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Income Tax Appellate Tribunal, MUMBAI ‘A’ BENCH, MUMBAI.
Before: Shri B.R. Baskaran (AM) & Smt. Kavitha Rajagopal (JM)
The assessee has filed this appeal challenging the order dated 31.12.2018 passed by Ld CIT(A)-32, Mumbai and it relates to the assessment year 2015-16. Broadly, the issue contested in this appeal is determination of person in whose hands the income is taxable?
The facts relating to the issue are discussed in brief. The assessee herein is a trust settled under the provisions of Indian Trust Act, 1882 by a trust deed deed 31.07.2012. The trust was formed by M/s Travelon Services P Ltd by settling a sum of Rs.10,000/-. M/s Vistra ITCL India Ltd (earlier known as M/s IL & FS Trust Company Ltd) was appointed as Trustee. The object of the trust is to provide eligible persons investment opportunities in the trust which shall operate to generate long term capital appreciation by investing in equity, equity linked or debt instruments of companies engaged in the construction and development of real estate. The trust was formed a 2 Avenue Venutre Real Estate Fund fixed period of 10 years. As per clause 2.1 of the Trust deed, the trust is a contributory and determinate trust. Accordingly, it invited contributions in the form of capital commitments and/or capital contributions from the Contributors. M/s Avenue Ventures Partners LLP was appointed as “Investment Manager”.
M/s Alkem Laboratories Ltd has contributed Rs.250.00 crores (class A units) and the Investment manager contributed One lakhs rupees (Class B units). A contribution agreement titled as “Class A Contribution Agreement” was entered amongst the Trustee, Investment manager and M/s Alkem Laboratories limited. The beneficiary of the above said contribution was M/s Alkem Laboratories Ltd. The dispute under consideration is the income earned by the assessee out of the contribution of Rs.250.00 crores made by M/s Alkem Laboratories Ltd.
During the year under consideration, the assessee earned following income out of the contributions of Rs.250 crores made M/s Alkem Laboratories Ltd:- (A) Claimed as exempt u/s 10:-
Share of Profit from Partnership entities - 13,10,00,000 Dividend income - 84,28,545 ============
(B) Taxable Income:-
Capital gains on redemption of Mutual Fund units - 1,97,94,000 Capital gains on sale of equity shares - 69,30,840 Interest on debentures - 8,29,60,495 Premium on redemption of debentures - 9,21,01,097 ------------------ 20,17,86,432 ============ The assessee herein did not disclose the above said income in the return of income filed by it for the year under consideration. However, the assessee claimed refund of Rs.6.38 crores, which consisted of TDS credits and 3 Avenue Venutre Real Estate Fund advance tax payments. The assessee submitted that the above said income of Rs.20.17 crores has been offered by the beneficiary M/s Alkem Laboratories Ltd and hence it did not declare the above said income in its return of income. The assessee filed the copies of return of income filed by M/s Alkem Laboratories Ltd in order to show that the above said amount has been offered by the beneficiary. The AO observed that M/s Alkem Laboratories Ltd has shown loss of Rs.178.17 crores in its return of income.
The AO took the view that as per the provisions of sec. 161(1A) of the Act, if the income of a trust consists of or includes “Profits and gains of business”, tax shall be charged on the whole of income in respect of which such person is so liable at the maximum marginal rate. Further, under sec. 166 of the Act, the AO is having option to assess the income either in the hands of the beneficiary or the trust. He also observed that the assessee has failed to show the provisions of the Act which allowed assessee to claim income as exempt. Accordingly, the AO assessed above said amount of Rs.20.17 crores as taxable income.
Before Ld CIT(A), the assessee reiterated its contentions that, since the beneficiary has already offered the above said income, the same cannot be taxed in the hands of the assessee. The Ld CIT(A) approached the issue as under:- (a) Section 166 does not give option to the assessee to not disclose such income earned on behalf of other person. Sec. 166 can be viewed as an enabling provision which provides for taxing the said income directly in the hands of beneficiary or recovery of tax payable directly from the beneficiary.
(b) In the present facts of the case, taxing the income in the hands of the beneficiary cannot be the right option with the AO, since it would result in taxing the entire income at a lower rate than the maximum marginal rate. Hence the AO has rightly taxed income in the hands of the assessee herein.
(c) The Ld CIT(A) accepted the contention of the assessee that there cannot be double taxation of same income. He expressed the view that 4 Avenue Venutre Real Estate Fund the income should be taxed in the hands of the assessee herein and the claim of double taxation should be made by M/s Alchem Laboratories Ltd, the beneficiary only.
(d) In support of the above said decision, the Ld CIT(A) also referred to certain clauses of Trust deed and Contribution Agreement, both dated 31.7.2012 and observed as under:-
“As per Trust deed, clause 6.11 on tax liability, it is stated that the income of the Trust shall be generally offered by the Trustee as representative assessee of the contributors, unless otherwise specified in the contribution agreement. In “Class A Contribution Agreement” between the Alkem Ltd/beneficiary, the Trustee and the Investment manager, the relevant para on payment of taxes is para 3.4 and it does not specify the said income will be offered to tax by the Contributors. In the light of these provisions, it is clear that the appellant has not only retained the credit of the TDS made in its favour, by the concerns who have paid/credited such incomes but it has made payments of advance tax also, in light of the stipulation in para 6.11 in the Trust deed. The subsequent letter by the beneficiary, intimating to offer the said incomes received by the Trust in its own case is an afterthought, with an intention to reduce the tax liability of the beneficiary, since the application of section 161(1A) would result in tax at maximum marginal rate where as the beneficiary was liable to pay tax at the lower rate as per MAT provisions. Thus, in the present facts, the case of double taxation can be made out in the hands of the beneficiary, i.e., Alkem Ltd and not in the case of the appellant.”
Thus, the ld CIT(A) has taken the view that the option provided in sec. 166 of the Act is an option available to the assessing officer only and not to the assessee. Since the assessee was having income from Profits and Gains of business, the whole of income of the assessee is liable to be taxed under Maximum Marginal rate. As per the Trust deed/Contribution deed, it is the assessee who is liable to pay tax on the above said income. Hence subsequent decision taken by the beneficiary to offer the impugned income in its hands is an afterthought to reduce the tax liability. Accordingly, the Ld CIT(A) confirmed the action of the AO in assessing the above said income in the hands of the assessee.
5 Avenue Venutre Real Estate Fund
Before us, the assessee has raised two additional grounds, viz., the applicability of provisions of sec. 61 to 63 of the Act to the assessee and what is the correct status of the assessee.
We notice that the assessee has submitted before the tax authorities that it is a “determinative and irrevocable trust”. In the above said legal ground, the assessee has submitted that the contribution made by the beneficiary is a revocable transfer and hence the assessee should be considered as a revocable trust, in which case, the income is taxable in the hands of the beneficiary only in terms of sec. 61 to 63 of the Act.
We notice that the above said legal ground goes to the root of the matter and it also requires examination of facts available on record. The tax authorities did not have occasion to examine this contention, since it is raised for the first time before us. Accordingly, we are of the view that tax authorities should examine this contention first on the basis of facts available on record and legal propositions connected thereto. Accordingly, we restore this issue to the file of AO for examining it.
The outcome of the above said legal contention would have effect on other contentions raised in the main grounds of appeal. Under these set of facts, it would be proper to restore all other issues to the file of AO. Accordingly, the issues contested in the main grounds of appeal are also restored to the file of the AO. The order passed by Ld CIT(A) stands modified accordingly.
11. With regard to the second additional ground relating to the status of the assessee, we notice that the assessee herein is being assessed in representative capacity in terms of sec. 160(1)(iv) of the Act. Accordingly, the status of the beneficiary should be considered for determining the status of the assessee. We accordingly direct the AO to determine the status of the assessee in terms of sec. 160(1)(iv) of the Act.
6 Avenue Venutre Real Estate Fund
In the result, the appeal of the assessee is treated as allowed for statistical purposes.