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TMI Blog2017 (5) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... he trust. When the beneficiaries have no income to be taxed, then how will the representative assessee become taxable? But in the present case, the names of the beneficiaries are not specified in the trust and the individual shares of the beneficiaries are not ascertainable on the date of the institution of the trust. Therefore, the assessee cannot be categorised itself as a determinate trust and find no reason to interfere with the orders of the ld. CIT(A) on this issue - Decided against assessee. Taxability of interest income in the hands of the assessee - Held that:- Since the Assessing Officer has observed that the above beneficiaries have been transferred to TSGF subsequent to the interest earning period and therefore, the interest income cannot be the income of TSGF. The Assessing Officer has further observed that the interest was earned while the assessee held the entire funds as its own before transfer to TSGF. Hence, the income passed on to TSGF was only application of income earned by the assessee and therefore, the same cannot be allowed as expenditure. The assessee has not filed any details of having transferred the interest income to TSGF so that the assessee cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to take cognizance of the fact that while the learned AO verified whether tax is paid on the interest income relating to 17 beneficiaries remaining with the Appellant, the learned AO did not verify whether tax is paid on the interest income relating to the remaining 639 beneficiaries who have opted to rollover from the Appellant to TVS Shriram Growth Fund. Therefore, the learned CIT(A) ought to have held that the order passed by the learned AO was not in conformity with the directions of the Hon'ble Income-tax Appellate Tribunal, Chennai in ITA No.276/Mds/2014, dt. 2.9.2015 3. The learned CIT(A) ought to have appreciated the fact that although TVS Shriram Growth Fund is not a beneficiary in the Appellant trust, the interest income in relation to the same 639 beneficiaries who have opted to roll over of their capital commitment from the Appellant to TVS Shriram Growth Fund, has also been assessed to tax in the hands of TVS Shriram Growth Fund as its income by the learned AO vide his order dt.11.3.2016. Thus when the income is offered by the beneficiaries on which tax have already paid the taxes, taxing the same income in the hands of TVS Shriram Growth Fund and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the assessee is in further appeal before the Tribunal. 5. We have heard both sides, perused the materials available on record and gone through the orders of authorities below. We have also perused the details filed in the form of paper book, as filed before the authorities below. Adverting to first ground raised in the appeal of the assessee the facts are that the assessee is an AOP Trust, which was formed to receive unit contributions from High Net worth Individuals [ HNls in short] towards the Capital amount committed by them as per the terms of Contribution Agreements and provided return on such investments. The assessee Trust was able to mobilize an amount of ₹.40,35,34,375/- from HNls. Subsequently, TVS Shriram Growth Fund was formed as a SEBI registered VCF. After the registration of TSG Fund with SEBI, it was felt desirable to transfer the commitments from the assessee fund to TSG Fund. The roll-over of commitments was undertaken in most of the cases based on the expression of consent. As on 31/03/2009, all but 17 investors had expressed their consent to roll-over commitment to TSG Fund. The assessee Trust, therefore, out of its earnings from bank deposits and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thodology for determination of share of each Beneficiary; such trust shall be a determinate trust. 5.3 As per section 164(1), if the trust does not satisfy the above test of determinacy, then the income of trust would be chargeable to Maximum Marginal Rate (MMR), subject to certain exceptions as laid down in the section. However, if the trust satisfies the test, then the trust will be treated as pass through conduit subject to the provisions of section 160 of the IT Act. By virtue of section 160 of the IT Act, the ITD has an option to assess the tax in the hands of the beneficiary or in the hands of the trustee, as the case may be. Section 160 lays down the meaning of representative assessee who shall be deemed to be an assessee for the purposes of the IT Act. Section 160(1)(iv) states that trustee(s) appointed under a trust will be treated as representative assessee, in respect of income received or income which the trustee is entitled to receive on behalf of any of the beneficiaries under a trust. 5.4 Further, section 161 read with section 160 (1) (iv) of the IT Act, a trustee of a trust is treated as a representative assessee, and the representative assessee is liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10(23FB) of the Act. In view of the above, the ld. CIT(A) upheld the findings of the Assessing Officer that the assessee is an indeterminate trust. 5.8 Admittedly, on the date of institution of the Trust deed, the identities of the contributors/beneficiaries are unknown. Therefore, the assessee trust cannot be held as a Determinate Trust. Further, before the Assessing Officer, the assessee s AR, vide his letter dated 09.12.2015, has emphasized the assessee is not governed by the provisions of section 10(23FB) of the Act. Therefore, the assessee cannot get pass through status. Therefore, the ld. CIT(A) has held the assessee is an indeterminate trust. 5.9 The decision of the Madras High Court in the case CIT v. P. Sekar Trust dated 15th April, 2009 is not applicable to the facts of the present case, because, in it, the beneficiaries are incorporated on the day of institution of the trust deed and moreover, they did not receive any income in that year. Further the individual share of the beneficiaries is ascertainable on the date of the trust. When the beneficiaries have no income to be taxed, then how will the representative assessee become taxable? But in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹.39,60,84,375/- (639 Contributors) was transferred by the assessee to TVS Shriram Growth Fund in 6 branches from 18.09.2008 to 31.03.2009 for the purpose of better synergy and higher returns. The assessee has retained an amount of ₹.64,50,000/- (17 Contributors) for its operational activities as on 31.03.2009. In the first round of litigation, the assessee has contended before the Tribunal that whatever interest income received by the assessee has already been transferred to the beneficiaries and therefore, the entire interest income of the 639 beneficiaries should not be taxed in the hands of the assessee. Accordingly, the Tribunal remitted the matter to the file of the Assessing Officer for verification. Admittedly, the assessee has transferred 639 beneficiaries to TSGF from 18.09.2008 to 31.03.2009. Since the Assessing Officer has observed that the above beneficiaries have been transferred to TSGF subsequent to the interest earning period and therefore, the interest income cannot be the income of TSGF. The Assessing Officer has further observed that the interest was earned while the assessee held the entire funds as its own before transfer to TSGF. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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