9911796707
TMI Blog1998 (2) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Supreme Court of India and the Supreme Court, by order dated March 21, 1996, had set aside that earlier order and directed this court to examine the question in the light of the judgment of the Supreme Court in the case of CIT v. Kamalini Khatau [1994] 209 ITR 101. Accordingly, by order dated November 27, 1996, made in Income-tax Application No. 59 of 1989, the Tribunal was directed to furnish a statement of case in respect of the said two questions. When the matter came up for hearing before this Bench, it was noted that the Tribunal had allowed the appeals of the assessee following its earlier decision in Gira Sarabhai (G-12) D Trust for the assessment year 1977-78, but without disclosing the reasons that it adopted. The Tribunal was, therefore, directed to forward the reasoned order on which it had placed reliance and accordingly, a further statement of case was forwarded to this court. The relevant assessment year is 1979-80. The assessee was a discretionary trust constituted under the deed of settlement dated March 27, 1961. Under the said trust deed, it was stipulated in clause (1)(a) that the trustees shall pay in the first instance, all costs, charges and expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following his earlier order dated March 5, 1982, in the case of Gira Sarabhai (G-12) D Trust. The order of the Appellate Assistant Commissioner simply referred to reasons given in the earlier order without indicating those reasons. In the appeal which was carried to the Tribunal by the present assessee and other assessees of the same group, the Tribunal by its order dated March 28, 1985, followed a similar practice of just referring to its earlier order and allowed the appeal in the following terms : "The Appellate Assistant Commissioner has followed his order in the case of Gira Sarabhai (G-12) D. Trust for the assessment year 1977-78. This Tribunal, in the case of Gira Sarabhai (G-12) D. Trust for the assessment year 1977-78, has allowed the assessee's appeals. Therefore, consistently with that decision, these appeals are allowed." Before we proceed to consider the questions which are referred to us, we are constrained to observe that when the Tribunal decides an appeal by relying on its earlier decision which contained reasons and chooses not to even indicate as to what those reasons were in its order, then that earlier decision which contained the reasons ought to be annexe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to the assessee's case. This is the reasoning which was followed, by reference, by the Tribunal for its order dated April 26, 1984, in the appeals of an assessee of the same group and that later non-speaking order was relied upon while allowing the appeal of the present assessee trust "consistently with that decision". Learned counsel appearing for the Revenue contended before us that the provisions of section 164 of the Act were attracted in this case because the trust was a discretionary trust as reflected from the trust deed and the shares of the beneficiaries were indeterminate or unknown. It was submitted that mere passing of a resolution by the trustees to give income for a particular year to one of the beneficiaries will not change the nature of the trust which would none the less remain a discretionary trust and, therefore, the income will have to be assessed in the hands of the trust notwithstanding the payments made to one beneficiary. It was further submitted that Explanation 1(ii) though enacted with effect from April 1, 1980, was only clarificatory in nature and applied to pending cases. It was submitted that even without resorting to that Explanation on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net income arising from the trust funds to only one beneficiary, the two basic requirements which otherwise would have attracted the provision of section 164(1) ceased to exist. It was further submitted that a representative assessee is to be assessed only for the beneficial interest and once payment is made to the beneficiary, there would remain no beneficial interest in the hands of the representative assessee, which could be taxed. Reliance was placed by learned counsel in support of his submissions on a decision of the Supreme Court in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555, which was rendered in the context of a similar provision contained in section 21 of the Wealth-tax Act. It was pointed out that the Supreme Court had held therein that so long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determined, the possibility that the beneficiaries may change, would not take the case out of the ambit of the provisions of seciton 21(1). It was submitted that even in the present case it was possible to say with certainty that at the end of the relevant previous year there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "part of relevant income" and "beneficiaries", respectively), tax shall be charged--- (i) as if the relevant income or part of relevant income were the total income of an association of persons, or (ii) at the rate of sixty-five per cent., whichever course would be more beneficial to the Revenue :" The above provision applies to all representative assessees mentioned in clauses (iii) and (iv) of section 160(1) of the Act if the income for which they were liable as representative assessees, was not receivable on behalf of or for the benefit of any one person or where the individual shares of the beneficiaries were indetermi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust income or deciding upon the portions in which it is to be given to any of the beneficiaries, it can never be inferred that their shares were already fixed or determinate. When the entire income accruing to the trustees is not passed on to the beneficiaries but administrative charges and expenses are paid out of the trust's income, the entire trust income would be assessable in the hands of the trust as a representative assessee and not merely the net income which reaches the beneficiary, just as the entire income would have been assessed in the hands of the beneficiary if he had been in direct receipt of such income. As held by the Supreme Court in Mrs. Arundhati Balkrishna v. CIT [1989] 177 ITR 275, the Income-tax Officer has an option to proceed either against the trustees or against the beneficiary, but in either case, the income to be assessed must be in the same sum. What the trustee receives as the income pertaining to the beneficiary is received by him under an obligation towards the beneficial interest. In most cases, administration charges and expenses have to be met out of the trust's income and it is only the net income which reaches the beneficiary. As no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Bombay High Court in Trustees of Putlibai R. F. Mulla Trust v. CWT [1967] 66 ITR 653, wherein it was held (page 599 of 108 ITR) "Therefore, whatever may be the position . . . as to any future date, so far as the relevant date in each year is concerned, it is upon the terms of the trust deed always possible to determine who are the sharers and what their shares respectively are". In the present case, as noted above, the trust deed creating the discretionary trust scrupulously avoided fixing of the shares of the beneficiaries and left it entirely to the trustees to determine the proportions in which they may be given the net income as also whether to give it at all. Therefore, the decision of the Supreme Court in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust [1997] 108 ITR 555 cannot assist the assessee in the present case. It would be noted that we have reached the above conclusion without any reference whatsoever to the Explanation which was introduced in section 164(1) from April 1, 1980. The Tribunal instead of construing the provision as it applied at the relevant time, unnecessarily resorted to an unwarranted reasoning by referring to the so-ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d when the income is not distributed and when the income is distributed. Therefore, merely from the factum of distribution of income by the discretionary trustees, it cannot be inferred that the shares were not indeterminate. The provisions of section 164 as they stood in the relevant year which was under consideration in Kamalini Khatau's case [1994] 209 ITR 101 (SC) in fact contemplated actual receipt of income by the beneficairy in which event if a higher rate was attracted if the income were to be assessed in the hands of the beneficiary, then such higher rate was to be adopted while assessing the income in the hands of the representative assessee. Even in C. R. Nagappa v. CIT [1969] 73 ITR 626, which the Supreme Court followed in Kamalini Khatau's case [1994] 209 ITR 101 (SC), it was 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. The Revenue, therefore, had the option to assess and recover tax from either the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
