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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, VICE- & SHRI G. MANJUNATHA
PER G.MANJUNATHA, AM: This appeal filed by the Revenue is directed against the
order passed by the learned Commissioner of Income Tax
(Appeals)-2, Chennai dated 22.11.2018 and pertains to
assessment year 2015-16.
The Revenue has raised following grounds of appeal:-
“1. The order of the Ld. CIT(A) is contrary to law, facts and circumstances of the case. 2. The Ld.CIT(A) erred in giving relief to the assessee by holding that Private Discretionary Trusts (PDTs) are not to be treated as ‘individual’ but as Association of Persons (AOP) in status, when various sections of the Act such as 80L, 54F & 194A treat Private Discretionary Trusts (PDTs) as individuals for the benefits of those sections.
2 ITA No. 320/Chny/2019 3. The Ld.CIT(A) erred in not applying the above rationale Mutatis mutandis for the purposes of taxability of income too under section 56(2) PDTs to be treated as individuals. Further, the Ld.CIT(A) erred in the application of the Act by changing variably the interpretation of status provision-to-provision rather than applying it in a wholesome manner. 4. The Ld. CIT(A) has erred in remitting back the issue of disallowance under section 14A for fresh consideration in contravention of provisions of section 251(1)(a) of the Act which gives only the power to confirm, reduce, enhance or annul the assessment to CIT(A). 5. The Ld.CIT(A) erred in remitting back the issue of disallowance under section 14A to the file of the AO and thereby exceeded the powers vested in Commissioner(Appeals) under section 251(1)(a).”
Brief facts of the case are that the assessee M/s.Shriram
Ownership Trust is a Private Discretionary Trust. The assessee
has filed its return of income for assessment year 2015-16 on
31.08.2015 declaring taxable income of Rs.86,37,28,050/-. The
assessment has been completed u/s.143(3) of the Income Tax
Act, 1961, on 14.03.2017 and determined total income at
Rs.89,53,89,888/- by inter-alia, making addition of Rs.75 lakhs
towards income from other sources being contribution received
by trust u/s.56(2)(vii) of the Income Tax Act, 1961, and also
addition towards disallowance u/s.14A of the Income Tax Act,
1961, in respect of expenditure relatable to exempt income
amounting to Rs.2,41,61,838/-.
3 ITA No. 320/Chny/2019 4. The assessee carried the matter in appeal before first
appellate authority. The learned CIT(A) for the reasons stated
in his appellate order dated 22.11.2018 deleted additions made
by the Assessing Officer towards income from other sources
being contribution received by the trust u/s.56(2)(vii) of the Act,
by following the decision of the ITAT., Chennai in assessee’s
own case for assessment year 2014-15 in ITA No.406 &
407/Mds/2017 dated 05.07.2017 by holding that contribution
received by the assessee cannot be considered as income from
other sources u/s.56(2)(vii) r.w.s. 2(24)(xv) of the Income Tax
Act, 1961. As regards additions made towards disallowance
u/s.14A r.w.Rule 8D, the learned CIT(A) has directed the
Assessing Officer to recompute disallowance u/s.14A r.w.Rule
8D by excluding certain expenses which are not attributable to
earning exempt income. Being aggrieved by the order passed
by the learned CIT(A), the Revenue is in appeal before us.
The first issue that came up for consideration from ground
no.2 & 3 of revenue appeal is deletion of addition made by the
Assessing Officer towards contribution received by the
assessee as income u/s.56(2)(vii) r.w.s 2(24)(xv) of the Act, by
4 ITA No. 320/Chny/2019 holding that Private Discretionary Trust is not to be treated as
an individual, but it should be treated as AOP for purpose of
taxation. The facts with regard to impugned dispute are that the
assessee trust has received a sum of Rs.75 lakhs as corpus
fund and same has been credited to capital account. This
amount received by the trust is in the form of donation and
thus, same has been treated as capital receipt and not liable for
tax. The Assessing Officer assessed contribution received by
the assessee as income liable to be taxed u/s.56(2)(vii) r.w.s.
2(24)(xv) of the Act, on the ground that Private Discretionary
Trust is to be treated as an individual for the purpose of taxation
and thus, any contribution received by the assessee is in the
nature of income, which is liable to be taxed u/s.56(2)(vii) r.w.s.
2(24)(xv) of the Income Tax Act, 1961.
The learned DR for the Revenue submitted that first issue
is squarely covered in favour of the Revenue by the decision of
Hon’ble Jurisdictional High Court of Madras in assessee’s own
case for assessment year 2014-15 in T.C.A No.242 of 2018
dated 08.12.2020, where the Hon’ble High Court has very
categorically held that contribution received by the assessee is
5 ITA No. 320/Chny/2019 to be assessed as income u/s.56(2)(vii) of the Income Tax Act,
1961.
The learned A.R for the assessee, on the other hand,
fairly agreed that this issue is covered against the assessee by
the decision of Hon’ble Madras High Court in the assessee’s
own case for assessment year 2014-15.
We have heard both the parties, perused materials
available on record and gone through orders of the authorities
below. We find that the Hon’ble Madras High Court had
considered an identical issue in assessee’s own case for
assessment year 2014-15 and after considering relevant facts
has very categorically held that the assessee is representative
assessee as defined u/s.160(1)(iv) of the Act, and benefit
derived by the assessee on behalf of beneficiaries is to be
taxed as an individual and hence, any contribution received by
the trust is taxable as income from other sources u/s.56(2)(vii)
r.w.s. 2(24)(xv) of the Income Tax Act, 1961. The relevant
findings of the Hon’ble High Court are as under:-
“78. We have given our findings as to the effect of the insertion of explanation to Section 2(31) and held against the assessee. It is no doubt true that no decision can be rendered dehors the facts. Therefore, we shall examine the facts which were noted by the
ITA No. 320/Chny/2019
authorities. As per the Deed of Trust and the Supplemental Deed, the trust is created to benefit the members of owner group and the senior leader group of Shriram Group who are identified as beneficiaries as per the scheme laid out in the Trust Deed. The method of determining the beneficiaries of the owner group and the senior leader group is also provided in the Deed of Trust. In Annexure B of the Deed of Trust dated 11.09.2006, 13 persons have been identified and their names are in the list of beneficiaries who are in the owner’s group. Annexure C of the Deed of Trust mentions names of 23 persons who are beneficiaries under the senior leader group and all of them occupy senior positions comprised in Shriram Group. The sum of Rs.25 Crores which was contributed to the assessee are from Shriram Business Finance, Shriram Credit Syndicate, Shri SR E- Commerce Finance, Shriram Two Wheeler Finance, Shriram Domestic Finance and Shriram Professional Finance. The authorities noted that all the six concerns who have contributed the total amount of Rs.25 Crores are located in the same address in Chennai and form part of the Shriram Group. The donation which was given to the Trust are for the benefit of the persons occupying high positions in the Shriram Group and it will clearly go to show that the assessee has received the same on behalf of the beneficiaries who have been identified. If that is so, then the assessee is a representative assessee as defined under Section 160(1)(iv) of the Act and the benefit is derived by the assessee on behalf of the beneficiaries and to be taxed as an “individual”.
The authority on examining the factual position found that the assessee has adopted a ingenious method for the purpose of circumventing the provisions of the Act by accepting the gift on behalf of the individuals thereby acting as a conduit. Unfortunately, the Tribunal did not examine this aspect of the matter but proceeded on a different footing which we decline to approve. The Tribunal placed reliance on the decision of the Delhi Tribunal in Mridu Hari Dalmia Parivar Trust. We find that the said decision could not have been applied to the facts of the instant case, more particularly, when the Assessing Officer in the said case held that the assessee is an AoP. Furthermore, the finding rendered by the Tribunal with regard to the effect of insertion of clause (x) in Section 56(2) with effect from 01.04.2007 could not have been rendered in isolation without
ITA No. 320/Chny/2019
reference to the factual details where the beneficiaries were identified and therefore, the Tribunal erred in reversing the finding of the CIT(A) that the assessee has to be assessed as an “individual”. Therefore, we hold that the assessee Trust is a representative assessee as it represents the beneficiaries who are identified individuals and therefore to be assessed as an “individual” only. Consequently, the contribution of Rs.25 Crores is to be assessed as income under Section 56(1) under the head ‘income from other sources’.
It is submitted on behalf of the assessee that it is not in dispute that in terms of Section 160(1)(iv), a trustee is a representative assessee for a beneficiary. However, the revenue cannot place reliance on Section 161 of the Act as the said provision will apply only when the income is specifically receivable on behalf of or for the benefit of any one person who are known or whose shares are determined. It is further submitted that in the assessee’s case the beneficiaries are indeterminate and the individual shares of the income are also indeterminate and the voluntary contributions were received by the assessee Trust into their corpus and did not form part of the income distributed to the beneficiaries. This argument must necessarily fail for the reasons given by us earlier as we have held that the assessee is required to be assessed as an “individual”, the beneficiaries have been identified and are identifiable and Section 161 would apply because the income is specifically receivable on behalf of or for the benefit of any one person who are known and whose shares are determinate. The factual positions as brought by the JCIT and the CIT clearly show that the methodology adopted by the assessee was to circumvent the provisions of the Act.
For all the above reasons, we do not agree with reasons given by the Tribunal holding that the sum of Rs.25 Crores received by the assessee could not have been considered as income from other sources under section 56(2)(vii) read with Section 2(24)(xv) and accordingly, the same is set aside and the order passed by the CIT(A) is restored.”
8 ITA No. 320/Chny/2019 9. In this view of the matter and by respectfully following the
decision of the Hon’ble High Court of Madras in assessee’s own
case for assessment year 2014-15, we reverse order of the
learned CIT(A) and sustain additions made by the Assessing
Officer towards contribution received by the Trust as income
liable to be taxed u/s.56(2)(vii) of the Income Tax Act, 1961.
Accordingly, ground no.2 & 3 are decided in favour of the
Revenue. 10. The next issue that came up for our consideration from
ground No.4 & 5 of Revenue appeal is addition made u/s.14A of
the Income Tax Act, 1961. The assessee has received dividend
income of Rs.6,10,506/-, however, has not made any suo motu
disallowance of expenses relatable to exempt income u/s.14A
of the Act. The Assessing Officer has computed disallowance of
expenses u/s.14A by invoking Rule 8D of the I.T. Rules, 1962,
and has determined disallowance of Rs.2,41,61,838/-. The
learned CIT(A) has restored the issue to file of the Assessing
Officer and directed him to recompute expenses by excluding certain administrative and personal expenses and also interest
paid on loan from M/s. Piramal Enterprises Pvt.Ltd., for the
reason that said expenses are not attributable to exempt
9 ITA No. 320/Chny/2019 income. Being aggrieved by the order of the learned CIT(A), the
Revenue is in appeal before us.
The learned DR submitted that the learned CIT(A) has
erred in remitting the issue back to the file of the Assessing
Officer in contravention of provisions of section 251(1)(a) of the
Act, which gives only power to confirm, reduce, enhance or
annul any assessment to the learned CIT(A). The learned DR
further submitted that the learned CIT(A) has erred in not
appreciating fact that concept of strategic investments is done
away with by the decision of the Hon'ble Supreme Court in the
case of Maxopp Investments Ltd., vs. CIT (2018) 402 ITR
640(SC) and thus, for purpose of computing disallowance
u/s.14A, all investments including investments made for
strategic business purpose also needs to be considered.
The learned AR for the assessee, on the other hand,
submitted that the issue is squarely covered in favour of the
assessee by the decision of the Hon’ble Delhi High Court in the
case of Joint Investments Pvt.Ltd. 233 taxmann.com 117,
where it was categorically held that disallowances contemplated
10 ITA No. 320/Chny/2019 u/s.14A shall not exceed exempt income of the assessee for
relevant year.
We have heard both the parties, perused materials
available on record and gone through orders of the authorities
below. It is well settled principle of law by the decisions of
various courts, including decision of the Hon’ble Delhi High
Court in the case of Joint Investments Pvt.Ltd (supra), where it
was categorically held that disallowances contemplated u/s.14A
shall not exceed exempt income earned for relevant
assessment year. In this case, the assessee has earned
dividend income of Rs.6,10,506/-, whereas the Assessing
Officer has determined disallowance to the extent of
Rs.2,41,61,838/-. Therefore, we are of the considered view that
the Assessing Officer has erred in disallowance of expenses in
excess of exempt income earned for the year. Hence, we direct
the Assessing Officer to restrict disallowance of expenses to the
extent of exempt income earned by the assessee for relevant
assessment year, while deciding the issue as per directions of
the learned CIT(A). Insofar as contention of the Revenue with
regard to powers of the learned CIT(A) in light of provisions of
section 251(1)(a) of the Act, we find that at first stage, the
11 ITA No. 320/Chny/2019 learned CIT(A) had given relief to the assessee in light of
decision of the Hon’ble Delhi High Court in the case of Joint
Investments Pvt.Ltd.(supra) and thus, we are of the considered
view that there is no error in the reasons given by the learned
CIT(A) to remit the issue back to file of the Assessing Officer to
recompute disallowance u/s.14A of the Income Tax Act, 1961.
Hence, the grounds taken by the Revenue are rejected.
In the result, appeal filed by the Revenue is partly
allowed. Order pronounced in the open court on 22nd December, 2021 Sd/- Sd/- (महावीर �संह) (जी. मंजुनाथ) (Mahavir Singh) (G. Manjunatha ) उपा�य�/ Vice-President लेखा सद%य / Accountant Member चे'नई/Chennai, (दनांक/Dated 22nd December, 2021 DS आदेश क� ��त*ल+प अ,े+षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु-त (अपील)/CIT(A) 4. आयकर आयु-त/CIT 5. +वभागीय ��त�न1ध/DR 6. गाड� फाईल/GF.