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TMI Blog2017 (7) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... ch assessment proceedings was for a limited scrutiny or complete scrutiny assessment.Section simply states that an assessment has to be pending and nothing more. We cannot read into the section, words which are not there and give an interpretation as canvassed by the ld. Authorised Representative. Nature of directions issued by the ld. JCIT - Section itself says that the directions under section 144A of the Act are binding on the ld. Assessing Officer. Thus, in our opinion, the distinction sought to be drawn between guidance and directions hardly mattered. It might be true that ld. Assessing Officer had simply followed the directions of the ld. JCIT without applying his mind. However ld. Assessing Officer being duty bound under law to follow the directions of ld. JCIT, the question whether he had applied his mind over that issue, in our opinion became irrelevant. Thus we are of the opinion that the directions issued by the ld. JCIT were within the parameters of Sec. 144A of the Act and valid. Corpus donation - There can be absolutely no doubt on this aspect. In fact ld.CIT(A) had clearly held that amount received could not be considered as benefit or perquisite and Sec.2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee under law it has to be given. Ordered accordingly. - I.T.A. Nos. 406 & 407/Mds/2017 - - - Dated:- 5-7-2017 - Shri N.R.S. Ganesan, Judicial Member And Shri Abraham P. George, Accountant Member For the Appellant : Shri. R. Sivaraman, Advocate. For the Respondent : Shri. Shaji P. Jacob, IRS, Addl. CIT. ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER These are appeals filed by the assessee directed against order dated 06.02.2017 of ld. Commissioner of Income-tax (Appeals)-2, Chennai for the impugned assessment years. 2. Appeal for assessment year 2014-15 is taken up first for disposal. Effective issues raised by the assessee through its grounds 1 to 16 are on an addition of ₹ 25,00,000/- made under section 56(2) (vii) of the Income Tax Act, 1961 (in short the Act ) and disallowance u/s. 14A of the Act r.w.r. 8D of the Income Tax Rules, 1962 (in short the Rules ). Latter issue appears in assessee s appeal for assessment year 2013-2014 also. 3. Facts apropos are that assessee a private discretionary trust had filed its return of income for the impugned assessment year disclosing income of ₹ 107,72,76,893/-. It seems that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution of ₹ 25 crores is to be assessed as income of the assessee Trust in its capacity as representative assessee and is to be assessed in the status of Individual only. 4. Ld. JCIT put the assessee on notice, his intention to treat the sum received by it as corpus donation as income u/s. 56(2)(vii) of the Act. Assessee thereupon submitted that it had to be considered only as an Association of Persons (in short AOP ) and not as an individual . According to the assessee by virtue of the Explanation added to Sec. 2(31) by Finance Act, 2002 w.e.f. 01.04.2002, the Apex Court judgment in the case of CIT vs. Indira Balkrishna 39 ITR 546 which gave an exposition of what constituted an AOP, was no more applicable. Further, contention of the assessee was that corpus contribution received by a private trust was not taxable. Contention of the assessee was that it could be considered, only as an Association of Persons under the definition of person given in 2(31) of the Act, and not as an individual. As per the assessee section 56(2)(vii) of the Act could be applied only to an individual falling within the meaning of the said term in that section. 5. However, ld. JCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Commissioner of Income Tax (Appeals). Arguments taken by the assessee before ld. Commissioner of Income Tax (Appeals) are summarized hereunder:- (a) The addition of ₹25 Crores as income made by the Assessing Officer in the assessment made on 27.09.2016 is contrary to facts of the case and the relevant provisions of law. (b) The Assessing Officer erred in implicitly giving effect to the order of the Joint Commissioner which was not guidance as envisaged u/s 144A ignoring the detailed submission contained in the appellant letter dated 09.09.2016 filed before the Assessing Officer on 15.09.2016. (c) The Assessing Officer erred in bypassing the decisions of the AP High Court in CIT vs. SRMT Staff Association 221 ITR 234 A.P, ITAT Delhi Bench C in Escorts Employees Welfare Trust vs. ITO (1983) 5 ITO 226 and the order dt 08.07. 2008 of the Chennai Bench in Pentafour Software employees Welfare Foundation vs. ACIT in ITA Nos.751 and 752 / MOS / 2007 and bringing to tax the corpus donation received by appellant as income. (d) The Assessing Officer erred in applying Section 56(2)(vii) to bring to tax as income corpus donations received by the Appellant Trust ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rishna(supra). 9. Ld. Commissioner of Income Tax (Appeals) in his order, distinguished the judgment of Hon ble Andhra Pradesh High Court in the case of SRMT Staff Association (supra) relied on by the assessee, noting that the said case was in relation to applicability of Sec. 2(24)(iia) of the Act, which was relevant to charitable institutions and not private discretionary trusts. Similarly according to the ld. Commissioner of Income Tax (Appeals) the decision of Delhi Bench of the Tribunal in the case of Escorts Employees Welfare Trust (supra) was also in relation to a charitable trust. Viz-a-viz decision of Coordinate Bench in the case of Pentofour Software Employees Welfare Foundation (supra), ld. Commissioner of Income Tax (Appeals) observed that the assessee there was formed as a company under Section 25 of the Companies Act, 1956 and not comparable to a private discretionary trust. Nevertheless, he agreed with the contention of the assessee that corpus donation received by the assessee would not come within the ambit of Sec. 2(24) (iva) of the Act, since it was not any benefit or perquisite. However, according to him Sec. 56(2)(vii) of the Act r.w.s. 2(24)(xv) squarely app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2016, by which time the ld. JCIT passed his order u/s.144A of the Act. Thus, according to him, ld. JCIT had passed the order even when no assessment proceedings were pending thereby rendering his direction void. 12. Continuing his attack on the order passed u/s.144A of the Act, ld. Authorised Representative submitted that ld. JCIT could have issued only direction as a guideline to the ld. Assessing Officer. According to him, ld. Assessing Officer had simply followed the directions of ld. JCIT direction and made the addition, without applying his mind independently on the merits of the addition. As per ld. Authorised Representative the directions of the ld. JCIT were binding on the ld. Assessing Officer but such directions were binding only as a guidance to the ld. Assessing Officer and not as a direction to make an addition. 13. On the merits of the addition, ld. Authorised Representative submitted that voluntary contribution received towards corpus donation was not taxable in the hands of a private discretionary trust. According to him, assessee which was a private discretionary trust had returned its income in the status of a trust and was assessed in the status of a tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y through a notice u/s. 143(2) of the Act issued on 01.06.2016. According to him, whether it was a limited scrutiny or complete scrutiny, hardly mattered when admittedly, the assessment proceedings were pending before ld. Assessing Officer. 16. Supporting the merits of the addition made by the ld. Assessing Officer, ld. Departmental Representative submitted that undisputedly the amount received by assessee was a capital inflow. As per the ld. Departmental Representative the addition was not made considering the sum as value of a benefit or perquisite u/s. 2(24) (iva) of the Act nor was it considered as income u/s. 2(24)(iia) of the Act. As per ld. Departmental Representative the sum was considered as income falling within Sec. 2(24) (xv) of the Act which clearly brought within its ambit all sums of money referred in Sec. 56(2)(vii) of the Act. According to him, the return form in which assessee filed its income and status shown by the assessee in such return were irrelevant, since Rules prescribing the forms could never whittle down the provisions of Act. Further, according to him, Rules could not take away what was conferred by the Act or water down its effect. Argument of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had no relevance, since it was brought in, only to bring within the fold of taxation, money received by firms and companies without consideration. Coming to the decision of Delhi Bench of the Tribunal in the case Mridu Hari Dalmia Parivar Trust (supra) relied on by the ld. Authorised Representative, ld. Departmental Representative submitted that Delhi Bench had not considered the judgments of the Madras High Court, with respect to the status of private discretionary trusts and therefore was not binding. According to him, on the face of a catena of judgments of Jurisdictional High Court, which was all in support of the Revenue, decision of Delhi Bench of this Tribunal paled into insignificance. 19. We have considered the rival contentions and perused the orders of the authorities below. First we will deal with the issue whether ld. JCIT invoked the powers vested on him u/s. 144A of the Act in accordance with said provision. Contention of the ld. Authorised Representative is that there was no assessment proceedings pending as on date when ld. JCIT issued order on 24.08.2016. However, the assessment order clearly states that notice u/s. 143(2) of the Act was issued to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be roped in as income u/s. 2(24)(iva) of the Act. There can be absolutely no doubt on this aspect. In fact ld.CIT(A) had clearly held that amount received could not be considered as benefit or perquisite and Sec.2(24)(iva) of the Act. There can also be no doubt that the amount did not fall within the Sec.2(24)(iia) of the Act since assessee was not a trust created for a religious or charitable purpose. 22. What we find is that ld. Commissioner of Income Tax (Appeals) had confirmed the addition u/s. 2(24)(xv) of the Act r.w.s. 56(2)(vii) of the Act. Both these Sections are reproduced hereunder:- Sec. 2(24) income includes--- (i)................ (ii).......................... (xv) any sum of money or value of property referred to in clause (vii) [for clause (viia)] of sub-section (2) of section 56;] Section 56(2) 2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely :- (i) .; (ia) .; (ib) .;; (ic) ; (id) ; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 or (g) from any trust or institution registered under section 12AA [or] 85 [(h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47] Explanation.-For the purposes of this clause,- (a) assessable shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C (b) fair market value of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed; (c) jewellery shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2; (d) property means the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of Hon ble Apex Court in the case of CIT vs. Smt. Kamalini Khatau 209 ITR 101. There the question before Hon ble Apex Court was the liability in the case of a discretionary trust and the powers of the ld. Assessing Officer to assess and recover tax from a trustee or the beneficiary. What was held by the Apex Court at para 12 of its judgment is reproduced hereunder:- To begin with, the trustee even of a discretionary trust is, by reason of the terms of section 160, a representative assessee. Section 161(1) sets out the liability of a representative assessee. Its first part makes him subject, as regards the income in respect of which he is a representative assessee, 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 he is made liable to assessment in his own name in respect thereof. The second part affords protection to the representative assessee ; it states that such assessment shall be deemed to be made upon him only in his representative capacity and also that tax may be levied upon and recovered from him only in like manner and to the same extent as it would be levia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees. The liability of a trustee of a discretionary trust to be assessed to tax in respect of its income and to recovery thereof is created by section 161 and it also states that he is not liable to such assessment under any other provisions of the Act. Section 164 sets out only how such tax shall be charged when the income is not distributed and when the income is distributed. It does appear, therefore, that section 164 cannot be read as being a code in itself applicable to the taxation of the income of a discretionary trust. Consequently, it cannot be held that the beneficiary of a discretionary trust, even if he has received its income in the accounting year, cannot be taxed thereon because section 164 does not provide for such contingency. The principal contention raised by Mr. Salve on behalf of the assessee must, accordingly, be rejected. Why, then, should the beneficiary of a discretionary trust stand on a footing different from that of the beneficiary of a specific trust ? It is true that the language of section 166 does not avail the Revenue because it states that sections 160 to 165 do not prevent either the direct assessment of the person on whos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utta High Court in the case of CIT vs. Shri Krishna Bandar Trust, 201 ITR 0989. Their lordship while taking this view had considered the judgments of Apex Court in the case of Indira Balakrishna (supra) and of Jogendra Nath Naskar vs. CIT as well as that of Andhra Pradesh State Road Transport Corporation vs. ITO (52 ITR 524). What we discern from this decision is that a contextual meaning has given to the term individual . Thus just because a private discretionary trust been treated as individual for the purpose of taxation u/s. 80L or u/s. 194A or Sec. 54F of the act would not be a reason to treat it so u/s. 56(2)(vii) of the Act also. We are alive to the judgment of Hon ble Jurisdictional High Court in the case of Venu Suresh Sheela Trust Ors 233 ITR 0099 wherein it was held that for application of Sec. 80L, a private discretionary trust should be considered as an individual. It was similarly held by the Jurisdictional High Court in the case of Arihant Trust Ors (supra) where the question was exemption from application u/s. 194A of the Act. There is also a decision of the Bombay Bench of this Tribunal in the case of Balagopal Trust (supra) where the benefit of Sec. 54F of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private trusts. The question there also was treatment of a gift received by a private discretionary trust, considered by the Assessing Officer as income u/s. 56(2) (vi) of the Act. What was held by the Delhi Bench at para 3 to 5 are reproduced hereunder :- 3. We have heard the rival submissions and perused the relevant material on record. The AO invoked the provisions of section 56(2)(vi) for coming to the conclusion that the amount of gift received by the assessee from Mrs. Abha Dalmia was not exempt under this provision and hence chargeable to tax. He satisfied himself as regards the fulfillment of three conditions as noted by him. At the outset, we find that the view point of the AO in construing section 56(2) as an exemption provision is not correct as it will be seen infra that it is rather a charging provision. Reverting to the point in dispute, the primary question which falls for our consideration is whether or not the amount of ₹ 1.60 crore is chargeable to tax as per the provisions of section 56(2)(vi). 4. Section 56 falls under Chapter IV-F of the Act with the caption 'Income from other sources.' Sub-section (1) of this section provides that inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii) spouse of the person referred to in clauses (ii) to (vi); 5. A bare perusal of the above provision indicates that where any sum of money exceeding ₹ 50,000/- is received without consideration by any individual or HUF, in any previous year from any person or persons, the whole of the aggregate value of such sum shall be chargeable to income-tax under the head 'Income from other sources'. A cursory glance at the opening line of subsection (2) of section 56 divulges that it is a charging provision, which charges the receipt of an otherwise genuine amount of gift etc. to tax, subject to the fulfillment of certain stipulated conditions. It follows that in order to attract the applicability of clause (vi) of section 56(2), the following conditions should be fulfilled: (i) An amount exceeding ₹ 50,000/- in aggregate should be received in a year; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an AOP consists of some individuals, the status of such a group of individuals remains as that of 'AOP', in the same way in which when some individuals enter into partnership, the body which comes into existence is called a 'Firm'. The AO has rightly admitted the status of the assessee as an AOP and not an individual or HUF. It is axiomatic from a plain reading of the provision that any sum exceeding ₹ 50,000/- can fall within the ambit of section 56(2)(vi) of the Act only if it is received by an individual or HUF. Since the assessee in question is an AOP and not any individual or HUF, who received a sum of ₹ 1.60 crore without consideration, such a receipt in our considered opinion cannot be included in its total income within the framework of section 56(2)(vi). We, therefore, set aside the impugned order on this score and order for the deletion of this addition. Section 56(2)(vi) of the Act was the precursor to Sec. 56(2)(vii) of the Act, and therefore the above decision in our opinion squarely covers the issue in hand, before us also. 27. In any case, we find that Sec. 56(2) of the Act has been amended by Finance Act, 2017 inserting clause (x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving gratuitous payments. Applicability of this provision is only from 01.04.2017 28. Based on our discussion above, we are of the opinion that the sum of ₹ 25,00,00,000/- received by the assessee could not have been considered as income from other source u/s. 56(2)(vii) of the Act r.w.s 2(24)(xv) of the Act. The said addition stands deleted. 29. The only other issue raised by the assessee which is common for both the years is on disallowance u/s. 14A of the Act. 30. Limited arguments of the ld. Authorised Representative was that while computing such disallowance, only those investments which yielded exempt dividend was to be considered and not other investments which did not yield any dividend. According to him, by virtue of decision of Delhi Bench of the Tribunal in the case of Interglobe Enterprises Ltd vs. DCIT ( in ITA Nos.1362, 1032 1580/Del/2013, dated 04.04.2014) and that of Kolkata Bench of the Tribunal in the case of Rei Agro Ltd vs. DCIT 144 ITD 141, only investments giving rise to dividend income claimed as exempt could be considered for calculation u/s. 14A of the Act. Reliance was also placed on the decision of Co-ordinate Bench in the case of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---- 1 4,30,863 Shriram value services P. Ltd 1,49,80,600 1,49,80,600 --- TVS Shriram Growth 3,29,60,621 3,42,89,158 12,179 Fund IB TVS Shriram Growth Fund IA 39,18,91,446 39,74,94,530 2,45,217 UTI Liquid plan 5,75,94,331 10,69,783 Shrilakha Financial Services Firm 7,49,701 ---- --- UTI Money Market MF ---- ---- 53,48,579 Total 2,05,77,93,666 2,11,99,19,608 73,36,415 In the decisions of Interglobe Enterprises Ltd (supra) decided by Delhi Bench and Rei Agro Ltd (supra) decided by Kolkata Bench, it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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