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TMI Blog2019 (8) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... e clubbed in his hands) globally shall be included in the total income of the assessee. Hence, before proceeding to club the dividend income accruing or received by the trusts created for the benefit of minor children, it is mandatory to show that the said income accrued or was received by the minor children. The tax authorities have taken the view that the dividend income relating to shares held by the trusts created for the benefit of children actually belongs to the assessee only and even if it is said to belong to his children, then the same is liable to be clubbed u/s 64(1A). They were constrained to hold so for reasons that the entire dividend income was received in the bank account of the assessee, it has been declared in the tax returns of the assessee, the trusts have not filed returns of income, there is no bank account in the name of trusts at that point of time etc. All these flaws/points have been addressed by the assessee by furnishing explanations before us in the form of additional evidences furnished before us. A.R has clarified the reasons for receiving and declaring entire income by the assessee, copies of amended tax return and copies of tax returns filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be declared in the return of income. 3. The AO examined the details of foreign dividend income declared by the assessee. He noticed that the dividend was received from M/s 24/7 Customer Inc., USA. The shares of the above said company was held by following trusts:- (a) Shanmugam and Sucharitha Nagarajan 2009 Family Recoverable Trust. - 66.98% (b) Ashirtha Valli Nagarajan 2009 Irrevcoverable Trust - 16.51% (c) Bharath Vaidya Nagarajan 2009 Irrecoverable Trust 16.51% 100.00% The AO noticed that the total dividend received from the above said company was US $ 16,50,457.40 equivalent to ₹ 900.50 lakhs. However, the assessee had offered dividend income relating to 66.98% of the shares, i.e., the assessee had offered dividend income of ₹ 603.13 lakhs only. The assessee explained that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee submitted that the minor children, being the beneficiaries of the trust, is not entitled to receive income until they attain majority and hence the clubbing provisions will not apply. It was also submitted that the provisions of sec.61 of Income tax Act will not apply in case of transfer by way of trust which is not revocable during the life time of the beneficiary or a transfer which is not revocable during the life time of the transferee. In this regard, the assessee placed his reliance on the following case law:- (a) CIT vs. M.R Doshi (b) CIT vs. Abhayananda Rath Family Benefit Trust (c) CIT vs. Yogindra Prasad N Mafatlal (d) CIT vs. M D Veeranarasimhaiah (e) CIT vs. Brig. Kapil Mohan (No citation given in the assessment order for the above said case laws) 7. The AO, however, expressed the view that the above said case laws have been rendered in the context of sec. 64(1)(vii) of the Act. He held that the provisions of sec.64(1A) is applicable in the instant case, as per which all income arising or accruing to the minor child shall be included in computing the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s transferred, being the appreciation in the value of stocks transferred, would vest with the trusts created for the benefit of minor children on the expiry of two years and the said assets would be available for the benefit of the beneficiaries only on their attaining majority and also upon fulfillment of other conditions. He submitted that these trusts are separate taxable entities as per tax laws of USA. Hence the assessee did not offer the dividend income belonging to these two trusts in his return of income filed in India. He submitted that all the flaws pointed out by the tax authorities are due to certain mistakes committed by the company, M/s 24/7 Customer Inc., USA while making payments of dividend. With regard to the various flaws pointed out by the tax authorities, the Ld A.R gave following clarifications: - (a) The Social security number of the shareholder is recorded in the books of dividend paying company. The company, M/s 24/7 Customer Inc., USA had inadvertently tagged all the shareholders with the Social Security Number of the assessee. Though the above said company issued three separate forms, viz., Form 1099- DIV, in the name of each of the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Officer of the company, 24/7 Customer Inc., USA certifying shareholding pattern. (c) Copy of original tax return in Form 1040 and amended tax return of Shanmugam Nagarajan and Sucharitha Nagarajan in Form 1040X for Calendar year ending December, 2012 filed in USA. (d) Copy of tax return in Form 1041 of Bharath Vaidya Nagarajan 2009 trust for calendar year ending December, 2012 filed in USA along with amended Form -1099 DIV issued to the Trust. (e) Copy of tax return in form 1041 of Ashritha Valli Nagarajan 2009 Trust for Calendar year ending December, 2012 filed in USA along with amended Form-1099 DIV issued to the Trust. (f) Copy of bank account statements of both the trusts. The Ld A.R prayed for admission of above cited additional evidences and further submitted that these documents would clarify the points cited by the tax authorities for assessing the dividend income of trusts in the hands of the assessee. He further submitted that the trusts created for the benefit of minor children were irrevocable at the time of receipt of dividend. Accordingly he prayed that these additional evidences be admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt transfer of funds to the trusts, if any, is only an application of funds earned and received by the assessee. 16. It is pertinent to note that the AO has also taken the view that the provisions of sec.64(1A) is applicable to the facts of the case and accordingly held that various case laws relied upon by the assessee are not applicable. He has also expressed the view that the creation of trusts is a colourable device adopted by the assessee to evade payment of tax. 17. It is to be noted that the assessee has created both the trusts for the benefit of his minor children and has also transferred the shares to the trusts in accordance with the laws of USA. The Hon ble Supreme Court has held in the case of Vodafone International Holdings B.V vs. Union of India (Civil appeal No.733 of 2012) has held that the tax planning may be legitimate provided it is within the frame work of law. Same view has been expressed by Hon ble Karnataka High Court in the case of M/s Bhoruka Engineering Inds Ltd (ITA No.120 of 2011 dated 9.4.2013). It is not shown by the AO that the creation of trusts by the assessee for the benefit of his minor children was bey ..... X X X X Extracts X X X X X X X X Extracts X X X X
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