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TMI Blog2016 (6) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant previous year. Claim of the assessee before the AO was that the trust concerned had paid taxes on the income declared by it and the sum of Rs. 91,01,821/- received by her was distribution of the surplus among the trust beneficiaries who were employees of LEFAT. AO however did not accept this contention and held that assessee being an employee of LEFAT the sum received from the trust should be considered as emanating from her employer-employee relationship with LEFAT. As per the AO, it was on account of employer-employee relationship that the money was received by the assessee from the various trusts floated by LEFAT. He held it to be profits in lieu of salary u/s.17(3) of the Act and brought it to tax. 03. Assessee had moved in appeal before the CIT (A) who upheld the order of AO. CIT (A) also held that in case it was not considered as income taxable u/s.17(3) of the Act, it was definitely taxable u/s.56(2)(vi) of the Act. 04. Thereafter assessee moved this Tribunal against the order of CIT (A). This Tribunal after considering various submissions made and the records available, held that the clauses in the various trust deeds established the trust to be discretionar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trist v. CIT (A) [50 ITR 693]- Bom HC Argument of the assessee was that the trust and beneficiaries were not two different entities and for this reliance was placed on the judgment of Hon'ble Supreme Court in the case of CIT v. Managing Trustee, Nagore Dargha [57 ITR 321]. Assessee also relied on circular No.549, dt.31.10.1999, which inter alia stated that when notice u/s.143(2) of the Act was not served with the time specified in the said section, an assessee could consider the return filed by it as final. In other words, contention of the assessee was that no notice having been served on the trusts before the expiry of the time limit specified in Section 143(2) of the Act, the returns filed by the trust had become final. Thus as per the assessee, assessments were completed on the trusts before notice u/s.143(2) of the Act, was served on the assessee. 07. CIT (A) after going through the contention of the assessee, relying on his predecessor's order, held that the judgment in the case of Smt. Indramma (supra) of the Hon'ble jurisdictional High Court was not applicable on facts. As per the CIT (A), income received by the trustees of various trusts fell within Section 164(1)(iv) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Trustees of Gargiben Trust & Others (supra), had also upheld such option. Relyng on the judgment of Hon'ble Mumbai High Court in the case of Chaturbhuj Raghavji Trust (supra), Ld. AR submitted that it mattered little as to whether a different AO was assessing the trust and the beneficiary. 09. Continuing his arguments Ld. AR, submitted that a question was raised before the Hon'ble jurisdictional High Court in the case of Smt. Indramma (supra), whether an assessment could be considered as passed on an assessee on filing of the return and on issue of intimation u/s.143(1) of the Act, Ld. AR pointed out that the Hon'ble jurisdictional High Court had answered this question in the affirmative. Ld. AR reiterated the contention taken before the CIT (A) that the trustees had to be assessed in the like manner and to the same extent as it would be leviable upon the beneficiaries. According to the Ld. AR, view taken by the CIT (A) that Section 164(1)(iv) of the Act applied was incorrect, since case of the assessee fell under Section 161 of the Act. Further as per the Ld. AR, view taken by the CIT (A) that trust and beneficiary were two legal entities were incorrect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period. She had appended a note to such return wherein it was mentioned that the share of the beneficiary income was not included since the said income was assessable in the hands of the trustee. Facts are better encapsulated from para 11 of the judgment which is reproduced hereunder : 11. The returns filed by the Trustee under Section 161 in respect of the assessee beneficiary was assessed. For the very assessment year the assessee beneficiary filed her return under Sect ion 139 which was al so assessed. However, the assessee has appended a note to the returns filed by her as follows: "NOTE ON EXCLUSION 1. The assessee is a beneficiary in M/s. A.S.K. Bros. Family Trust, No. 44, Race Course Road, Bangalore - 560 001 bestowed with 54/411 share of beneficial interest . The share of beneficial income for the Assessment Year 1992-93 has been excluded from the above computation of Total Income as the said income is assessable in the hands of the Trustee in respect of each of the beneficiary in terms of Sec 161(1) of I.T. Act, 1961. 2. The assessee is 8 beneficiary in M/s. A.S. Chinnaswamy Raju Bros. Family Trust No. 44, Race Course Road, Bangalore -1 bestowed with 50/420 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing officer to reopen the assessment in terms of Section 166 of the Act . The citations relied upon by the Revenue to contend that the assessing officer has the power under Section 166 to assess either the beneficiary or the Trustee does not require any elaboration. The returns have been filed for the year 1992-93 both by the Trustee as well as b) the beneficiary. The assessments have taken place for both the returns. Having accepted the returns filed by making an assessment, the assessing officer cannot subsequently invoke Section 166 of the Act and choose to reassess either the Trust or the beneficiary. It is undisputed that the assessing officer has an authority under Section 166 to exercise his discretion to assess either the Trustee or the beneficiary, provided however, the same discretion has not been exercised earlier . In the present case , the assessment of the Trustee as well as the beneficiary having been concludec1the discretion is not available to the assessing officer at this point of time. The discretion as envisaged wider Section 166 could have been exercised prior o any assessment by the assessing officer. Having assessed both the returns, the assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )/166 of the income-tax Act, 1922/1961. In spite of e clear instructions to the effect that neither section 41 of the Income-tax Act, 1922, which gave an option to the department to tax either tie representative assessee or the beneficial owner of the income nor the parallel provisions of the Income- tax Act , 1961, contemplated assessment of the same income both in the hands of the trustees and the beneficiaries, instances have come to the notice of the Board of such double assessment. 2. According to the scheme of the Income-tax Act, 1961, even as it was under the Income-tax Act of 1922, the general principle is to charge al l income only once. The Board desire to reiterate the earlier instructions in this regard. In order that there is no loss of revenue the Income-tax Officer should keep this point in view at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to the revenue Having exercised his option once, it will not be open for the Incometax Officer to assess the same income for that ITA.1594/Bang/2014 Page - 15 assessment year in the hands of the other Person (ie, the beneficiary or the trustee).' The Circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 100. Computation of income in the case of one of the trusts, namely, Lintas Employees Sports Trust, is taken as an example. It gives a detailed computation of the long-term and shortterm capital gains and income from other sources as under : The return filed by the trustees of Lintas Employees Sports Trust, does not disclose the extent of beneficial interest of the beneficiary in such income. Ld. AR has not placed anything on record to show that assessee in her return or compilation had disclosed the receipt of money from the various discretionary trusts, claiming it as exempt or not taxable. Thus there were at least two distinctive features taking assessee's case out of the compass of the judgment in the case of Smt. Indramma (supra). Proceedings to assess the assessee here on the sum received from the trust had started well prior to intimation u/s.143(1) of the Act was issued to the Trust. As for the argument of the Ld. AR that acknowledgement for filing of return, when there is no issue of notice u/s.143(2) of the Act, could be deemed as an assessment, we are unable to accept. This argument is contrary to the view taken by the Hon'ble Apex Court in the case of ACIT v. Rajesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as representative assessees and, by reason of section 161(2), was incompetent to assess the income in the hands of either the appellant or the beneficiaries. This court held that it was implicit in the terms of section 161(1) that the Income-tax Officer could assess a representative assessee as regards the income in respect of which he was a representative assessee, but he was not bound to do so. He could assess either the representative assessee or the person represented by him, and this was expressly so enacted in section 166. The Income-tax Officer could assess the person represented in respect of the income of the trust property and the appropriate provisions of the Act relating to the computation of his total income and the manner in which the income was to be computed would apply to such assessment. The Income-tax Officer could also assess the representative assessee in respect of that income and limited to that extent and tax could be levied and recovered from the representative assessee to the same extent as it was leviable upon and recoverable from the person represented by him. The contention raised by the appellant's counsel that since the trustees were assessable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the beneficiaries. In CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 (SC), this court was dealing with the provisions of the Wealth-tax Act, 1957, analogous to sections 160 to 166 of the Act and sections 40 and 41 of the 1922 Act. Section 21(1) of the Wealth-tax Act stated that in the case of assets chargeable to tax thereunder which were held, inter alia, by a trustee appointed under a trust deed, wealth- tax "shall be leviable upon and recoverable from the . . . . trustee . . . in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf the assets are held. . . . Sub-section (2) stated that nothing contained in sub-section (1) would prevent either the direct assessment of the person on whose behalf the assets were held or recovery from him of the tax payable in respect thereof. This was a case in which the late Nizam of Hyderabad had created several trusts. For the purposes of the judgment it was sufficient that the provisions of what was called "the family trust" were referred to. By the trust deed, the Nizam had transferred a corpus of rupees nine crores to the trustees t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft no room for doubt. For this purpose, it was assumed that the trustee of a trust could be assessable in respect of the trust properties under section 3 even in the absence of section 21. But section 3 imposed the charge of wealth-tax subject to the other provisions of the Act and these other provisions included section 21. Section 3 was, therefore, made expressly subject to section 21 and had to yield to that section in so far as the latter made special provision for the assessment of a trustee of a trust. Section 21 was mandatory in its terms. It was clear on a combined reading of sections 3 and 21 that whenever assessment was made on a trustee, it had to be made in accordance with the provisions of section 21. Every case of assessment on a trustee would necessarily fall under section 21 and he could not be assessed apart from and without reference to that section. To take a contrary view, giving option to the Revenue to assess the trustee under section 3 without following the provisions of section 21, would be to refuse to give effect to the words "subject to the other provisions of this Act in section 3", to ignore the maxim "generalia specialibus non derogant" and to deny man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stee would be assessable in respect of their total interest in the trust properties. Obviously, in such a case, it was not possible to make direct assessment on the beneficiaries in respect of their interest in the trust properties, because their shares were indeterminate or unknown and that is why it was provided that the assessment could be made on the trustee as if the beneficiaries for whose benefit the trust properties were held were an individual. The beneficial interest was treated as if it belonged to one individual beneficiary and assessment was made on the trustee in the same manner and to the same extent as it would be made on such fictional beneficiary. In this case too it was the beneficial interest which was assessed to wealth-tax in the hands of the trustee. It may be added that this court in the case of CWT v. Kirpashankar Dayashanker Worah [1971] 81 ITR 763 (SC), has held that section 21(1) of the Wealth-tax Act, 1957, was analogous to section 41(1) of the 1922 Act, the only difference being that whereas the former dealt with assets, the latter dealt with income and, subject to this difference, the two provisions were identically worded. Hence, the decisions ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee without consideration. The question before us is whether the money received by the assessee from thirteen trusts as a beneficiary could be considered as amounts received without consideration. In a trust, whether discretionary or otherwise, the trustees hold the property and income for the benefit of the beneficiaries. Hon'ble Apex Court in the case of Managing Trustees, Nagore Dargha (supra), has clearly held that the trustee or a receiver, managed the property for the benefit of others. Or in other words, the trust as such is not having a separate legal existence, but represents only its beneficiaries. Income of the trust is the income of the beneficiary. The trustees in a discretionary trust only have the power to decide when and how much money to distribute among the beneficiaries. This does not mean that they are the owners of the income. At this juncture, the judgment of Hon'ble Apex Court in the case of Managing Trustees, Natore Dargha (supra), is very pertinent. Their Lordships held as under at page 234 of their judgment : In general law the property does not vest in a receiver or manager but it vests in a trustee, but both trustees and receivers are included in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income received from the trust cannot be taxed under the head "Salaries". The income in the hands of the appellant will have the same characteristics as that of the trust. Since the trust has been assessed under the head "capital gains" and income from other sources", the amount received from the trust by the appellant should also be assessed under the same heads. The amount received by the appellant can be apportioned in the same ratio as such income bears to the total income of the Trust." Accordingly we set aside the orders of the CIT (A) and remit the issue regarding appropriate classification of the income in the hands of the assessee and apportioning it in the same ratio as such income bears to the income of the various trusts under different heads, to the file of the AO. AO shall proceed after giving a due opportunity to the assessee. 21. Before leaving, it would be inappropriate if we do not deal with the claim of the assessee that credit for proportionate tax paid by the trust has to be given. What we find is that the thirteen trusts had filed its return of income voluntarily after paying tax. What was done was only a processing of such return u/s.143(1) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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