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TMI Blog1988 (6) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A), relying upon Tribunal's Hyderabad Bench 'B' decision in the case of Educational Trust Fund vs. ITO (1985) 12 ITD 536 (Hyd), where it had been held that the trustees of discretionary trusts, whose beneficiaries and shares of beneficiaries were indeterminate could be treated as 'individuals' and such trusts could be allowed deduction under s. 80L of the Act, accepted assessee's contention and directed the ITO to allow deduction under s. 80L of Rs. 3000 to the assessee in the computation of its total income. Hence this appeal by the Department. 4. The controversy involved in this appeal would not have arrested our attention for long in view of the clear opinion consistently held by the Tribunal on the point and expressed by it not only in the case relied upon by the learned CIT(A) but also in several other similar cases including the one decided by Ahmedabaed Bench 'B' (ITA No. 2367/Ahd/85) in the case of Manan Trust, Ahmedabad vs. ITO, but for the reason that Mr. A.K. Hajela, the learned Departmental representative, brought to our notice a decision of the Bombay Bench 'B' of the Tribunal in the case of 5th ITO vs. DMCC Employees' Medical Aid Trust (1987) 22 ITD 273 (Bom) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and CIT vs. Sodra Devi (1957) 32 ITR 615 (SC) and WTO vs. C.K. Mammed Kayi (1981) 21 CTR (SC) 345 : (1981) 129 ITR 307 (SC). Mr. Talati further submitted that in its decision in the case of 5th ITO vs. DMCC Employees' Medical Aid Trust, Bombay Bench 'B' of the Tribunal could not take note of the Supreme Court decision on the point, as mentioned above. He finally submitted that the question of entitlement of deduction under s. 80L to a discretionary trust stands finally settled by several decisions of the Supreme Court, which the various benches of the Tribunal have consistently followed. 7. In order to resolve the controversy involved in this appeal, it is necessary to understand the scheme of the Act and the principles underlying certain basic concepts, running through the web of this statute. A study of the charging s. 4 would inform us that the basis of charge is "total income," the unit of assessment is "person" and the mode of recovery of tax is "assessee". The Act seems to be revolving around these three concepts of "income", "person" and "assessee." As s. 4 speaks, it is the "total income" of a pervious year or previous year of a "person" with is sought to be subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin any of the preceding subclasses;" It may be noted that the definition of the term "person" embraces certain categories of a assessable units. The income sought to be charged to the should belong (and it would necessarily so belong) to any of the categories of assessable units defined in s. 2(31). 9. The term "assessee" has been defined in s. 2(7) as follows: "s. 2(7) "assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes— (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; (c) every person who is deemed to be an assessee in default under any provision of this Act;" It may be noted that the term "assessee" has, in general, been defined to mean a "person by whom any tax or any other sum of money (like penalty) is payable under the Act." The definition of the term is inclusiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any person, such trustee or trustees; (v) xx xx xx xx Expln. s 1 2 : xx xx (2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act." It may be noted this sub-s. (2) of s. 160 clearly declares that every representative assessee shall be deemed to be an assessee for the purposes of the Act. It may further be noted that insofar as the trustees appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise, are concerned, the definition of the term "representatives" as given in cl. (iv) of s. 160(1) would govern the case. 12. Sec. 161 deals with the liability of representative assessee and it is this section which in fact, makes provision for making assessment on the trustee or trustees of a trust in their representative capacity. It would be useful to reproduce this section, as it stood at the relevant time, in extenso: "161. (1) 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: "164(1) Subject to the provisions of sub ss. (2) and (3), where any income in respect of which the persons mentioned in cls. (iii) and (iv) of sub-s. (1) of s. 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 on the relevant income or part of relevant income at the maximum marginal rate: Provided that in a case where: (i) xx xx xx xx (ii) xx xx xx xx (iii) xx xx xx xx (iv)the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to the same extent" occurring in the language of s. 161(1) make the things quite clear. Every representative assessee is liable to tax under s. 161 in the like manner and to the same extent as the person beneficially entitled to the income is. Since liability of trustee of a trust is co-extensive with that of the beneficiary, in the assessment on the trustee all such exemptions, deductions and abatements shall have to be given as the beneficiary would have been entitled to in case of direct assessment. For, the trustees of a trust simply take the colour of their status from that of the beneficiary or beneficiaries. Their status cannot be different from the person(s) they represent. If the persons represented fall within the category of individual the representative assessee shall have the status of "individual", but if the persons represented enjoy the status of AOP or BOI, the representative assessee shall be assessed vicariously in that very status. Sec. 164 in itself makes no basis for assessment on the trustees. In cases of assessment on the trustees of a discretionary trust even, on shall have to go to s. 161 due to the force of the words "in the like manner and to the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionary trust, is to be assessed in his representative capacity 'in the like manner and to the same extent' as the beneficiary of that trust would have been in his direct assessment. It follows, therefore, that in the assessment on trustees they would be entitled to all such exemptions, deductions etc. as the beneficiary or beneficiaries would have been entitled to in the case of direct assessment. Plurality of number either in the case of beneficiaries or in the case of trust tees is quite immaterial unless such plurality alters the very status of the beneficiaries in accordance with the provisions of law. 19.The status of the trustees of discretionary trust vis-a-vis the beneficiaries of such a trust was considered by the Supreme Court in the case of CWT vs. Trustees of H.E.H.Nizam's Family(Reminder Wealth)Trust and the Court laid down the law on the point in the following words: "The Revenue has thus two modes of assessment available for assessing the interest of a beneficiary in the trust properties: it may either assessee such interest in the hands of the trustee in a representative capacity under sub-s. (1) or assess it directly in the hands of the beneficiary by includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discretionary trust. There is no material on record to show that the situation contemplated by cl.(iv)of I proviso to s. 164(1) exists here. Without dispute, the trustees of the discretionary trust before us earned dividend and interest income and there is no suggestion that such income was earned from business activities and the trust was created through any of the funds, mentioned in cl.(iv), for benefit of employees of the business-man-testator. The status of the beneficiaries before us, had they been directly assessed for their income, would be that of individual as held by Supreme Court in the case of CWT vs. Trustees of HEH Nizam's Family (Reminder Wealth)Trust. That would also be the status of the trustees of this trust for the purposes of their assessment under s. 161 in their representative capacity. 22. Now coming to the justification in assessee's claim, we find that s. 80L(1) reads as follows: "80L,(1) Where the gross total income of an assessee, being— (a)an individual, or (b)a Hindu Undivided Family, or (c)an association of persons or a body of individuals consisting in either case, only of husband and wife governed by the system of community of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its status as 'AOP'. In the course of assessment proceedings the assessee had submitted a letter claiming deduction of Rs. 3,000 under s. 80L. The ITO had not considered the claim of the assessee and had passed assessment order under s. 143(11) of the Act. On appeal, the AAC directed the ITO to allow deduction under s. 80L to the assessee as claimed by it. It was on these facts that the Bombay Bench 'B', heavily relying upon the Calcutta High Court decision in the case of Smt Santimoyee Bose vs. CIT(1969)74 ITR 133(Cal)held that the assessee-trust was liable to be assessed in the status of AOP because of deeming provisions of s. 164(1)In spite of the fact that the assessee trust could not be said to have formed an association or combined together to earn their income. 27.The facts of the case in Smt. Santimoyee Bose vs. CIT before the Calcutta High Court were that in a suit for maintenance filed by the assessee on behalf of herself and her minor sons and daughters against her husband, the Court had directed payment of maintenance at certain rates and also arrears of maintenance. The assessing officer, rejecting the contention of the assessee that under the decree the shares of e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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