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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
O R D E R Per Pramod Kumar, VP:
By way of this appeal, the Assessing Officer has challenged correctness of the learned CIT(A)’s order dated 7th July 2016, in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2015-16.
Grievances raised by the appellant are as follows:-
“1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of the Act of Rs.1,25,00,000/- made on account of disallowance of claim of u/s. 54 of the Act.
1.1 The Ld. CIT(A) has erred in law and on facts in not appreciating that on the date of sale of property Smt. Bhavnaben was not beneficial owner of the property.
2. The Ld. CIT(A) has erred in law and on facts in holding that the decision of Hon'ble High Court in the case of Mrs. Arundhati Balkrishna vs. CIT 177
ITO Vs. Raeva Parikh Trust Assessment year: 2013-14 Page 2 of 5 ITR 275 is applicable to the instant case as the facts of the both the case are identical.
3. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.
4. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.”
The issue in appeal lies in a narrow compass of material facts. The assessee before us is a trust. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee trust has sold an immovable property for Rs.1,25,00,000/- on 16.10.2012. The sale consideration was deposited in capital gains scheme account, in order to ensure eligibility for deduction under section 54. The Assessing Officer was, however, of the view that the benefit of deduction under section 54 is available only for individuals and HUF. When he put the Assessing Officer to notice in this respect, it was explained by the assessee that the assessee trust was set up on 15.02.2008, for the benefit of an individual by the name of Bhavnaben. The trust property was to be handed over to Bhavnaben, three years after her marriage to Anilkumar Hiralal Parikh. Since the trust was for the benefit of an individual, the trust was to given the same treatment. It was also explained that Bhavnaben purchased another residential building on 06.12.2014. It was thus contended that the trust “is entitled to claim deduction under section 54 inasmuch as Reava Parikh Trust held the said building on behalf of Bhavnaben till assets are distributed”. The Assessing Officer, however, rejected the explanation and observed that Bhavnaben can be treated as beneficiary only after completion of 3 years of marriage with Anilkumar, and since the marriage was solemnised on 30.11.2010, she could be treated as beneficiary only on 30.11.2013 or thereafter. He further observed that in any event only individuals and HUFs are entitled to section 54. The claim of the assessee was thus rejected. Aggrieved, assessee carried the matter in appeal before the CIT(A) who reversed the stand of the Assessing Officer by observing as follows:-
“6. Decision: I have considered the arguments of the Assessing Officer in assessment order and of the appellant in its written submissions. Ground No.1 & 2 are taken together for adjudication.
M/s. Raeva Parikh Trust was created by Late Jayaben Hiralal Parikh by her WILL appointing Shri Anilkumar Parikh as sole trustee. Jayaben Parikh passed away on 15-02-2008 and therefore the trust came into force from that date. Clause No. 5 and Clause No. 7 of the trust deed are reproduced as under:
"Clause No. 5 : The beneficiaries of the Trust shall be widow Bhavanaben daughter of late Ratilal Mulchanddas Panchal who is engaged with Shri Anilkumar Hiralal Parikh. After marriage with Shri
ITO Vs. Raeva Parikh Trust Assessment year: 2013-14 Page 3 of 5 Anilkumar Hiralal Parikh she will be known as Smt. Bhavanaben Anilkumar Parikh."
"Clause No.7 : The duration of the trust is for a period of 3 years after the date of marriage of Shri Aniikumar Hiralal Parikh with Bhavanaben Ratilal Panchal. After the said period, the trustees will handover whatever property is held by the trust to beneficiary Bhavanaben Anilkurnar Parikh [to be known as after the date of marriage]."
6.1 Clause No. 5 of the trust deed provided that widow Bhavnaben is engaged to Anil H. Parikh and that she is the sole beneficiary of the trust. Clause No. 7 of the trust deed provided that the trust property will be distributed after three years from the date of marriage of Bhavnaben with Anil Parikh. Bhavnaben married with Anil Parikh on 30-11-2010. It is very clear that the affairs of the appellant trust are interwoven with that of Bhavnaben from the day it came into existence on 15.02.2008.
6.2 The trustee sold the residential house settled in the trust on 16-10-2012 for Rs.1.25 Crore. Prior to date of sale Shri Anil Parikh and Bhavnaben Parikh were staying together after the marriage. The entire proceeds of Rs. 1.25 Crore was deposited with capital gain account with State Bank of Saurashtra on 27-05-2013 i.e. before due date of filing of the return 31-07-2013 for A.Y. 2013-2014.
6.3 After the period of three years i.e. from 30-11-2010 the trust distributed the income on 29-11-2013 and the entire proceeds of capital gain account were handed over to Bhavnaben Parikh who is the sole trustee. Bhavnaben purchased the residential house on 06-02-2014 for Rs.1,72,31,914/- i.e. within two years from the date of sale i.e. 16-10-2012 out of the funds received on distribution on 29-11-2013 as Bhavnaben was sole beneficiary.
6.4 M/s. Raeva Parikh Trust submitted the income tax return for A.Y. 2013- 2014 disclosing the capital gain of Rs. 1.25 Crore and claiming the deduction under Section 54 to the extent of Rs. 1.25 Crore declaring Rs. Nil as income.
6.5 The AO disallowed the deduction u/s.54 with following observations:
(i) Trust cannot get the benefit of Section 54 but only Individual and HUF is entitled; and (ii) Bhavnaben is not the beneficiary on date of sale.
6.6 As regards "the trust cannot take benefit under Section 54", the appellant submitted that the trustee is to be assessed as representative capacity under Section 161 in the like manner and to the same extent meaning by the trustee is to be assessed in the same manner as beneficiary would be assessed. The revenue has option either to assess the trustee or beneficiary. In the present case, the AO has opted to assess the trust but the income in both the cases
ITO Vs. Raeva Parikh Trust Assessment year: 2013-14 Page 4 of 5 whether in the hands of trustee or in the hands of beneficiary would remain the same. The status of the trust is individual since Bhavnaben is the sole beneficiary. Therefore the sale of residential house is by the beneficiary Bhavnaben since she is sole beneficiary.
6.7 The AO mis-appreciated the facts and law and disallowed the claim under Section 54. In fact the trustee is to be assessed in the like manner and to the same extent of beneficiary, the status of the trustee would be individual since the status of the beneficiary is individual and therefore I agree with the contention is that the trust is to be assessed in the capacity of individual. This principle is laid down by the Bombay High Court in the case of Mrs. Amy F. Cama [Trustee of Late M.R. Adenwalla V/s. CIT 237 ITR 82] and several authorities mentioned in the written submission dated 01-06-2016 from Para No. 1 to 7. Hon'ble Supreme Court in the case of Mrs. Arundhati Balkrishna V/s. CIT 177 ITR 275 affirmed the Gujarat High Court decision and Gujarat High Court decision in the case of CIT V/s. Smt. Veenaben Vadilal 197 ITR 156 laid down the same principle.
6.8 Similarly since the trustee is to be assessed in the like manner and to the same extent the income of the trustee is to be computed after granting permissible deduction. In the present case, the trustee has fulfilled the conditions of Section 54 in as much as the capital gain account was opened in time and that the corpus in the form of capital gain account was distributed to the beneficiary Bhavnaben alone after period of three years from the date of marriage as provided in Clause No. 7 of the trust deed and the proceeds received by Bhavnaben on distribution of corpus on 29-11-2013 Bhavnaben purchased another residential house on 06-02-2014 i.e. within two years from the date of sale of original residential house. The trustee is entitled to claim the deduction under Section 54 since the residential house was sold on behalf of Bhavnaben and that she purchased another residential house within two years, the claim under Section 54 is permissible since the trustee is to be assessed in the like manner and to the same extent as provided in section 161. [Mrs. Arundhati Balkrishna V/s. CIT 177 ITR 275 (SC)].
6.9 The principle of like manner and to the same extent has been decided by the SC in the case of Mrs. Arundhati Balkrishna V/s. CIT 177 ITR 275 (SC) affirmed the Gujarat High Court decision in the case of Mrs. Arundhati Balkrishna V/s. CIT 102 ITR 356 (guj.). The said principles are also reiterated by the Gujarat High Court in the case of CIT V/s. Smt. Veenaben Vadilal 197 ITR 156 (Guj.). It is very clear that the sale of the asset and distribution of the same to the sole trustee has happened within broader perspective and the benefit of section 54 cannot be denied on ticklish issue. Under the circumstance I agree with the contentions of the appellant and therefore the claim under Section 54 as claimed by the appellant is to be allowed as deduction. The ground No.1 & 2 of appeal are allowed.”
ITO Vs. Raeva Parikh Trust Assessment year: 2013-14 Page 5 of 5
The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We find that the beneficiary of this trust was Bhavnaben, and the date of completing three years of marriage was relevant only for the purpose of the trust asset being handed over to the beneficiary. There is thus no dispute about Bhavnaben being actual beneficiary owner, even if it was subject to certain conditions, of the trust property. In the case of Balgopal Trust Vs. ACIT [(2017) 81 taxmann.com 367 (Mum)], on such facts, the assessee trust is held to be eligible for deduction under section 54. We see no reasons to take contrary view in this matter. In view of this reason, as also for the detailed reasons set out in learned CIT(A)’s order – with which we are in considered agreement, we approve the well reasoned conclusion arrived at by the CIT(A) and decline to interfere in the matter.