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TMI Blog2014 (5) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... kar his beneficial income from trust has been held to be exempt as not includible having been taxed in the hands of trust - Both the assessments stand testimony to the fact that option has not only been exercised by the department but it has been also implemented in the case of other beneficiary – there was no justification in assessing the amount of beneficial share from trust in the hands of the assessee again. As per the scheme of assessment of private discretionary trust department has to opt whether to assesses the income in the hands of trust or beneficiaries - The option is clearly exercised first in the hands of trust as demonstrated by its assessment order. This is reconfirmed by the assessment of Shri Atul Kirloskar - department cannot take a course to review, re-opt or rewrite what has been statutorily exercised and change its stand from beneficiary to beneficiary - it has not been disputed that entire trust income is from dividends exempt u/s 10(34) and what comes in the hands as beneficial share retains the same colour and is also exempt u/s 10(34) – Relying upon Jyotendrasinhji Versus SI Tripathi And Others [1993 (4) TMI 1 - SUPREME Court] - the beneficial share b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomenclature of the trust suggests, the shares of the beneficiaries are indeterminate and trust income is distributed among the respective beneficiaries at the end of the year as per the discretion of trustees. The said FVT submitted its return of income at Pune, offering the exempt dividend income. As already mentioned the private discretionary trust income is assessed at maximum marginal rate u/s 164 in the hands of the trustees as provided by sec. 164 vide assessment order for impugned AY dated 23-03-2011. 3.1. In this year the assessee received her beneficial share out of said dividend income of the trust, amounting of Rs. 1 crores and claimed it as exempt u/s 10(34) having been already taxed in the hands of the trustees u/s 164. During the course of assessment proceedings ld. AO however, issued show cause notice to explain how this income was claimed as exempt. Assessee vide its reply dated 2-12-2011 submitted as under: Brief note on the taxability of Rs. 1 Crore received from Fairvalue Trust along with the copy of Trust Deed and specific provision under which this income has been treated as exempt in the hands of the recipient is desired. A detailed note on distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idual beneficiaries on whose behalf and for whose benefit the income was receivable were indeterminate and u/s 164(1), the tax was already charged to tax by department at the maximum marginal rate in the hands of the trustees as representing the beneficiaries. Thus the option of taxing the trust income in the hands of trustees stands already exercised by the department. (ii) Apart from exercising the option of directly taxing the income in the hands of FVT, in the case of another beneficiary of the same trust Shri Atul Kirloskar the beneficial share from the same trust has been exempted by accepting assesses claim that the income has been taxed in the hands of the trust. This is demonstrated by the return, computation and assessment order in Atul Kirloskar s case u/s 143(3) dated 1-12-2011. Both the assessment orders i.e. Trust and Shri Atul Kirloskar are passed before assessee s order. The action of assessing trust and beneficiaries income should be uniformly and correctly exercised for all the beneficiaries in a uniform manner and not at the whim and fancy of deferent officers assessing them. (iii) The income distributed by the trust was the income received by the trustees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct assessment has been made on the beneficiaries. The exercise of option has been already exercised by department, which cannot be reviewed under any provision of the Act. In the garb of interpretation of sec 164 and 166 which is contrary to CBDT circulars and settled legal position AO has taken a somersault and added the income once again in the hands of assessee. This has resulted in double assessment of the same very income which is wholly illegal, unsustainable and unwarranted and also contrary to the Board's Circular No. 157 (F.No.228/8/73-IT(A-II) dated 26.12.1974 specifically provided for this situation. (viii) Without prejudice and even assuming for the sake of argument that the income was directly taxable in the hands of the beneficiary [appellant], the learned A.O. failed to appreciate that the income distributed amongst the beneficiaries comprised of exempt dividend income of Rs.20.84 crores. This income would be wholly exempt u/s 10(34) in the hands of beneficiaries also. Even if the fantastic interpretation of AO is considered in any event the deduction u/s 10(34) in respect of exempt dividend income cannot be denied. (ix) The various decisions referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust would show the trust had derived only dividend income which was exempt from tax u/s 10(34) which has been distributed among beneficiaries. Even for the sake of argument if this income is again directly sought to be assessed in the hands of the beneficiaries, the same is still covered by exemption u/s 10(34). The income whether assessed in the hands of the trust or beneficiaries, retain the same character as assessable in the hands of the trust. While directly assessing the beneficiaries in respect of the income received by them on distribution, the amount of dividend included therein is eligible for deduction/exemption in the same manner as would have been done had the trustees been assessed in respect of such amount. In this connection, reliance is placed upon the decision of Hon'ble Gujrat High Court in CIT vs. (1) Dr. Anand Sarabhai, (2) Executors and trustees of Dr. Vikram Sarabhai reported in (1998) 231 ITR 529 which is on all the fours with the case of the appellant. Therefore, even if the income is to be taxed in the hands of the appellant, the same would be Nil in view of the exemption u/s 10(34) of dividend income. The appellant's claim is that even if the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted by him and the reference to sec. 56(2) was held to be inapplicable. 3.6. Aggrieved, assessee is before us. 4. Ld. Counsel for the assessee vehemently argues that it has not been disputed by department that the FVT has been assessed to tax at Pune prior to the assessment of the assessee. This clearly indicates that the department has already exercised the option u/s 164 of assessing the trust income in the hands of the trust/ trustees at the maximum marginal rate as provided u/s 164. Once that option is exercised by revenue then in the case of all the beneficiaries its consequence will apply as a natural corollary. There is absolutely no substance in the stand of the lower authorities that even though the entire income of the trust has been assessed in the hands of the trustees at maximum marginal rate still the option of sec. 164 remains open with the department to again assess the beneficial share at the will and desire of the AO in case of each beneficiary respectively. The stand is self contradictory, illegal and against the circulated stand of the CBDT. 4.1. Thus, FVT having already been assessed at the maximum marginal rate and the consequent assessment in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beneficiaries . 4.5. Further reliance is placed on: (i) Jyotindera Sinhji vs. S.L. Tripathi others (1993) 201 ITR 611 (SC), holding that revenue has option to tax income in the hands of either the beneficiaries or trustees. Double taxation of income in the hands of trust and beneficiary is not permissible. (ii) Nagappa (CR) Vs. CIT (1969) 73 ITR 626, holding that there cannot be assessment of the same income once in the hands of the representative assessee and again in the hands of beneficiary. 4.6. It is alternatively submitted that assuming for the sake of argument that the assessment was made u/s 166, the income received on distribution by the trust included dividend income exempt u/s 10(34) of the I.T. Act. The beneficial income to assessee being part of dividend income only same was entitled to the exemption u/s 10(34) which has not been allowed by lower authorities despite express provisions. 4.7. Section 4 of the Income-tax Act is chargeable section and provides that income tax shall be charged for any assessment year at the prescribed rates in respect of total income of the previous year of every person. Section 5 defines the scope of total income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) and further relied upon the ratio of decisions in the cases of Moti Trust Vs. CIT 236 ITR 37(SC); and CIT Vs. Dr. Anand Sarabhai Trust 231 ITR 524 (SC). 6. We have heard rival contentions and perused the material available on record. The fact that the FVT was already assessed by the department at Pune at the maximum marginal rate has not been denied by the ld. DR. Similarly, the assessment in the case of another beneficiary of the same trust Shri Atul Kirloskar having been finalized u/s 143(3) on 1-12-2011 i.e. prior to the assessee s assessment dated 29-12-2011 also has not been disputed. In his case, the beneficial share from the same trust has been allowed to be exempt being already assessed in the hands of the trust. 6.1. In these circumstances, in our considered view it clearly emerges that the department has already exercised the option to tax the trust income directly in the hands of trustees in terms of sections 161 to 166. The fact that in the case of another beneficiary of the same trust for the same year i.e. Shri Atul Kirloskar his beneficial income from trust has been held to be exempt as not includible having been taxed in the hands of trust. Both these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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