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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 ..... ust as such is not having a persona different or distinct from that of the beneficiary, it naturally flows that such income or receipt is not received without consideration. What is taxable u/s.56(2)(vi) of the Act, is receipt of money without consideration. We are therefore of the opinion that money received by the assessee from various trusts could not have been taxed u/s.56(2)(vi) of the Act. At best it could have been considered under the same heads in which the concerned trusts had received the income. 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. 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. It is true that the amounts paid to the assessee by various trusts were out of the balances which remained after paying taxes. However, if the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions made and the records available, held that the clauses in the various trust deeds established the trust to be discretionary trusts. As per this Tribunal in the remand report AO had also admitted that the trusts were discretionary trusts. Tribunal observed that though there was a connection of employment between the settler of the trusts and the assessee, there was no direct nexus between the payment effected by the trusts to the assessee. Thus as per the Tribunal, the amount received by the assessee would not fall within the meaning of profits in lieu of salary. However with regard to the alternative finding of the CIT (A) that the same would be chargeable u/s.56(2)(vi) of the Act, this Tribunal held that CIT (A) ought have issued a show-cause notice to the assessee and sought her explanation before coming to such a conclusion. The Tribunal therefore remanded the issue of taxability of the sum u/s.56(2)(vi) of the Act, back to the CIT (A) for consideration afresh. 05. Accordingly, CIT (A) took up the issue once again. Submission of the assessee before the CIT (A) was that the amounts received by her from the trusts were nothing but encashment of pre-existing rights as a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal 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) of the Act. In his opinion, a discretionary trust had to be considered as Association of Persons for the purpose of charging tax. CIT (A) also noted that assessee s contention regarding double taxation of both the trust and the beneficiary could not be accepted. He cited an example of dividend income which was received by the company after paying the tax on profits. As per the CIT (A) such dividend was again taxed in the shareholder s hand. CIT (A) noted that the income of the trust had passed on to the assessee and just because the trust had paid tax would not mean that such income was exempt in the hands of the beneficiary. In so far as pleading of the assessee that tax paid by the trust / fund should be given credit in the hands of the beneficiary employees, CIT (A) was of the opinion that this also could be not accepted since tax due from the assessee was in her own capacity as a separate taxable entity. He thus rejected the contention of the assessee and held that the amount was taxable u/s.56(2)(vi) of the Act. 08. Now before us, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 by virtue of the judgment of Hon ble Apex Court in the case of Managing Trustees, Nagore Durgha (supra). Thus as per the Ld. AR, trustee always received income on behalf of the beneficiary and the same income when distributed amongst the beneficiaries could not be taxed in the hands of the latter. 10. For buttressing his stand further. Ld. AR submitted that the AO was very well aware that assessments of the trust stood completed before the assessment was made on the assessee u/s.143(3) of the Act. In any case, as per the Ld. AR, if at all the assessee was found to be taxable for the income received from the trust, then credit should be given for the proportionate share of her tax, in the tax paid by the respective trusts. As per the Ld. AR, tax liability of the trustees could not be more than the aggregate liability of the beneficiaries. Ld. AR submitted that taxing the amount distributed by the trust to the beneficiary would result in taxing the same income twice. Reliance was placed on the judgment of Hon ble Apex Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 share of .beneficial interest . The assessee had been credited with ₹ 13,635/- as her share of beneficial income. The said in come is excluded from the above Computation of Total Income as the Income of the said Trust had suffered tax at maximum marginal rate. The assessing officer came to the conclusion that there is no change of opinion by the assessing officer. That the Department has not taken any stand prior to the reassessment. That the mere processing of a return on an intimation being sent does not amount to taking opinion. Section 143(1) prohibits taking an opinion and requires the Department to compute the taxes collectable where two opinions are possible: He was of the opinion that the provisions of Section 161 provides only for taxing the income in the hands of the representative assessee whereas Section 166 enabled the assessing officer to assess the beneficiary directly. That the choice to assess either the Trustee or the beneficiary directly can be exercised by the assessing officer. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 officer is not authorized in law to re-exercise his discretion under section 166. (b) It is to be further noticed that the trustee has filed the returns disclosing the beneficial interest of the beneficiary and the same has been assessed to tax arid tax has been paid thereon. Hence, the beneficial income has been taxed. Under these circumstances, the assessing officer has committed an error in bringing to tax the very same amount that has since suffered tax in the returns of the Trustee. It needs no elaboration that income cannot be taxed twice. The very income that has already suffered tax in terms of the return filed by the Trustee, is now sought to be taxed in the hands at the beneficiary. This is not permissible. Hence fo, this reason also, the order passed by the assessing authority cannot be sustained. Consequently, the view taken by the Appellate Authority and the Tribunal is just and proper and in accordance with law. (c) In the returns filed under Section 139(1) by the beneficiary a not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Circular therefore very dearly states that even though the assessing officer has a discretion under Section 166, the same can be invoked only at the time of raising an initial assessment either by the Trust or the beneficiary and whichever may be beneficial to the Revenue. Having once exercised the option it will not be open to the ITO to assess the same income for the same period in the hands of other persons namely the beneficiary or the Trustee. As stated earlier, having accepted the assessments made by the Trust and the beneficiary, the exercise of discretion as vested under Section 166 of the Act is not available to the assessing officer once again Moreover the sad income has suffered tax by the returns filed by the trustee under Section 161. The same income is now sought to be taxed in the hands of the beneficiary in the returns filed under section 139. Under these circumstances, there has been a gross violation of the Circular issued by the Board. In the facts and circumstances of this case, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Jhaveri Stock Brokers (P) Ltd [291 ITR 500]. It was held by their Lordships that processing of return u/s.143(1) of the Act, was only clerical or ministerial act, and could not be considered as making of an assessment. 15. A reading of the judgment of Hon ble jurisdictional High Court in the case of Smt. Indramma (supra), relied on by the assessee, clearly show that their Lordships has upheld the power of the AO to make a choice to assess either the trustee or the beneficiary by virtue of Section 166 of the Act. In the case before us, since intimation u/s.143(1) of the Act, was issued to the trust after commencing of proceedings u/s.143(2) of the Act on the assessee, we can definitely say that the option stood exercised by the AO to assess the assessee and not the trust. It was not the case of reopening of assessment in terms of Section 166 of the Act. What the Hon ble jurisdictional High Court had laid down was that AO, once he had exercised an authority to assess either the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative 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 respect of the income of the beneficiaries under section 161(1), that income could not by virtue of section 161(2) be assessed in the hands of the beneficiaries was contrary to the plain terms of section 166. Section 161(2) did not purport to deny the Income-tax Officer the option of assessing the income in the hands of the person represented by the representative assessee. It merely enacted that when a representative assessee was assessed to tax in the exercise of the option of the Revenue, he could be assessed only under the provisions of Chapter XV and under no other provisions of the Act. It was pointed out that section 161(2) had been enacted to remove the conflict of judicial opinion which had arisen in regard to the interpretation of the analogous provisions of sections 40 and 41 of the 1922 Act. The observations of Chagla C. J. of the Bombay High Court in the case of CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187, 195, which dealt with the scheme of section 41 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 to be notionally divided into 175 equal units, of which 166 units were allotted to the relations mentioned in the Second Schedule to the trust deed in the manner specified therein, the number of units allocated to each relation being mentioned there. The Wealth-tax Officer assessed only the value of 13 units in the hands of the trustees and the value of the other units in the hands of the respective beneficiaries. The matter reached the High Court upon a reference by the Income-tax Appellate Tribunal and thereafter this court. The question that was considered was whether assessment could be made on the trustees under section 3 apart from and without reference to section 21. The answer was seen to depend upon the true meaning and effect of sections 3 and 21 and the interrelation between them. Section 3 was the charging section and it levied the charge of wealth-tax on the net wealth of the assessee on the relevant valuation date. Net wealth was defined in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing 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 mandatory force and effect to the provisions of section 21. The court noted that in C. R. Nagappa's case [1969] 73 ITR 626, the observations of Chagla C. J., quoted above had been approved and the court went on to state that the same consideration must apply in the interpretation of section 161(2). It had, therefore, to be held uncontrovertible that whenever a trustee was sought to be assessed that assessment had to be made in accordance with section 21. It had also to be noted that the assessment which was to be made on a trustee under section 21 was an assessment in a representative capacity. It was really the beneficiaries who were sought to be assessed in respect of their interest in the trust properties through the trustees. Section 21 provided that in respect of the trust properties held by a trustee, wealth-tax could be levied upon him in the like manner and to the same extent as it would be leviable on the beneficiary for whose benefit the trust properties were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 rendered under section 41(1) of the 1922 Act had a bearing upon the interpretation of section 21(1) of the Wealth-tax Act. 17. Thus we do not have any hesitation in upholding the order of the CIT (A) that the AO had the power to assess the assessee on the amounts received by him from the trust as a beneficiary therein. 18. Now the question that remains to be answered is whether the amount received by the assessee from the discretionary trust could be considered as his income u/s.56(2)(vi) of the Act. Section 56(2)(vi) of the Act, is reproduced hereunder : 56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head Income from other sources , namely:-- (i).... (ii)... (iii).. (iv)... (v)... (vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 41 of the Act. The common thread that posses through all of them is that they function legally or factually for others, they manage the property for the benefit of others. That the technical doctrine of vesting is not imported in the section is apparent from the fact that a trustee appointed under a trust deed is brought under the section though legally the property vests in him. In the case of a Muslim Wakf the property vests in the Almighty; even so the mutawallis are brought under the section. A reasonable interpretation of the section is that all the categories of persons mentioned therein are deemed to receive the income on behalf of another person or persons or manage the some for him or their benefit. None of them has any beneficial interest in the income; he collects the income for the benefits of others, 20. Thus what was received by the assessee as a beneficiary from the thirteen trusts were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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