NIKHIL GHOLANI,MUMBAI vs. DCIT 22(1), MUMBAI

Per Bench : This appeal, filed by the assessee, is directed against the order dated 11th November 1. 2016 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2011-12.

Assessment year: 2011-12 Page 2 of 3 3. The assessee before us is an individual who was working as Managing Director of IDFC Limited (earlier known as S SKantilalInshwarlal Securities Pvt Ltd) and the said employer company has set up a trust by the name of SSKI Employees Welfare Trust for implementing the Employees Stock Options Plan (ESOP). The assessee was one of the beneficiaries of the trust. The trust was holding investments on behalf of the beneficiaries. When the investments in question were sold by the trust, the trust duly paid the long term capital gains in respect of the same. During the relevant previous year, the assessee receivedhis share of Rs 1,89,22,931 from the said trust on account of sale of shares. While the assessee claimed it as exempt, the Assessing Officer brought it to tax as perquisite under section 17(2). Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before us.

5. Learned representatives fairly agree that the issue is now covered, by a coordinate bench decision in the case of Pawan Kumar Sharma, another beneficiary of the same trust. In the said order, i.e. Pawan Kumar Sharma Vs JCIT [ITA No. 289/JP/14; order dated 31st March 2016], the coordinate bench has, inter alia, observed as follows:

2.9 In light of above, it is clear that the whole scheme has been administered by the employer entity through the employer welfare trust right from inception till disposition of shares, payment of taxes and final distribution of sale proceeds to the beneficiaries of the trust. Further, it has been brought to our notice that the trust has paid long term capital gains @ 20% and has been regular in filing its return of income under the scheme and provisions of section 161-164 of the Act. The deposition of taxes and filing of tax return has thus happened in the status of representative assessee by the trust on behalf of all the beneficiaries including the appellant. 2.10 The question that arise for consideration is whether the AO has exercised his option whereby the trust has been assessed to tax in respect of such sale and disposition of shares on behalf of the beneficiaries as there is a fundamental difference between mere filing of return of income and the return of income being assessed to tax. The choice is with the Assessing Officer. He may assess the person represented and if he does so the appropriate provisions of the Act relating to the computation of total income and the manner in which the income is to be computed will apply to that assessment. If, however, the Assessing Officer chooses to assess the representative assessee in respect of that income and limited to that extent, tax may be levied and recovered from him to the same extent as may be leviable and recoverable from the person represented by him. The income which is once brought to tax either in the hands of the representative assessee or the represented person cannot be again brought to tax in hands of the other.

Assessment year: 2011-12 Page 3 of 3

2.11 In the instant case, it is a fact that the trust has filed the return in the capacity of representative assessee and has paid taxes on long term capital gains. At the same time, there is nothing on record to suggest that AO has exercised his option whereby the trust has been assessed to tax in the capacity of the representative assessee under the provisions of section 161-164 of the Act. Further, the matter relating to application of section 161 or section 164 is also not on record as to determine exact taxability of the trust. Where it is found on examination by the AO that the trust has been rightly assessed to tax in the capacity of representative assessee, the appellant will not be called upon to pay any further taxes. In a scenario, where the trust has not been assessed to tax, the AO would be at liberty to proceed and assess the income in the hands of the appellant in accordance with law and due credit shall be given for capital gains tax paid by the trust relating to share of appellant in sale proceeds of shares and resultant distribution of surplus to him. The matter therefore require further examination and is being aside to the file of the AO with above directions.