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Income Tax Appellate Tribunal, KOLKATA BENCH (SMC
Before: Shri P.M. Jagtap, AM]
order : October 13 , 2017 ORDER This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 13, Kolkata dated 22.01.2016 and the grounds raised
therein by the assessee are as under: “1. That the appeal is directed against the order of Ld. CIT(A)-12, Kolkata.
2. That the cases is directed towards the single issue involved about the action of Ld. CIT (A) to upheld the act of the Ld. ITO in applying the maximum marginal rate of tax (at 30%) on the trust in spite all the conditions of section 161(1) of the Income Tax Act 1961 are fulfilled and the trust should be taxed as status of individual.
3. That the Ld. CIT (A) has erred in not observing the fact that the maximum marginal rate of Tax was applied that the maximum marginal rate of Tax was applied to the assessee by the Ld. ITO by passing order u/s 143(1) without giving reasonable opportunity of being heard to the assessee and charging tax at the maximum marginal rates of taxes.
2 Assessment Year: 2012-13 Shrestha Kajaria benefit Trust 4. That the appellant is a beneficiary trust and is Master Shrestha Kajaria is the sole beneficiary of the trust and creation of the trust was for the sole benefit of Master Shrestha Kajaria. The share of Shrestha Kajaria is determinate and the Assets and liabilities are rest with his benefit. The trustees are only taking care of the trust property and no way any benefit of the trust is passed on to the trustees.
That the learned CIT (A) has erred in law by observing that the share is indeterminate, uncertain and the same on future date. To its contrary the share is determinate one single person Shrestha Kajaria who is alive and share is 100% as per the documents produced, and furthermore the accumulation of the trust is already being accruing to minor for his benefit.
That the ld. CIT (A) has erred the law by observing that the ‘Income has accrued to the trustee during the relevant financial year’, in contrary no such income accrued to the trustees. The income was accrued to the trust and sole beneficiary of the income accrued was Shrestha Kajaria.
7. That the ld. CIT (A) has erred the law by observing that the first leg of section 164(1) is applicable, whereas the fact and evidences are against the applicability of section 164(1) of the Income Tax Act 1961.
That the assessee carves leave to add, alter or amend any ground before or at the time of hearing.”
The assessee in the present case is a single beneficiary private trust with a single beneficiary Master Shrestha Kararia who was a minor. The return of income for the year under consideration was filed by it after making payment of tax at normal slab rate as applicable to the individual. The said return was processed by the AO under section 143(1) and vide an intimation dated 30.08.2013, the status of the assessee was taken as AOP and tax was charged at maximum marginal rate being 30%. Against the intimation issued by the AO under section 143(1), an appeal was preferred by the assessee 3 Assessment Year: 2012-13 Shrestha Kajaria benefit Trust before the Ld. CIT (A). During the course of appellate proceedings before the Ld. CIT (A), it was submitted on behalf of the assessee that the trust was constituted by the settler by an indenture on 14.10.2006. The sole beneficiary specified in first para of the indenture was one Master Shrestha Kajaria who was aged 10 months at the time of constitution of the trust. The entire trust property and the income arising there from was to go to the beneficiary Master Shrestha Kajaria on the day he attains majority. It was contended on behalf of the assessee before the Ld. CIT (A) that the provisions of section 161(1) thus were applicable in its case since the beneficiary was known and certain. It was submitted that the Income Tax Officer however simply processed the return and charged tax at maximum marginal rate without assigning any reason. It was also contended that the provisions of section 164 (1) were not attracted since there was only one beneficiary and income should be taken to have been received by the trustees for and on behalf of that beneficiary as he was alive on the last day of the previous year relevant to the assessment year under consideration. It was contended that the maximum marginal rate was leviable on the trust only if the beneficiary was not known or shares of the beneficiary were not determinate. It was contended that both these conditions were not applicable in the case of the assessee since the beneficiary was known and he was entitled to 100% income. Reliance in support of these contentions was placed on behalf of the assessee on the various case laws.
4 Assessment Year: 2012-13 Shrestha Kajaria benefit Trust 3. The submissions made by the assessee were considered by the Ld. CIT (A). He first discussed the pre-requisite of private trust in his impugned order and then proceeded to discuss and deliberate upon the various case laws relied upon by the assessee. He also discussed other case laws on the issue before finally upholding the intimation issued by the AO under section 143(1) taking the status of the assessee as AOP for the following reasons given in paragraph no 5 of his impugned order: “In the decision of the Calcutta High Court, there was no reference made to either the provision of the Transfer of Property Act or the decisions of the Madras High Court mentioned above, but the case was decided simply on the terms of the provisions of section 164 read with the Explanation thereto. In the Gujarat High Court case, it is submitted, with respect that the Court was carried away by the simple terms of the section which was strictly applied and the court did not notice that the section did not cover cases of the beneficiaries who had no right to the income of the trust. The only weak link appears to be that the trustees are given ample power to convert the income accumulated and treat the same as corpus. This may be considered as an application of income after the same having accrued in favour of the beneficiaries for whom the trustees act as a representative assessee. If the assessee can establish that the income as such has not accrued to the beneficiaries as the right to the income has to be decided from the trust deed as such, then the assessee can contest this decision of the High Court as not in accordance with law. Thus, it is submitted that this judgment requires re-consideration. Incidentally it is noticed that the Supreme Court has granted to the assessee special leave to appeal against this judgment of the Gujarat High Court in full case (1991) 189 ITR 39. In the said report, it is also mentioned that the Bombay High Court in the case of CIT vs BA. Sangkrajka Trust (1990) 181 ITR 484 has taken a different opinion contrary to that of the Gujarat High Court. However, there is no such reference of the Bombay High Court in the Gujarat High Court case.
5 Assessment Year: 2012-13 Shrestha Kajaria benefit Trust As far as the Calcutta High Court Court’s case is concerned, from the tenor of the judgment, it is not clear as to whether the trust deed contained various options in the event of the would-be wife not coming into existence of the assessee’s son did not marry at all. In this context the Madras High Court in the case of L. Gouthamchand (supra) at page 447 has observed that as a matter of fact, it was verified that the assessee was married subsequently and so the beneficiary was found to be known and certain. Thus to conclude that the shares are indeterminate, uncertain and the same are on future date. The beneficiary is a minor. The beneficiary is entitled to the whole of income as well as corpses only on attaining majority and not on earlier date. It is also a relevant fact that the beneficiary is minor during the relevant financial year. Therefore first limb of section 164(1) is applicable since this is a case of a trust where there is sole beneficiary. Therefore, the AO has rightly assessed the case at the status of AOP and the basic exemption has been rightly denied.”
For the above conclusion, the Ld. CIT (A) derived support from the following case laws: “Sole beneficiary is minor – As per Trust deed, he is not entitled to any income when he is minor – Assessment on Trust u/s 164(1) upheld. ITO vs Sheetal Sunder Trust (ITAT, Bang) 96 ITD 128. Trust deed named granddaughter of author of trust as beneficiary entitled as trust income on attaining majority. During the year such beneficiary has not attained majority. Hence payment was left to absolute discretion of trustees, beneficiary is unknown and share indeterminate – tax at maximum rate. Anasuya Muthanna vs CIT (Mad) 232 ITR 561. Since rights of beneficiaries to get corpus of trust fund come into existence only on a future date, interest of beneficiaries is indeterminate or unknown – contingent – sec 21(4) of WT Act attracted – interest of beneficiaries to be assessee. A.V. Reddy Trust & Ors. Vs CWT (SC) 240 ITR 409” Aggrieved by the order of the Ld. CIT (A), the assessee has preferred this appeal before the Tribunal.
5. I have heard the arguments of both the sides and also perused the relevant material available on record. The learned counsel for the assessee has submitted that the assessee trust was regularly assessed as individual in all the earlier years and its status was changed to AOP for the first time in the year under consideration and that too while processing the return of income under section 143(1). He has contended that the Ld. CIT (A) has upheld the intimation issued by the AO under section 143(1) on this issue relying on certain case laws which are distinguishable on fact. He has submitted that in the case of Anasuya Muthanna vs CIT (supra) relied upon by the Ld. CIT (A), discretion was given to the trustees till the beneficiary had not attained majority while no such discretion was given to the trustees in the assessee’s case. As regards the decision of the Hon’ble Supreme Court in the case of A.V. Reddy Trust & Ors. Vs CWT (supra) relied upon by the Ld. CIT (A), he has submitted that the same was rendered for A.Y. 1976-77 that is before the amendment made in section 161 and 164 by the Finance Act (2) 1980. He has contended that the decision of Hon’ble Kolkata High Court in the case of CIT vs Shree Krishna Bandar Trust 201 ITR 989 and that of Gujarat High Court in the case of CIT vs Deepak Family Trust No. 1 reported in 211 ITR 575, on the other hand, is squarely in favour of the assessee wherein it is held that the status of the trust depends on the status of beneficiary. He has also relied on certain decisions of the Tribunal in support of the assessee’s case on the issue and submitted that the issue is squarely covered in favour of the assessee.
6. Without prejudice to the various contentions raised on merit and as an alternative, the learned counsel for the assessee has submitted that the issue relating to the determination of the status of the assessee trust and the rate of tax applicable to it is highly debatable and the same therefore is beyond the scope of section 143(1). Keeping in view the various submissions made by the assessee before the Ld. CIT (A) as well as before us and the case laws discussed by the Ld. CIT (A) in his impugned order and relied upon by the learned counsel for the assessee in support of the assessee’s case, I find merit in the alternative contention of the learned counsel for the assessee that the issue relating to the determination of the status of the assessee as well as the rate of tax applicable to it is highly debatable and the same is beyond the scope of adjustment permissible under section 143(1). I, therefore, accept the alternative contention raised by the assessee and setting aside the impugned order of the Ld. CIT (A), I direct the AO to take the status of the assessee as claimed in the return of income and levy tax accordingly.