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TMI Blog2020 (12) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... ory? 2.Whether the Tribunal was right in deleting the additions made u/s.56(2)(vii) when the assessee in its representative capacity is to be assessed as individual, since it represents the individual only and further various courts have held that Private Discretionary Trust is to be assessed as an individual? 3.Whether the Tribunal was justified in excluding the assessee from the purview of taxation u/s.56(2)(vii) after concluding that the individual must be a natural living person when such a condition cannot be enforced on a representative assessee and has to be perceived in the context of beneficiaries?" 3.The respondent/assessee is a private discretionary Trust which filed its return of income for the assessment year under consideration, AY 2014-15 electronically on 28.09.2014, disclosing a total income of Rs. 107,72,76,893/-. The return was processed under Section 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice under Section 143(2) of the Act dated 01.06.2016, was served on the assessee along with a questionnaire. Among other things, the principal issue was with regard to the amount of Rs. 25 Crores credited to the balance sheet under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) by order dated 06.02.2017, partly allowed the appeal, but however, the issue with regard to taxability of the sum of Rs. 25 Crores was decided against the assessee. The CIT(A) first took up for consideration as to the procedure adopted by the JCIT before issuing the directions under Section 144A of the Act and found that the JCIT had afforded sufficient opportunity to the assessee and followed the procedure under Section 144A. The CIT(A) found that the objections, which were raised by the assessee before the Assessing Officer in their written submissions dated 09.09.2018, were in fact the same submissions which the assessee had raised before the JCIT, when they were granted an opportunity to place their objections to the proposal to issue direction under Section 144A and after noting the factual position, held that there is no procedural infirmity in the assessment order dated 27.09.2016 passed under Section 143(3) read with Section 144A of the Act and accordingly, rejected the said contention raised by the assessee. 5. Next, the CIT(A) took up for consideration with regard to the taxability of the sum of Rs. 25 Crores which was credited to the balance sheet under the head " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the decision in Indira Balkrishna continues to hold good. 8.With regard to the form of return, viz., ITR-5, which was heavily relied on by the assessee to state that they should be treated as an AoP, the CIT(A) rejected the same holding that the assessee, being a private discretionary Trust, had taken advantage of the press release issued by the Central Board of Direct Taxes (CBDT) dated 31.07.2012 permitting private discretionary Trust to have the status of 'individual' only and therefore, rejected the contention of the assessee that they fall within the meaning of explanation inserted below Section 2(31) with effect from 01.04.2002. 9.With regard to the contention of the assessee that the voluntary contribution received from six concerns of the Shriram Group towards corpus of the assessee Trust does not constitute income in the hands of the assessee three decisions were relied on by the assessee. The CIT(A) in paragraphs 4.4.2 to 4.4.4 distinguished those decisions by assigning certain reasons and pointed out that the core issue would be whether the assessee, a private discretionary Trust, which received a corpus donation in its status as a representative assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eficiaries and the status of the assessee is to be determined with reference to the status of the beneficiaries and the beneficiaries being individuals, the assessee's status is also that of an individual. The CIT(A) approved the finding of the JCIT that the status of the Trust is to be determined from the status of the beneficiaries by placing reliance on the decision in the case of CIT vs. SEA Head Office Monthly Paid Employees Welfare Trust [(2004) 141 Taxman 364 (Delhi)]. Further, the CIT(A) affirmed the finding of the JCIT refusing to treat the assessee as an AoP under Section 2(31) by referring to the decision in CIT vs. Marsons Beneficiary Trust [(1990) 52 Taxman 454 (Bombay)]. Accordingly, the CIT(A) held that the assessee, a private discretionary Trust, is in the status of an individual, since all its beneficiaries are individuals and they cannot be treated as an AoP under Section 2(31) of the Act. 13.The assessee contended that the term "individual" occurring in Section 56(2)(vii) has to be interpreted with reference to the context in which it is used in the said provision. In other words, it was contended that in the proviso, there is a reference to relatives of ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumably for the reason that the CIT(A) agreed with the assessee that the corpus donation is not an income as defined under Section 2(24)(iva), but brought the assessee within the ambit of Section 2(24)(xv) read with Section 56(2)(vii). Thus, a careful reading of the order passed by the CIT(A) will clearly show that the decision was fully against the assessee. The assessee carried the matter by way of appeal to the Tribunal. 17.Before the Tribunal, the assessee firstly focused upon the status of the assessee, which being a Trust and, the grounds, which were raised before the CIT(A) which we have referred above, were raised before the Tribunal, viz., filing of the return in the prescribed form etc. Another submission was made by the assessee stating that the JCIT had no jurisdiction to invoke his power under Section 144A when there was no assessment pending. This submission was based on the fact that the scrutiny which was ordered was only a limited scrutiny, but not a complete scrutiny and a limited scrutiny is not comparable to a regular scrutiny, as it is only for a limited purpose and in this regard, relied upon the CBDT Circular dated 14.07.2016 in Circular No.5 of 2016. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment argued that it has no relevance because the insertion of the said clause was to bring within the fold of taxation, money received by firms and companies without consideration. The Tribunal rejected the contention raised by the assessee with regard to the correctness of the order and direction issued by the JCIT under Section 144A of the Act and the effect of such direction on the Assessing Officer and held them to be within the frame work of Section 144A. With regard to the merits of the matter, the Tribunal held that the amount of Rs. 25 Crores will not fall within Section 2(24)(iia), since the assessee was not a Trust created for a religious or charitable purpose and accordingly, approved the finding of the CIT(A) that it cannot be an amount received as a benefit or perquisite under Section 2(24)(iva). 21.The Tribunal next moved on to consider the correctness of the finding of the CIT(A), who confirmed the addition by applying Section 2(24)(xv) read with Section 56(2)(vii) of the Act. While considering the merits, the contentions advanced by the assessee based upon the form of return was rejected and held against them to the effect that the manner in which the assessee desc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly interpreted. The Tribunal referred to the definition "relative" and observed that the term "individual" implies only a natural person for the purposes of Section 56(2)(vii) of the Act. The decisions, which were referred to by the Department, were held to be rendered in a different context dealing with other provisions of the Act, which in the opinion of the Tribunal, are provisions which give relief to the assessee. 23.The Tribunal referred to the decision of its Delhi Bench in Mridu Hari Dalmia Parivar Trust vs. AO [(2016) 68 taxmann.com 376 (Delhi- Trib.)] and held that though the decision concerned an assessment under Section 56(2)(vi), it being a precursor to Section 56(2vii), the decision will apply to the assessee's case. The Tribunal also took note of the insertion of clause (x) in Section 56(2) of the Act with effect from 01.04.2017 and, the Explanatory note to Finance Bill, 2017 indicates that provisions as it stood prior to the introduction of clause (x) covered only individuals and HUFs and the legislature wanted to include in its fold other entries also, which were receiving gratuitous payments and such provisions were applicable only from 01.04.2017. With the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the beneficiaries list in the owner's group, 23 persons being beneficiaries under Senior Leader Group and each one of them occupied senior position in the companies comprised in the Shriram Group. Further, the learned Senior Standing Counsel referred to the contributors of Rs. 25 Crores by six concerns, viz., (i) Shriram Business Finance - AAAFS2592K - Rs. 2 Crores; (ii) Shriram Credit Syndicate - AAAFS1437K - Rs. 5 Crores; (iii) Shri SR E-Commerce Finance - AAXFS7828M - Rs. 5 Crores; (iv) Shriram Two Wheeler Finance - AAWFS9761N - Rs. 3 Crores; (v) Shriram Domestic Finance - AAAFS2600Q - Rs. 8 Crores; and (vi) Shriram Professional Finance - AAAFS1440A - Rs. 2 Crores and, submitted that all of them are located in the same address in Chennai and the gratis given to the assessee Trust in which the beneficiaries are people occupying high position in Shriram Group, is obviously an amount received on behalf of the beneficiaries. 27.It is further contended that the assessee is a representative assessee as defined under Section 160(1)(iv) of the Act and the benefit or perquisite is derived by the assessee Trust on behalf of its beneficiaries and therefore, Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82 ITR 477 (FB) Kerala]; Assam Financial Corporation vs. Commissioner of Wealth-Tax [(1974) 94 ITR 404]; Banarsi Dass & Ors. vs. Wealth Tax Officer, Spl. Circle, Meerut & Ors. [(1965) 56 ITR 224]; Commissioner of Welath Tax vs. Hyderabad Race Club [(1978) 115 ITR 453]; Royal Calcutta Turf Club vs. Wealth Tax Officer [(1984) 184 ITR 790] and Coimbatore Club vs. Wealth-Tax Officer [(1985) 153 ITR 172]. Reliance was also placed on the decisions in the case of Ramanlal Kamdar vs. CIT [(1977) 108 ITR 73] and P.R.Narahari Rao vs. CIT [(2008) 299 ITR 400]. 32.Mr.R.Sivaraman, learned counsel appearing for the respondent assessee submitted that the Trust was established on 11.09.2006 for distribution of retirement benefit to the owners and senior leaders chosen from Shriram entities when they attain sixty years of age. It is submitted that the entire income of the Trust is not straight away paid, but a committee determines the Net Worth Available for Apportionment (NWAA) and a percentage of it alone be distributed at the end of duration of the Trust in which 1/3rd of the corpus and accumulated income remaining shall be given for charitable purposes and 2/3rd shall be distributed among the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and "occasions like marriage of individual" which shall prove that the term "individual" in Section 56(2)(vii) means living human being. In this regard, reference was made to the decision in Smt.Sodra Devi and Mridu Hari Dalmia Parivar Trust. Further, it is submitted that Section 56(2)(v) or 56(2)(vi) or 56(2)(vii)(a) would be attracted only when individuals or HUFs receive any sum of money. The emphasis is on the receipt by the individual himself and not by some one else on their behalf. The word "receive" in the context of the above mentioned means receipt of a sum of money over which the recipient gets absolute control like rights of enjoyment etc. In the assessee's case, the beneficiaries under the scheme of the Trust did not have rights to receive the income periodically. It vests only on their retirement. Further, it is submitted that Section 56(2)(vii)(a) which is a charging section is differently worded from Section 5(1)(a). Under Section 5(1)(a) income of a person includes all income which is received or deemed to be received by or on behalf of such person whereas Section 56(2)(vii)(a) states that the individual receives a sum of money, it does not include sums receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted that even assuming the assessee has to be treated as an individual, the provisions of Section 56(2)(vii)(a) cannot be applied, as the term "individual" in that Section has the words denoting 'relatives' mentioning about occasions like marriage etc., and this needs to be interpreted following the ratio in the case of Smt.Sodra Devi to mean that individual should denote a living person and not a Trust. 38.Heard Ms.R.Hemalatha, learned Senior Standing Counsel appearing for the appellant/Revenue and Mr.R.Sivaraman, learned counsel appearing for the respondent/assessee. 39.The first substantial question of law raised by the revenue in this appeal is whether the Tribunal was right in holding that the investment which yielded no exempt income was to be excluded while computing deduction under Section 14A when the Act as well as the Rules do not provide for any such exception. An identical question was raised by the revenue in the assessee's own case in T.C.A.No.241 of 2018 for the assessment year 2013-14. When the said tax case appeal was heard, we noted that the substantial question of law has to be answered in favour of the assessee in the light of the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court to frame a substantial question of law on the said issue and decide the same. In this regard, the learned counsel has drawn the attention of this Court to Section 260A of the Act, Section 100 CPC and Order 42 Rule 11 CPC. Therefore, it is submitted that even assuming there is another substantial question of law which is required to be considered by the Court though not admitted earlier, in an appeal by the revenue it is only the revenue which can make such a prayer before the Court and not the assessee who has not filed a separate appeal. 42.Mr.T.Ravikumar, learned senior standing counsel supported the submissions of Ms.R.Hemalatha and has relied upon certain decisions. 43.Mr.R.Sivaraman, learned counsel placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs. V.Damodaran [(1979) 2 Taxman 397(SC)]. In the said case, the revenue applied for the reference to the High Court of Kerala and and at its instance, the Tribunal referred a substantial question of law for consideration in a case arising under the 1992 Act. The assessee also requested the inclusion of another question which was also referred to the High Court. The High Court answered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce application but on a reference application filed by the aggrieved party, it is open to the non-applicant in the event the Tribunal agreed to refer the case to the High Court to ask for a reference of those questions of law also which arise on its submissions negatives in the appeal by the Appellate Tribunal. This was to recognize a right in the winning party to support the order of the Tribunal also on grounds raised before the Tribunal but negatived by it. 44.The Hon'ble Supreme Court noted the decision in the case of CIT vs. S.K.Srinivasan [(1970) 75 ITR 93(Mad)] and CIT vs. Ramdas Pharmacy [(1970) 77 ITR 276(Mad)], wherein it was held that there is absolute bar against a non-applicant seeking a reference of question of law on a reference application made by the other party. The Court also noted the decision in H.H.Maharana Bhagwat Singhji of Udaipur vs. CIT [(1964) 51 ITR 112(Raj.)], CWT vs. Mrs.Arundhati Balkrishna [(1968) 70 ITR 203 (Guj)] which was affirmed by the Hon'ble Supreme Court in CWT vs. Arundhati Balkrishna [(1970) 77 ITR 505] which took a contrary view than the decisions of this Court quoted above. Further noting the observations in CIT vs. Bantiah Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, the revenue under Section 260A of the Act. For the same proposition, reliance was placed on the decision of the Hon'ble Division Bench in the case of Ramanlal Kamdar, wherein it was held that only if the assessee was aggrieved by the order of the Income Tax Officer, he had the right to file an appeal before the Appellate Assistant Commissioner and once the assessee could not have had any grievance in view of the statement made by the partner [in the said case], the appeal to the Appellate Assistant Commissioner was incompetent and equally the appeal to the Tribunal was incompetent and consequently, the reference to the High Court was also incompetent. 47.Thus, taking note of the legal principle which can be culled out from the above decisions, there is a vast difference in cases where a reference is made to the High Court by the Tribunal on an application and an appeal under Section 260A of the Act by an aggrieved person. The assessee having not filed an appeal as against the findings rendered by the Tribunal on the issue of jurisdiction and procedural aspects followed by the Assessing Officer, he cannot stated to be an aggrieved person over such finding in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JCIT rejected the contention of the assessee and treated the assessee as an "individual" and brought the said amount to tax. 49.In Indira Balkrishna, the Hon'ble Supreme Court pointed out that an association of persons would mean persons joining in an action and therefore, the term 'AoP' used in Section 2(31)(v) of the Act would mean an association in which two or more person join with a common purpose or for a common action. In the assessee's case neither the trustees nor the beneficiaries have come together with common purpose of earning income. The beneficiaries are the owners and top level executives of the Shriram Group of concerns. The investment of Rs. 25 Crores has come from six of the concerns of the Shriram Group. The trustees exercised their powers as spelt out in the Deed of Trust as well as the Supplement Deed. The argument that the beneficiaries are not identifiable because the entire amount which is earned by the Trust by way of various income is not handed over to the beneficiaries as there is a Committee which is constituted which will determine the net worth available for apportionment and only 2/3rd will be distributed among the beneficiaries and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r gains. Therefore, the contention of the assessee that consequent upon the insertion of explanation to Section 2(31), a representative assessee representing individuals is to be treated as an AoP is an argument which cannot be accepted. Furthermore, in the case of the assessee, the settler has created a trust and appointed trustees. To administer the trust for the benefit of certain identified beneficiaries who are top level executives of the Shriram Group of Companies and who are admittedly individuals. Those individuals have not come together with a common purpose and they do not have any role in the operation or administration of the Trust. Therefore, the assessee cannot be treated as an AoP. To take a decision in the matter, the facts are very essential. A trustee appointed under a trust created under a Deed of Trust has to be treated as a representative assessee in terms of section 160 of the Act provided he receives or he is entitled to receive any money on behalf of or benefit of any person. Such trustee is deemed to be an assessee for the purposes of the Act. This position becomes clear if one carefully examines section 161(1) of the Act which states that every representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee claim deduction under Section 80L in respect of interest on securities, dividends, etc. The Income Tax Officer was of the view that the assessee's status would be an association of persons because there was more than one beneficiary whose shares in the Trust was not definite and since the assessee was admitted not an AoP envisaged under Section 80L(1)(c) and was not an individual or a Hindu Undivided Family, the assessee was held to be not eligible for any relief. However, on appeal, the Appellate Assistant Commissioner accepted the assessee's plea which was upheld by the Tribunal and the High Court. 53.In Arihant Trust's case, it was held that even an artificial juridical person can be treated as an individual under Section 194A as there is nothing to restrict the applicability of the word 'individual' only to a natural person or a human being and it applies to artificial juridical persons also. 54.In Marsons Beneficiary Trust's case, it was held that in view of the clear provisions of section 161(1) there could be no doubt that the trustees have to be assessed in the manner provided in section 161(1), in respect of any income of the trust, looking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing their return of income in the status of an individual. This is because the status of private discretionary trust has been held in law as that of an "individual" and the existing e-filing software does not accept the return of a private discretionary trust in the status of an individual. Accordingly, the Board decided that it will not be mandatory for private discretionary trust, if its total income exceeds Rs. 10 lakhs to electronically furnish the return of income. Therefore, by taking advantage of the situation, the assessee cannot harp upon the form of return and the Tribunal was right in rejecting such an argument made by the assessee, against which, the assessee is not on appeal before us. 58.In Shri Krishna Bandar Trust, the Court was considering the amendment made by Finance Act, 1980, wherein it was pointed out that in a case of discretionary trust, neither the trustees nor the beneficiaries can be considered as having come together with the common purpose of earning income. The beneficiaries have not set up the trust. The trustees derive their authority under the terms of the trust deed. Neither the trustees nor the beneficiaries come together for a common purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of this Court had relation to the construction of Section 16(3) of the Indian Income Tax Act, 1922. That sub-section provides that in computing the total income of any individual for the purpose of assessment, there shall be included the items specified in clauses (a) and (b). What is the denotation of the word "individual" was one of the points which had to be considered in that case. According to the majority decision, though the word "individual"is narrower than the word "assessee", it does not mean only a human being, but is wide enough to include a group of persons forming a unit. "It has been held", observed Bhagwati,J. who spoke for the majority, "that the word 'individual' includes a corporation created by a statute, e.g. a university or a bar council, or the trustees of a baronetcy trust incorporated by a Baronetcy Act. It would also include a minor or a person of unsound mind". We are referring to this case only for the purpose of showing that the word "individual" was interpreted by this Court as including a group of persons forming a unit." (emphasis supplied) 64.In Jogendra Nath Naskar vs. CIT [(1969) 74 ITR 33 (SC)], the Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Indian Cooperative Societies Act, 1912 whose shareholders consisted of individuals and cooperative societies, was an "individual" for the purpose of Section 3 of the 1922 Act, while holding that to give the word "individual" the meaning of a person only would be to disregard the scheme of the Act and also to rob the word of an accepted meaning. 71.In Jogendra Nath Naskar, it was held by the Hon'ble Supreme Court that a deity, though a juristic person, is not a human being and even in such a case, the expression "individual" occurring in the 1922 Act had to be applied to it. 72.In Coimbatore Club, it was held that the expression "individual" occurring in Section 3 of the Act would take in a plurality of individuals, which in turn, would include a body or group of individuals forming a single collective unit knit together by ties of common aims and joint interest and not any profit motive, but owning property. 73.Thus, bearing in mind the law laid down in the above referred decisions and also taking note of the observations of the Hon'ble Supreme Court in Indira Balkrishna, that there can be no universal application as to how to come to a conclusion as to status ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that those decisions were rendered by interpreting provisions of the Act which give relief to the assessee and not charging provisions. In our considered view, this is not the way to read a judgment or to cull out the legal principles which have been laid down in the decision. The manner in which the Tribunal has distinguished the decisions relied on by the revenue is incorrect. 77.The learned counsel for the assessee while referring to the decision in Indira Balkrishna, argued that there is no formula of universal application while determining the status of the trustee and it is the submission that this word of caution given by the Hon'ble Supreme Court should borne in mind while considering the effect of the insertion of the explanation to section 2(31) of the Act. 78.We have given our findings as to the effect of the insertion of explanation to Section 2(31) and held against the assessee. It is no doubt true that no decision can be rendered dehors the facts. Therefore, we shall examine the facts which were noted by the authorities. As per the Deed of Trust and the Supplemental Deed, the trust is created to benefit the members of owner group and the senior leader group of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identified and therefore, the Tribunal erred in reversing the finding of the CIT(A) that the assessee has to be assessed as an "individual". Therefore, we hold that the assessee Trust is a representative assessee as it represents the beneficiaries who are identified individuals and therefore to be assessed as an "individual" only. Consequently, the contribution of Rs. 25 Crores is to be assessed as income under Section 56(1) under the head 'income from other sources'. 80.It is submitted on behalf of the assessee that it is not in dispute that in terms of Section 160(1)(iv), a trustee is a representative assessee for a beneficiary. However, the revenue cannot place reliance on Section 161 of the Act as the said provision will apply only when the income is specifically receivable on behalf of or for the benefit of any one person who are known or whose shares are determined. It is further submitted that in the assessee's case the beneficiaries are indeterminate and the individual shares of the income are also indeterminate and the voluntary contributions were received by the assessee Trust into their corpus and did not form part of the income distributed to the beneficia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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