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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 ..... be treated as an individual would stand excluded from the purview of Section 56(2)(vii) of the Act on the ground that it is not a natural living person? - HELD THAT:- 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. Those individuals (Beneficiaries) 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 The argument that the beneficiaries are not known cannot be accepted because the Deed of Trust as well as the Supplemental Deed would show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividual beneficiary or on account of marriage of the individual beneficiary and the income received on behalf of the representative assessee. Therefore, the contention of the assessee that the assessee being not a living person cannot be brought under Section 56(2)(vii). The assessee is required to be assessed as an individual , the beneficiaries have been identified and are identifiable and Section 161 would apply because the income is specifically receivable on behalf of or for the benefit of any one person who are known and whose shares are determinate. The factual positions as brought by the JCIT and the CIT clearly show that the methodology adopted by the assessee was to circumvent the provisions of the Act. We do not agree with reasons given by the Tribunal holding that the sum received by the assessee could not have been considered as income from other sources under section 56(2)(vii) read with Section 2(24)(xv) and accordingly, the same is set aside and the order passed by the CIT(A) is restored. Disallowance u/s 14A - whether the Tribunal was right in holding that the investment which yielded no exempt income was to be excluded while computing deduction u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 ₹ 25 Crores credited to the balance sheet under the nomenclature addition to corpus . On this issue, the Joint Commissioner of Income Tax, Non Corporate Range-2, Chennai (JCIT), passed an order dated 24.08.2016, under Section 144A of the Act directing the Assessing Officer to treat the receipt of ₹ 25 Crores as income from other sources and tax the same accordingly. Pursuant to such direction issued by the JCIT, the assessee was given an opportunity, who placed their written submission dated 09.09.2016, contending that the assessee is a discretionary Trust and the direction issued by the JCIT invoking Section 56(2)(vii) of the Act is erroneous, as the said provision applies only to individuals and HUFs. The Assessing Officer noted that the submissions, which were made by the assessee, were in fact the same submissions made before the JCIT, who heard the assessee before issuing the direction dated 24.08.2016 under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment 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 ₹ 25 Crores which was credited to the balance sheet under the head addition to corpus . The CIT(A) pointed out that during the financial year 2013-14, relevant to the assessment year 2014-15, the assessee received a sum of ₹ 25 Crores from six companies of Shriram Group. The CIT(A) pointed out that none of the six firms has claimed the contribution as expenditure deductible from the income chargeable to tax. The question, which was framed for consideration was whether voluntary contributions received by the assessee are in the nature of income chargeable to tax . 6.The assessee contended that they are an Association of Person (AoP), that is, a person within the meaning of Explanation to Section 2(31) of the Act. The assessee further contended that this is so because they had filed their return in Form No.ITR-5 specifically relating to Trust and therefore, the assessee cannot be treated as an individual. Further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee, representing the individual beneficiaries, is an individual for the purpose of the Act and such income is taxable or otherwise. It was pointed out that in none of the decisions, the status of the assessee was adjudicated and all the case laws are silent on the status of the assessee, which is governed by the provisions of Section 161(1) of the Act. 10.The assessee contended that the corpus donation is not a benefit or perquisite to become income under Section 2(24)(iva) read with Section 56(1) and relied on the decision in the case of CIT vs. G.Venkatraman [(1978) 111 ITR 444 (Madras)]. The CIT(A) pointed out that in the said decision, it was held that the word obtained occurring under the 1922 Act corresponds to deemed dividend and held that appropriating of benefit is taken by the Director from the company and not 'obtained' from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 individual, occasions like marriage etc., and therefore, the term individual occurring in Section 56(2)(vii) shall mean only living persons. This issue was discussed by the CIT(A) firstly by noting Section 5(1) of the Act, which deals with scope of total income to include all income from whatever source derived, which is received or is deemed to be received in India. It was held that the assessee in the status of a representative assessee, has received income on behalf of individuals and the reference to relatives, occasion of marriage of individual, etc., in the said provision does not apply to a representative assessee. Noting the factual position, the CIT(A) pointed out that the income received by the assessee is on behalf of the individuals and therefore, the argument that the assessee being not a living person would fall outside the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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. Further, it was contended that the decision for taking up complete scrutiny was made only on 06.09.2016 and by then, the JCIT had issued directions dated 24.08.2016. Further, it was contended that the JCIT could have issued only a guideline to the Assessing Officer, who is required to independently apply his mind and therefore, contended that the assessment order was erroneous. 18.With regard to the merits of the matter, it was argued that the assessee cannot be treated as an individual and voluntary contributions to the corpus of the Trust could not be considered as income, a private discretionary Trust could not be equated to an individual, the contributions received was only gratuitous payment and cannot be considered as income under Section 56(2)(vii) of the Act. 19.The Revenue contended that the order passed by the JCIT und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 describes itself in the return of income may not be determinative of its status under the Income Tax Act, as it is a matter of law and not of choice. Therefore, the Tribunal rejected the contentions raised by the assessee with regard to the correctness of the direction issued by JCIT under Section 144A; rejected the contentions of the assessee with regard to the binding effect of such direction on the Assessing Officer; approved the finding of the CIT(A) that the contribution received will not fall within income as defined under Section 2(24)(iia); and the assessee cannot rely upon the status mentioned by them in their return of income for determining as to who they are. To be noted as against all these findings, the assessee is not on appeal before us. 22.The Tribunal while considering the status of the assessee qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 above findings, the Tribunal held the the amount of ₹ 25 Crores received by the assessee cannot be considered as income from other source under Section 56(2)(vii) read with Section 2(24)(xv) of the Act and accordingly, deleted the addition. 24.Mrs.R.Hemalatha, learned Senior Standing Counsel while reiterating the stand taken by the Department before the CIT(A) and the Tribunal, submitted that the status of the Trust is to be determined by the status of the beneficiary by virtue of the deeming provision by Section 161 of the Act. The assessee Trust is a representative assessee, representing the beneficiaries, who are individuals and therefore, the status of the assessee is an individual. The assessee's case will clearly fall within the scope of Section 56(2)(vii)(a) of the Act. 25.Referring to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 56(1) of the Act will come into play and income of every kind which is not included from the total income under the Act are to be charged to income tax under the head income from other sources . 28.With regard to the finding of the Tribunal that individual should mean a living person, it is submitted that the gifts are actually received by the individuals and the assessee Trust has acted as a conduit and the Act does not provide for such tax evasion. Further, relying upon the proviso under Section 56(2)(vii) it was argued that the proviso is merely used to act as an optional addendum to the enactment providing an exception. 29.With regard to the insertion of clause (x) to Section 56(2), it is submitted that the argument that the said provision wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 beneficiaries. It is submitted that the return of income filed by the assessee was in the status of Trust. The Trust received voluntary/gratuitous payment from six entities to the tune of ₹ 25 Crores as contribution to corpus fund and it was directly credited to the capital account of the Trust. This corpus amount did not form part of income distributed to the beneficiaries. So, the contributions were not income received or receivable on behalf of the beneficiaries. The return filed by the assessee for the assessment year under consideration was in form ITR- 5. It was filed in the status of a Trust, the assessment was made by treating the assessee as a Trust. 33.It is submitted that the JCIT did not have jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 received by some one else on his behalf and therefore, this provision is individual/HUF centric, as it imposes the artificial liability. 35.With regard to the decisions relied on by the Revenue, viz., in Venu Suresh Sheela Trust, Arihant Trust, T.S.K.Enterprises, SEA Head Office, Niti Trust, and Marsons Beneficiary Trust, it is submitted that those decisions were all rendered in different context and cannot be applied to the assessee's case. All the aforementioned decisions have referred to and relied upon the decision in Indira Balkrishna wherein the Court added a word of caution about the test for determining an association of person and this word of caution should be borne in mind while considering the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 decision of the Hon'ble Division Bench in the case of M/s.Marg Limited vs. CIT, Chennai [T.C.A.Nos.41 to 43 and 220 of 2017 dated 30.09.2020]. However, the appeal filed by the revenue was dismissed on 08.07.2020 owing to low tax effect. The revenue cannot dispute the fact that the above substantial question of law was decided in favour of the assessee. In the case of M/s.Marg Limited, in which the decision of the High Court of Karnataka in Pragathi Krishna Gramin Bank vs. JCIT [(2018) 95 Taxman.com 41(Kar.)] was followed. Further, the Delhi Bench of ITAT in the case of ACIT, Circle 17(1), New Delhi vs. Vireet Investment (P) Ltd. [(2017) 82 Taxman.com 415 (Delhi-Trib.)(SB)] also decided the said issue in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 first question in the affirmative and the second question in the negative. Both being answered in favour of the assessee, appeal was filed before the Hon'ble Supreme Court by the Revenue. One other issue was whether the Tribunal was competent to refer the second question and it was contended by the revenue that the said question should not have been referred by the Tribunal to the High Court at the instance of the assessee because no reference application was made by the assessee and the only reference was the application filed by the CIT. The Hon'ble Supreme Court after discussing about the power under Section 256(1), Section 254 held that in every case it is only the party applying for a refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 Bank Limited in ITR Reference No.20/2015 dated 10.10.2015, wherein it was pointed out that a winning party may be deprived of the right to raise questions of law which would properly arise as further questions because they would be intimately involved in a decision on the questions referred on the instance of the applicant, but it failed to classify such a case separately from a case where a non-applicant seeks to raise independent and unassociated questions of law. Ultimately, the Court held that the Tribunal was not competent to refer the second question. To be noted that the decision arose out of a reference case unlike the case on hand which is an appeal filed by the revenue under Section 260A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple 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 an appeal at their instance under sub-section (2) of Section 260A of the Act. Unless and until the aggrieved person is before the Court by way of an appeal, the question of calling upon the Court to frame an additional substantial question of law by invoking its power under sub-section (4) of Section 260A of the Act does not arise. Therefore, we hold that the assessee is precluded from raising any contention with regard to the jurisdiction of the JCIT to issue direction under Section 144A of the Act nor anything about the procedure followed by the Assessing Officer pursuant to such direction. The underlying principle being that the revenue cannot be worse of in their appeal at the instance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 1/3rd of the corpus and accumulated income will be used for charitable purpose. The contention of the assessee that the beneficiaries are unknown and there are several persons, therefore they are treated to be an association of persons, is an argument which is stated to be rejected. An argument was made stating that explanation to Section 2(31) was inserted stating that for the purposes of Clause 31, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in Chapter XV of the Act, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. The assessee in the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial 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 to the interpretation put by the Hon'ble Supreme Court on the term 'association of persons' also, there could be no doubt that the beneficiaries who were named in the trust as recipients of the income of the trust, could not be considered as an AoP. The decision in Marson Beneficiary Trust was relied on in the case of T.S.K.Enterprises, wherein the assessee was assessed as an individual as well as the judgment of the Division Bench of this Court in T.C.A.Nos.661 and 662 of 1994 dated 15.12.1998. 55.Mr.R.Sivaraman, learned counsel for the respondent would argue that the above referred decisions are not applicable to the assessee's case and all the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. They are merely in receipt of income. The mere fact that the beneficiaries or the trustees, being representative assessees, are more than one, cannot lead to the conclusion that they constitute an association of persons. The trustees of a discretionary trust have to be assessed in the status of an individual. 59.In C.R.Nagappa vs. CIT [(1969) 73 ITR 626 SC], it was held that the considerations which should apply while interpreting section 41 of 1992 Act should equally apply to section 161(2) of the Act and it was pointed out that sub-section (2) of Section 161 merely enacts that when income is assessed in the hands of representative assessee in his own na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 Court has observed that there could be no reason why the word individual in Section 3 of the 1922 Act should be restricted to human beings alone and not extended to juristic entities. 65.In N.V.Shanmugam Co. vs. CIT [(1971) 81 ITR 310 (SC)], the Hon'ble Supreme Court held that form of persons should not make them an association of persons. In the said case, the issue was whether, profit should be assessed in the hands of the receivers in the status of AoP . It was held that the three receivers were only representative assessee and the fact that they were three in number did not make them association of receivers. After referring to the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of an assessee, we, on a careful analysis of the facts of the case and noting the recitals in the Deed of Trust and Supplementary Deed, schedules thereof, have no hesitation in our mind to hold that the assessee was rightly assessed as an individual by the Assessing Officer as affirmed by the CIT(A), which was erroneously reversed by the Tribunal. 74.The argument of the learned counsel for the assessee that the word 'individual' occurring in Section 56(2)(vii) should be only a natural living person, for which purpose, strong reliance was placed on the third proviso which provides that clause(vii) of section 56(2) shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven 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 Shriram Group who are identified as beneficiaries as per the scheme laid out in the Trust Deed. The method of determining the beneficiaries of the owner group and the senior leader group is also provided in the Deed of Trust. In Annexure B of the Deed of Trust dated 11.09.2006, 13 persons have been identified and their names are in the list of beneficiaries who are in the owner's group. Annexure C of the Deed of Trust mentions names of 23 persons who are beneficiaries under the senior leader group and all of them occupy senior positions comprised in Shriram Group. The sum of ₹ 25 Crores which was contributed to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative 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 beneficiaries. This argument must necessarily fail for the reasons given by us earlier as we have held that the assessee is required to be assessed as an individual , the beneficiaries have been identified and are identifiable and Section 161 would apply because the income is specifically receivable on behalf of or for the benefit of any one person who are known and whose shares are determinate. The factual positions as brought by the JCIT and the CIT clearly show that the methodology adopted by the assessee was to circumvent the provisions of the Act. 81.For all the above reasons, we do not agree with reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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