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TMI Blog2004 (9) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... 0A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), inter alia, contending that: (i) the trustees of the assessee trust are not to be assessed in the status of "individual"; (ii) the assessee is not entitled to claim deduction under section 80L of the Act as an "individual" as also is not entitled for capital gain as is applicable to an "individual"; and (iii) the income of the assessee trust under the head "income from other sources" is to be taxed at the maximum marginal rate as per section 164(1) of the Act. The facts are taken from ITA No. 86 of 2004. For the assessment year 1995-96, a return of income was filed on August 30, 1995, declaring total income of Rs. 17,85,270 including long term capital gain of Rs. 17,50,690. The case was selected for scrutiny and a notice was issued under section 143(2) of the Act to the assessee. The assessee claimed the status of "resident individual". However, the assessee was assessed in the status of "AOP (Trust)" and the maximum marginal rate of tax was applied. Deduction claimed under section 80L was disallowed. Application under section 154 filed by the assessee, inter alia, requesting for being assessed in the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me has been computed in accordance with the other provisions of the Act. Since the determination of the status of an assessee is a part of the process of computation of income, it is necessary to look into the general principles for determining whether the status of the trustees can be taken to be "association of persons" or "individual". Section 164(1) only lays down the rate of tax applicable to discretionary trust. It is not concerned with the manner of computation of the total income. This section, therefore, is required to be taken into consideration only after the income has been computed in accordance with various other provisions contained in the Act. It is in this background that first we will have to determine the status. It is required to be noted that the Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546 while considering what constitutes an "association of persons" held that the words "association" means "to join in common purpose" or "to join in an action". Therefore, "association of persons" as used in section 2(31)(v) of the Act means an association in which two or more persons join in a common purpose or common action. The association must be one, the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Division Bench of the Calcutta High Court in CIT v. Shri Krishna Bandar Trust [1993] 201 ITR 989. According to the Division Bench, section 164(1) only lays down the rate of tax applicable to a discretionary trust. It is not concerned with the manner of computation of total income. Thus the real question is the manner of computation of total income and after the income is computed, tax is to be levied. On behalf of the Revenue it was submitted that reading section 164(1) of the Act tax is to be charged on the relevant income or part of the relevant income at the maximum marginal rate, and according to the Revenue the proviso to section 164(1) of the Act cannot be said to be applicable. While on the other hand, on behalf of the assessee, it is pointed out that the trust is created while carrying on business exclusively for the benefit of persons employed in the business. Therefore, clause (iv) of the proviso to sub-section (1) of section 164 of the Act would be attracted and if that is so, the question arises as to how total income after computation of such trust is to be charged. It is in this background the submission made by learned counsel that in all cases the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only the first set of beneficiaries who may receive the income are the class envisaged by sub-section (1) of section 164 and not the type of beneficiaries who may, ultimately get the accumulated income on distribution is not warranted by the wording of the provision which includes the entire class of beneficiaries on whose behalf or for whose benefit the income is receivable by the trustee. The apex court at page 62 observed that "Be that as it may, we have to answer the question, whether the second category beneficiaries are not beneficiaries' within the meaning of proviso (i) to section 164(1) on the above facts" and the court pointed out that the second category beneficiaries are also beneficiaries as rightly pointed out by the High Court. The important aspect which the court considered at page 62 is as under: "The trustees are expressly entitled to deposit the monies of the trust fund in any firm or joint stock company in which any one or more of them is/are partners/directors/shareholders, which means that the trustees could as well have decided not to distribute a single pie but invest all the income and corpus fund for the full period of eighteen years in their own firms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for one purpose cannot be utilised for a different purpose. Section 164 does not provide how the total income of the representative assessee is to be computed. Therefore, obviously, the provisions relating to computation of income would be applicable even in a case where the representative assessee has to be assessed under section 164 of the Act. Therefore whether an assessee, including a representative assessee, would be entitled to the benefit of deduction under section 80L or not, will have to be decided by reference to the provisions contained in that section." The Supreme Court in N.V. Shanmugham and Co. v. CIT [1971] 81 ITR 310 has held that a firm of persons should not make them an association of persons. In that case the question which had arisen was whether profits should be assessed in the hands of the receivers in the status of an "association of persons". The Supreme Court held that they were only representative assessee and the fact that there were three receivers did not make them an association of receivers. The three receivers jointly represented the real owners. The Supreme Court, after referring to its earlier decision in CIT v. Indira Balkrishna [1960] 39 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 (Guj), pointed out that it is clear that merely because a combination of individuals receives income jointly without anything further, they cannot be regarded as an association of persons. In CIT v. Deepak Family Trust No. 1 [1995] 211 ITR 575 (Guj), the court's attention was drawn to the Supreme Court decision in WTO v. C.K. Mammed Kayi [1981] 129 ITR 307 wherein it has been held that the expression "individual" in section 3 of the Wealth-tax Act, 1957, includes within its ambit Mappilla Marumakkathayam tarwads and they are well within the purview of the taxing provisions. Even after their inclusion in the term "individual" section 3 is not violative of article 14 of the Constitution of India. In that case, the Supreme Court referred to its earlier decision in CIT v. Sodra Devi [1957] 32 ITR 615 wherein it is held: "the word 'individual' has not been defined in the Act (Indian Income-tax Act, 1922) and there is authority for the proposition that the word 'individual' does not mean only a human being but is wide enough to include a group of persons forming a (natural) unit". This decision, though not directly on point, does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een computed in accordance with other provisions of the Income-tax Act, 1961. Since determination of the status of an assessee is part of the process of computation of income, it is necessary to look into the general principles where the status of the trustee of a discretionary trust can be taken to be "association of persons" or "individual". The Division Bench after examining the case of Deepak Family Trust No. 1 [1995] 211 ITR 575 (Guj) and other decisions as also the provision of the Act held that the representative assessee in the case of discretionary trust must be regarded as an "individual" and thus would be entitled to the benefit of deductions under section 80L and the court relied for this purpose on various decisions some of which we have referred to in the earlier part of the judgment. In the case of CIT v. Venu Suresh Sanjay Trust [1996] 221 ITR 649 the Division Bench pointed out that determination of total income depends on the various provisions of the Income-tax Act which takes into consideration the deductions to be provided under section 80L as well. The charge of tax comes into play after the income has been determined. The court pointed out that "in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case in respect of rates of tax of income, considering proviso (iv) to section 164(1). It is submitted by the assessee that under section 112 of the Act the trust is liable to pay as an individual at 20 per cent. The taxable income will have to be determined after deductions are allowed as per the law. Chapter XII refers to determination of tax in certain special cases. In view of what we have stated hereinabove, considering all the decisions, the assessee will be treated as "individual" in the instant case. When in the tax matters which are governed by all India statute, there is a decision of another High Court on the interpretation of a statutory provision, it would be a wise judicial policy and practice not to take a different view barring, of course, certain exceptions, like where the decision is sub silentio, per incuriam, obiter dicta or based on a concession or takes a view which it is impossible to arrive at or there is another view in the field or there is a subsequent amendment of the statute or reversal or implied overruling of the decision by a higher court or some such or similar infirmity is manifestly perceivable in the decision. It must be remembered that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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