessee of the benefits of carry forward loss conferred by the statute by preferring a later loss in the assessee's case to an earlier one in a preceding assessment, though determined in the trustee's case. 4. The learned departmental representative, on the other hand, would rely upon the orders of the authorities below. Apart from the arguments cited by them, he would point out the assessee had no immediate interest in the corpus of the property. In fact, his interest was only for his own lifetime. Capital loss would deplete the corpus, while capital gains, if any, would add to the same. Since there was no present interest of the beneficiary in the corpus, he claimed that the capital gains or loss could be considered only in the trustee's hands and that it is not a case where any choice is available either to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of certain contingencies mentioned in the said documents. In other words, the assessee had during the relevant years only a life interest. We have perused the two original settlement deeds as well as the articles of the agreement dated 6-5-1960. It is clear from these documents that the assessee had only a life interest, i.e., right over the income of the trust during his lifetime. He had no right over the corpus. The agreement dated 6-5-1962 merely bifurcates the properties under settlement as between the two beneficiaries. The two earlier trusts, which set out the terms of the trust, have also clearly set out the condition that the beneficiary should have only the right over the income. Clause 5 of the trust deed dated 6-11-1931 sets out the following condition : "5. The trustees shall, at the direction in writing of the settlor during her life and may at their discretion after the death of the settlor at any time or times, sell the said land, hereditaments and premises or any part or parts thereof, either together or in parcel, and either by public auction or private contract, and, either with or without special stipulations, as to title, evidence or commencement of title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on' clause. The Supreme Court in the case of CIT v. Manilal Dhanji [1962] 44 ITR 876 has observed that in a case where income under trust is accumulated during minority, the income to be aggregated is only the income which 'accrues to him or he has beneficial interest income in the relevant year of account'. Though the decision was rendered in the context of section 16(3)(a) and (b) and section 41 of the 1922 Act, we do find that the trust is a similar one and that the inference on similar facts is that the beneficiary has no income accruing to him nor has he any beneficial interest in the relevant year of account. The same view was repeated by the Supreme Court in Col. H.H. Sir Harinder Singh v. CIT [1972] 83 ITR 416 in the same context to the effect that benefit for aggregation should be a benefit in the year of account. Even after the introduction of the words in aggregation provisions to justify inclusion of deferred benefit, the Bombay High Court in the case of Yogendra Prasad V. Mafatlal v. CIT [1977] 109 ITR 602 considered the aggregation not possible as the interest was only 'contingent' and not vested in the light of sections 19 and 21. The Gujarat High Court in Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same reason, as we have indicated here for our conclusion. If it had been a capital gain instead of the loss, we have no doubt that our conclusion would be the same, i.e., such capital gains cannot be considered in the assessee's hands but it had to be taxed only in the trustee's hands. 7. We have, however, yet to deal with another argument on behalf of the assessee that the words 'in the like manner and to the same extent' in section 161 would entitle the assessee to have his liability determined, as though the assessment was all along on the beneficiary. This argument is easily met. Only where an assessment is made on the trustee in his representative capacity, this provision could be invoked. Where no assessment on such capital is possible in the beneficiary's hands, it is not possible to apply the same rate of tax as on the beneficiary. It could possibly be argued that in such cases, the rate of tax is nil and that, therefore, capital gains cannot be taxed at all in the trustee's hands. If so, nor can any capital loss be determined. But, in our opinion, the correct view is that in respect of the capital gains, the trustee is assessable without any option to the ITO or th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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