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Facts
The assessee, a beneficiary of a private discretionary trust (SANMP), received a distribution of income amounting to Rs. 1,24,56,045. The assessee contended that this income was not taxable in their hands as the trust had already paid tax on it, and taxing it again would amount to double taxation. The assessee also argued that similar distributions in earlier and subsequent years were accepted by the revenue.
Held
The Tribunal held that since the trust had already paid tax on its income, the distribution to the beneficiary was not taxable in the hands of the assessee, especially considering past precedents and a CBDT circular. The Tribunal also directed the Assessing Officer to verify and allow credit for taxes already paid and to consider the consequential grounds related to interest under sections 234A and 234B.
Key Issues
Whether the distribution of income from a trust, on which tax has already been paid by the trust, is taxable in the hands of the beneficiary. Also, issues related to credit for taxes paid and charging of interest under sections 234A and 234B.
Sections Cited
143(3), 144B, 144C, 250, 56(2)(x), 115BBDA, 234A, 234B
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of Ld. CIT(A)/NFAC, Delhi dated 17.10.2024 for assessment year (AY) 2020-21. The assessee has raised following grounds of appeal:
“A. ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144B OF THE INCOME-TAX ACT, 1961 ("the Act") IS BAD IN LAW, TIME BARRED, ILLEGAL, VOID:
1. On the facts and in the circumstances of the case and in law, the Learned National Faceless Appeal Centre, Delhi ("NFAC") / Commissioner of Income-tax (Appeals) ("CIT(A)") erred in upholding the Assessment Order under section 143(3) r.w.s. 144B of the Act passed by the Assessment Unit, Income Tax Department ("the Assessing Officer") even after lapse of time limit prescribed under the provisions of section 144B r.w.s. 144C of the Act.
The Appellant prays that the Assessment Order passed under section 143(3) r.w.s. 144B of the Act is time barred and the same ought to be quashed.
B. NO OPPORTUNITY OF BEING HEARD WAS GRANTED:
2. On the facts and in the circumstances of the case and in law, the Learned NFAC/CIT(A) erred in passing the Appellate Order under section 250 of the Act dated 17.10.2024 without giving fair and reasonable opportunity of hearing to the Appellant.
The Appellant prays that the Appellate Order passed under section 250 of the Act is bad in law/invalid/ void and the same ought to be quashed.
WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL:
C.ADDITION OF RS. 1,24,56,045 RECEIVED FROM SANMP PRIVATE BENEFICIARY TRUST ("SANMP") AS BUSINESS INCOME:
On the facts and in the circumstances of the case and in law, the Learned NFAC/CIT(A) erred in confirming the addition of Rs. 1,24,56,045 received from SANMP as distribution of income under section 56(2)(x) of the Act as 'Income from Other Sources (in the Assessment Order passed) and as "Income from Business' (in Computation Sheet enclosed with the Assessment Order) in the hands of the Appellant without appreciating the fact that:
a. SANMP has paid taxes on their income and the amount distributed by SANMP to its beneficiaries is not taxable in the hands of the beneficiaries under the provisions of the Act. b. the same income can't be taxed twice as per the CBDT Circular No. 157 [F.NO. 228/8/73-IT (A-11)] Dated 26.12.1974. c. the same treatment was accepted by the Department in all earlier years and subsequent year. d. section 56(2)(x) of the Act is not applicable in case of distribution by the trust to its beneficiaries. e. the dividend income on shares in the hands of trust as well as in the hands of beneficiaries is taxable @ 10% under section 115BBDA of the Act.
The Appellant submits that the addition of amount received from SANMP as distribution of income by the Appellant is incorrect and the same ought to be deleted.
D. NON-GRANTING OF CREDIT OF TAXES PAID ON REGULAR ASSESSMENT OF RS. 74,000:
4. On the facts and in the circumstances of the case and in law, the Learned NFAC/CIT(A) erred in not adjudicating the ground raised for non-granting of credit of taxes paid on regular assessment of Rs. 74,000 in the Assessment Order passed under section 143(3) r.w.s. 144B of the Act.
The Appellant submits that the Assessing Officer be directed to grant credit for regular assessment tax paid by the Appellant while computing final income tax liability.
E. CHARGING OF INTEREST UNDER SECTION 234A OF THE ACT:
5. On the facts and in the circumstances of the case and in law, the Learned NFAC /CIT(A) erred in not adjudicating the ground for charging interest of Rs. 1,71,282 under section 234A of the Act without appreciating the facts that the Appellant has filed return of income before the due date prescribed under the provisions of section 234A of the Act.
The Appellant prays that the interest charged under section 234A of the Act is F. CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT:
6. On the facts and in the circumstances of the case and in law, the Learned NFAC /CIT(A) erred in not adjudicating the ground raised for charging interest of Rs. 20,98,074 under section 2343 of the Act without appreciating the fact that the Appellant is senior citizen and provisions of section 234B of the Act is not applicable to the Appellant.
The Appellant prays that the interest charged under section 234A of the Act is incorrect and ought to be deleted.
G. GENERAL:
7. The Appellant craves leave to add to, alter, amend or vary all or any of the aforesaid ground(s) of appeal as they/their representative may deem fit.”
Rival submissions of both the parties have been heard and record perused.
The learned Authorised Representative (ld. AR) of the assessee submits that he is not present ground no. 1 & 2 of the appeal and the same may be dismissed as not pressed. In support of ground no. 3, the ld. AR of the assessee submits that assessee is one of the beneficiary of private discretionary trust namely SANMP. SANMP earned dividend income on investment of certain funds in various companies. There are eight beneficiaries of SANMP trust. The assessee received an amount of 1.24 crores as a distribution of income. On the income earned by Trust, the Trust has paid tax. Once such income was part of taxable income, same cannot be taxed twice again in the hand of beneficiary. CBDT in its circular no. 157 dated 26.12.1974 has also accepted such legal proposition. The ld. AR of the assessee submits that similar distribution of income has been accepted in A.Y. 2017-18 to 2019-20 and again in 2022-23 to 2024-25.
Even the same distribution of income has been accepted in the hand of other seven beneficiaries in the assessment order passed under section 143(3) or 143(1). Copies of such assessment orders in cases of other beneficiary’s cases are already placed on record. The ld. AR of the assessee also furnished details of all eight beneficiaries of SANMP trust along with amount of distribution of income and details of their assessment order. The ld. AR of the assessee carried us through the details of dividend income of SANMP trust in its computation of income, wherein the said trust has shown dividend received from domestic companies of Rs. 10.97 crores and the tax paid thereon. The ld. AR of the assessee submits that Karnataka High Court in Mrs. Sharon Nayak vs DCIT (2022)
145 taxmann.com 117 (Kar) also held that when the trust had filed its return of income and paid taxes, the similar sums is not taxable in the hands of beneficiary assessee. The Hon’ble Karnataka High Court also referred and relied on the CBDT circular 157 of 1974. The ld. AR of the assessee submits that in fact ground of appeal raised by assessee is squarely covered in favour of the assessee.
3. In support of ground no. 4, the ld. AR of the assessee submits that assessing officer has not allowed credit of tax paid on regular assessment; therefore, necessary direction may be given to the assessing officer.
Further, ground No. 5 & 6 are against charging interest under section 234A and 234B, which are consequential and assessing officer may be directed accordingly.
On the other hand, the learned Senior Departmental Representative (ld. Sr.
DR) for the revenue after hearing of the submissions of the ld. AR of the assessee and going through various assessment orders in favour of other different beneficiary of SANMP trust, would submit that he supports the order of lower authorities. Against ground No. 4, the ld SR DR for the revenue submits that necessary directions may be given to the assessing officer. Ground No. 5 & 6 are consequential.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities. We find that there is no much dispute on the facts of the present case. We find that assessee is one of the beneficiaries of SANMP trust which is private discretionary trust.
The quantum of distribution of income is not in dispute. We find that similar distribution of income has been accepted by revenue authorities in all assessment year from A.Y. 2017-18 to 2024-25 except for the year under consideration (A.Y. 2020-21). Further, similar distribution of income has been accepted in the hands of other seven beneficiaries. We also find that Hon’ble Karnataka High Court in Mrs. Sharon Nayak by referring and relying upon CBDT circular 157 of 1974 also held that when any sum of which tax has been paid by trust, the said sum is not taxable in the hands of beneficiary assessee. Thus, considering the aforesaid factual and legal position, we do not find any justification in taxing such sum in the hands of assessee even as income from other sources. Thus, ground no. 2 of the appeal is allowed in favour of assessee.
Ground no. 3 relates to not allowing credit of tax paid. The assessing officer is directed to verify the fact and allow the credit of tax already paid.
Ground related to interest under section 234A and 234B are consequential.
The assessing officer is directed to consider the same.
In the result, the appeal of the assessee is partly allowed.