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TMI Blog2013 (12) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... for the benefit of beneficiaries whose shares are determinate. The trust was created on 29.03.1951 by HEH Nawab Sir Osman Ali Khan Bahadur, the Nizam-VII of Hyderabad. Consequent to the sale of the trust property and acquisition by the Government of India, amount was received by the trust out of which, an amount of Rs.14.05 crores was deposited with State Bank of Hyderabad, Gunfoundry Branch, Hyderabad as fixed deposit under lien with Income Tax Department. The deposit generated income on quarterly basis. The Assessing Officer having noticed that the assessee-trust has received interest in respective assessment years and did not file returns for respective assessment years, issued notices under section 148 asking the assessee to file respective returns. The assessee filed returns declaring NIL income with the submission that the provisions of section 161 of the I.T. Act, 1961 will apply and assessments can be made in the hands of respective beneficiaries or in the trust as a representative assessee in the like manner and to the same extent as that of the beneficiaries. It relied on various decisions of Hon'ble Supreme Court and jurisdictional High Court to support that interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust has no liability to tax at all as held by the Hon'ble High Court of Kerala in the case of CIT vs. T.A.V. Trust (2003) 264 ITR 52 (Ker.) (H.C.). The position under section 161(1) of the I.T. Act is that a trustees of Trust cannot be assessed on the aggregate income received by it as a single unit. It was further explained that the department has two options i.e., to make assessments individual beneficiary and levy the tax appropriate to such income tax applicable to total income of each beneficiary or in the alternate, Assessing Officer can make a single assessment on the trust but has to indicate the share of income of each beneficiary and the tax attributable to it. It was submitted that inspite of clear directions of the learned CIT(A) dated 25.12.2008, the learned Assessing Officer did not follow them and therefore, the matter was carried to the CIT(A) and unfortunately, the same CIT(A) who upheld the assessee's contention in the quantum order, confirmed the penalties on extraneous reasons. It was submitted that the trust is not liable to any penalty and accordingly, the same may please be deleted. 5. The learned D.R. reiterated the facts/arguments as stated by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was also held that in a case where the trustee received income by way of dividend, interest or capital gains, it cannot but be treated as dividend, interest or capital gains, respectively, in the representative assessment which is to be made on the trustee. The Authority for Advance Rulings in Advance Ruling P. No. 10 of 1996, XYZ, In re (1996) 136 CTR (AAR) 358 : (1997) 224 ITR 473 (AAR) considered the scope of s. 161(1A) of the Act and observed at p. 541 thus, "It is true that s. 161(1A) provides for a tax at the maximum rate on the income from business in the hands of a trust." To the same effect is the observation made at p. 510 under exception (a). 14. Thus by virtue of the provisions of s. 161(1) of the Act income from property received by the trust cannot but be treated as income from property in the representative assessment which has to be made on the trustee. This is so, notwithstanding the fact that the trust in which the appellant is a beneficiary is having income from profits and gains of business. In the case of a trust which is having income from business as well as income from house property, by virtue of the provisions of s. 161(1A) of the Act, the income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have the effect of overriding the provisions of s. 26 of the Act and consequently computation of the income from house property has to be made under ss. 22 to 25 of the Act since the Tribunal had entered a categorical finding that the shares of the beneficiaries are definite. As already noted, as per sub-s. (1A), where any income in respect of which a representative-assessee is liable consists of, or includes, income by way of profits or gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum rate. The income so liable referred to in the said sub- section is only the business income of the trust and not any other income. It is only the income by way of profits and gains of business that can be charged at the maximum marginal rate. Any other interpretation, according to us, is against the very scheme of the Act and further such an interpretation will make the provisions of sub-s. (1A) of s. 161 unconstitutional. It is a well settled position that if two constructions of a statute are possible, one of which would make it intra vires and the other ultra vires, the Court must lean to that construction which wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is partly allowed". 8. We are surprised to note that after directing the Assessing Officer to complete the assessment of the trust applying the provisions of section 161, the CIT(A) confirmed the penalty on the reason that the trust has not filed returns and therefore, Assessing Officer initiated proceedings under section 148 and accordingly, the trust is liable for penalty. As can be seen from the above facts stated, the trust is a representative assessee and to that extent of income tax leviable on the incomes of the beneficiaries, assessment can be made either in the hands of the respective beneficiaries or in the hands of the assessee to that extent only, indicating the tax liability of respective beneficiaries by consolidated order. As seen from the Orders of the Assessing Officer he has not followed either of the procedures but still contending to hold that the entire income received on the fixed deposit is taxable in the hands of the assessee- trust, violating the directions of the learned CIT(A) and also violating the provisions of the Act. The orders of AO levying penalty is not only bad in law but also on facts. In view of this, we are of the opinion that penalty levi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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