MRS SHARON NAYAK vs. THE DEPUTY COMMISSIONER

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ITA/158/2017HC KarnatakaKAHC01022448201716 August 2022Bench: P.S.DINESH KUMAR,M G UMA7 pages
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What did the High Court hold?

The Tribunal held that the income of the Trust can be taxed only once, either in the hands of the Trust or the beneficiary, as per the scheme of the Income Tax Act and relevant circulars. Therefore, taxing the amount again in the hands of the assessee amounted to double taxation.

What were the facts?

The assessee was a beneficiary of several Trusts formed by her employer. The Trusts were assessed to tax and paid taxes on their income. The Assessing Officer initially treated the amounts received by the assessee as perquisites, which was later remanded for examination under Section 56(2).

What were the issues?

Whether taxing income in the hands of the beneficiary after it has already been taxed in the hands of the Trust amounts to double taxation. Whether the Income Tax Appellate Tribunal erred in remanding the matter for fresh assessment when taxes were already paid by the Trusts.

Which sections of the Income-tax Act were involved?

Section 17(3),Section 56(2),Section 161,Section 166

AI-generated summary — verify with the full judgment below

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16TH DAY OF AUGUST, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON'BLE MRS. JUSTICE M.G. UMA INCOME TAX APPEAL NO. 158 OF 2017 BETWEEN : MRS. SHARON NAYAK FLAT NO.203, INLAND EXOTIC APARTMENTS NO.14, BENSON ROAD BENGALURU - 560 046. PAN: ABKPN7007P …APPELLANT (BY SHRI. A. SHANKAR, SENIOR ADVOCATE FOR

SHRI. BHAIRAV KUTTAIAH, ADVOCATE AND

SHRI. M. LAVA, ADVOCATE)

AND : THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 5(1) PRESENTLY CIRCLE - 5(2)(1) BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE - 560 095. …RESPONDENT (BY SHRI. K.V. ARAVIND, ADVOCATE) . . . .

THIS I.T.A. IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:27/05/2016 PASSED IN ITA NO.1594/BANG/2014, FOR THE ASSESSMENT YEAR 2008-2009. PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS

Digitally signed by S P SUDHA Location: HIGH COURT OF KARNATAKA

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STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT.

THIS I.T.A COMING ON FOR HEARING, THIS DAY, P.S. DINESH KUMAR J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal by the assessee is filed to consider the questions of law framed by the assessee for consideration of this Court.

2.

After hearing Shri. A. Shankar, learned Senior Advocate for the assessee and Shri. K.V. Aravind, learned Senior Standing Advocate for the Revenue, in our view only the following question arises for consideration:

Whether the Income Tax Appellate Tribunal erred in law in not appreciating that the income has been offered in the hands of the Beneficiary Trusts and applicable taxes have been paid by the respective Trusts and consequently taxing the amounts which has already been taxed again in the hands of the appellant amounts to double taxation on the facts and circumstances of the case?

3.

Brief facts of the case are, assessee was an employee with M/s. Lintas India (P) Ltd. The said Company had formed several Trusts in which assessee is a

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beneficiary. The respective Trusts were assessed to tax and the said Trusts have paid their taxes.

4.

Shri. Shankar submitted that in the first round of litigation, the Assessing Officer had held that the monies received by the assessee were 'perquisites' under Section 17(3) of the Income Tax Act, 1961 ('Act' for short). Assessee had challenged the said order and CIT(A)1 had upheld AO's2 order. Assessee challenged the said order in ITA No.554/Bang/2012. The ITAT3 vide order dated January 10, 2014, remanded the matter for fresh consideration by holding that the monies received by the assessee were not perquisites under Section 17(3) of the Act and directed the CIT(A) to examine taxability under Section 56(2) of the Act. The CIT(A) vide order dated September 30, 2014 held that the monies received by the assessee was taxable under Section 56(2) of the Act. Feeling aggrieved, the assessee challenged CIT(A)'s order

1 Commissioner of Income Tax (Appeals) 2 Assessing Officer 3 Income-Tax Appellate Tribunal

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in ITA No.1594/Bang/2014. By the impugned order, the ITAT has held that the monies received by the assessee could not have been taxed under Section 56(2)(vi) of the Act and remitted the matter to the Assessing Officer to pass fresh orders by classifying the tax under different heads. Assessee has challenged the said remand order passed by the ITAT in this appeal.

5.

Shri. Shankar contended that under Section 161 of the Act, the Income of the Trust could be taxed either in the hands of the Trust or in the hands of beneficiary under Section 166 of the Act. In substance, his argument is, the income of the Trust can be taxed only once either in the hands of Trustees or the beneficiary. In support of this contention, he has placed reliance on: • Circular No.157 [F.NO.228/8/73-IT(A-II)] dated 26.12.1974; and • Order dated February 19, 2018 in ITA No.2919/Del./2011 passed by the ITAT, New Delhi for

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the very same A.Y. 2008-09 in respect of the very same Trust in the case of other beneficiaries.

6.

Shri. Aravind, opposing the appeal submitted that the Assessing Officer has exercised his option to assess the income under Section 56(2) of the Act and the ITAT has directed to classify tax under various heads and therefore, there is no error in the order passed by the Assessing Officer as also by the ITAT.

7.

We have carefully considered rival contentions and perused the records.

8.

The relevant portion of the Circular relied upon by Shri. Shankar reads as follows:

"2. According to the Scheme of the 1961 Act, even as it was under the 1922 Act, the general principle is to charge all income only once. The Board desire to reiterate the earlier instructions in this regard. In order that there is no loss of revenue, the Income-tax Officer should keep this point in view at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to the revenue. Having exercised his option once, it will not be open to the Income-tax Officer to assess the

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same income for that assessment year in the hands of the other person (i.e., the beneficiary or the trustee)." (Emphasis Supplied)

9.

The language employed in the Circular is unambiguous to the effect that the income of the Trust is taxable only once in the hands of the Trust or the beneficiaries.

10.

The relevant assessment order relied upon by Shri. Shankar is one under Section 143(3) of the Act before the ITAT, New Delhi in ITA No.2919/Del./2011 and connected matters for the A.Y. 2008-09 as in the case of other beneficiaries. Having considered the very Circular No.157 [F.No.228/8/73-IT (A-II)] dated 26.12.1974 the ITAT, New Delhi has recorded in para 9 of its order the contention of the assessee therein that the income of the Trust can be taxed only once. In the result, the ITAT has dismissed the appeal filed by the Revenue challenging the order passed by the CIT(A) in that case.

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11.

As per Section 161 of the Act the Trust can be assessed in its own name. Section 166 of the Act provides for assessment of income in the hands of the beneficiary.

12.

In view of unambiguous language used in the Circular clarifying the question of law and the fact that individual Trusts have filed return of income and paid the taxes, the order of remand by the ITAT directing the Assessing Officer to pass fresh orders by classifying the tax under different heads, is unsustainable.

13.

In the light of the above discussion, the question of law is answered in favour of the assessee and against the Revenue.

Accordingly, appeal is allowed.

No costs.

Sd/- JUDGE

Sd/- JUDGE

SPS List No.: 1 Sl No.: 25

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