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High Court Of Delhi
COMMISSIONER OF INCOME TAX - Appellant
Versus
SAE HEAD OFFICE MONTHLY PAID EMPLOYEES WELFARE - Respondent
I.T.A. 86 of 2004
Decided On : 09/10/2004
Head Note:
INCOME TAX Deduction under section 80L — DISCRETIONARY TRUSTAssessment as an individualRevenue authorities disallowed deduction under section 80L treating the assessed-trust as AOP and not individual. The revenue also took into consideration the provisions of section 164(1) for determining the status of assessed-trust. Held: In the absence of element of volition on the part of either the trustees or the beneficiaries, the assesee could not be treated as AOP. Thus, deduction under section 80L was allowable treating assessed-trust as an individual.
Income Tax Act, 1961 s.80L
Income Tax Act, 1961 s.164(1)
Appeal (High Court) — SUBSTANTIAL QUESTION OF LAWDeduction under section 80LHeld: No substantial question of law arose from the order of Tribunal treating assessed discretionary trust as an individual because same was already decided by various decisions of High Courts and Supreme Court.
Income Tax Act, 1961 s.260A
Income Tax Act, 1961 s.80L
Assessment — STATUSAOP or individualA trust was created for the benefit of employees during the course of business. The assessing officer assessed the trust as AOP. Held: In the case of trustees of a discretionary trust, it cannot be said that they have joined in a common purpose to common end and the purpose of association is to earn profits or gains. They became trustees of the trust not because they had mutually agreed to be trustees but because they had been appointed as such under the trust deed. By no stretch of imagination it can be said that they had joined together in common for the purpose of carrying on activity which would produce income, profit or gains. Persons who come together as trustees must be such that, left to themselves, they might not on their own even sit together or do anything jointly. thereforee, applying the test laid down in CIT v. Deepak Family Trust No. 1 & Ors. (1995) 211 ITR 575 (Guj), the trustees cannot be regarded as AOP.
Income Tax Act, 1961 s.143
Income Tax Act, 1961 s.164
Capital gains — RATE OF TAXDiscretionary TrustHeld: The trust was assessable as an individual and not as an AOP. Where assesee-trust was to be treated as an individual, rate of tax, in respect of capital gains, was to be as charged under section 112.
Income Tax Act, 1961 s.45
Income Tax Act, 1961 s.112
CONSTITUTION OF INDIA
Precedent — BINDING NATUREAnother High Court s decision on interpretation of a statutory provisionHeld: Where in tax matters, which are governed by an all-India statute, there is a decision of another High Court on interpretation of a statutory provision, it would be a wise judicial policy and practice not to take a different view barring, of course, certain exceptions.
Constitution of India, 1950 Article 141
Income Tax Act, 1961 s.112
Statute — INTERPRETATIONApplicability of section 164Held: Section 164 of the Act would come into play only after the income has been computed in accordance with other provisions of the Act. Section 164(1) only lays down the rate of tax applicable to discretionary trust. It is not concerned with the manner of computation of the total income. This section, thereforee, is required to be taken into consideration only after the income has been computed in accordance with various other provisions contained in the Act.
Income Tax Act, 1961 s.143
Income Tax Act, 1961 s.164
( 1 ). These appeals are preferred by the Revenue under Section 260a of the Income Tax Act, 1961 (hereinafter referred to as the Act), inter alia, contending that :
I) The trustees of the assessee trust are not to be assessed in the status of "individual";
II) the assessee is not entitled to claim deduction under Section 80l of the Act as an "individual" as also is not entitled for capital gain as is applicable to an "individual" ; and
III) the income of the assessee trust under the head "income from other sources" is to be taxed at maximum marginal rate as per Section 164 (1) of the Act.
( 2 ). Facts are taken from ITA No. 86 of 2004. For the assessment year 1995-96 return of income was filed on 30th August, 1995 declaring total income of Rs. 17,85,270/- including long term capital gain of Rs. 17,50,690/ -. The case was selected for scrutiny and a notice was issued under Section 143 (2) of the Act to the assessee. The assessee claimed the status of "resident Individual". However, the assessee was assessed in the status of "aop (Trust)" and the maximum marginal rate of tax was applied. Deduction claimed under Section 80l was disallowed. Application under Section 154 filed by the assessee inter alia requesting for being assessed in the status of an "individual" was disallowed vide order dated 21. 3. 1997.
( 3 ) DURING the course of hearing before the Assessing Officer various judgments were cited. It was also pointed out that the assessee was assessed in the status as an "individual" in past. The Assessing Officer did not accept the contention and made the assessment order on 29. 7. 1997 against which the appeal was preferred by the assessee being appeal No. 161/97-98 before the Commissioner of Income Tax (Appeals) who allowed the appeal against which the revenue preferred an appeal before the Income tax Appellate Tribunal being ITA 5426/del/1998 for assessment year 1995-96 which was dismissed by the Tribunal by an order dated 3rd july, 2003.
( 4 ) IN all the appeals facts are identical and therefore, all these appeals are disposed of by this common judgment.
( 5 ) LEARNED counsel for the Revenue submitted that nowhere in the trust Deed the share of beneficiaries (employees) were determined or made known and therefore, in view of Section 164 of the Act, income-tax is to be charged at the maximum marginal rate. According to the counsel for the Revenue as per proviso (iv) of Section 160 (1) of the Act the trustee appointed under a Trust Deed is a representative assessee. According to learned counsel for the Revenue as income is not receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries are indeterminate or unknown, the tax is to be charged at the maximum marginal rate. According to the. learned counsel for the revenue the decisions reported in the case of Commissioner of Income tax v. Deepak Family Trust No. 1 and Ors. 211 ITR 575 and in the case of Commissioner of Income Tax v. Shri Krishna Bandar, 201 ITR 989 (Cal.) are not applicable and the CIT (Appeals) and the Tribunal have committed an error in relying on these decisions. Learned counsel for the revenue further submitted that in view of decision of this High Court in the case of Commissioner of Income Tax v. Escorts Employees Welfare trust, 175 ITR 105 which is identical to the present case the assessee is required to be assessed at a maximum marginal rate. According to the counsel for the Revenue in view of decision of the Apex Court in gosar Family Trust and Ors. v. Commissioner of Income Tax and Ors. , 215 ITR 55 the tax must be charged at maximum marginal rate.
( 6 ) SECTION 164 of the Act would come into play only after the income has been computed in accordance with other provisions of the Act. Since the determination of the status of an assessee is a part of the process of computation of income, it is necessary to look into the general principles for determining whether the status of the trustees can be t
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