SHRIRAM OWNERSHIP TRUST,CHENNAI vs. DCIT, CHENNAI

• The assessee Trust is a representative assessee and the income of the assessee is assessed in its representative capacity.

• The assessee Trust represents the beneficiaries who are individuals and hence the assessee Trust is to be assessed in the status of 'Individual' only.

• The contribution ofRs.25 crores is to be assessed as income u/s.56(1) S.56(2)(v)/(vi)/(vii)/(viia) only detail about the additional circumstances under which income is to be charged to tax under (he heading' Income from Other Sources'. • The wording or S.56(2) starts with "In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head 'Income from Other Sources', which signifies that the receipt of the assessee cannot be excluded from total income u/s.56(l).

& 407/Mds/2017 :- 4 -:

• The contribution of Rs.25 crores is to be assessed as income of the assessee Trust in its capacity as representative assessee and is to be assessed in the status of "Individual" only.

4. Ld. JCIT put the assessee on notice, his intention to treat the sum received by it as corpus donation as income u/s. 56(2)(vii) of the Act. Assessee thereupon submitted that it had to be considered only as an ‘Association of Persons’ (in short ‘’AOP’’) and not as an ‘’individual’’. According to the assessee by virtue of the Explanation added to Sec. 2(31) by Finance Act, 2002 w.e.f. 01.04.2002, the Apex Court judgment in the case of CIT vs. Indira Balkrishna 39 ITR 546 which gave an exposition of what constituted an AOP, was no more applicable. Further, contention of the assessee was that corpus contribution received by a private trust was not taxable. Contention of the assessee was that it could be considered, only as an Association of Persons under the definition of ‘person’ given in 2(31) of the Act, and not as an individual. As per the assessee section 56(2)(vii) of the Act could be applied only to an individual falling within the meaning of the said term in that section.

However, ld. JCIT was not impressed by any of the above 5. arguments taken by the assessee. According to him, Explanation to Sec. 2(31) of the Act, introduced by Finance Act, 2002, was only to bring within the ambit of taxation, religious and/ or charitable trusts & 407/Mds/2017 :- 5 -: which lost exemption u/s. 11 & 12 of the Act. Further, as per ld. JCIT none of the trustees of the assessee trust nor its beneficiaries had come together with a common purpose of earning income and therefore it could not be treated as an AOP. According to the ld. JCIT, definition of person u/s. 2(31) of the Act did not specify any specific category for trusts. Further, according to him, by virtue of judgment of Gujarat High Court in the case of CIT vs. Deepak Family Trust No.1 and others 211 ITR 575, that of Bombay High Court in the case of CIT vs. Marsons Beneficiary Trust 188 ITR 224, that of Gujarat High Court in the case of NITI Trust and Others vs. CIT 221 ITR 435, that of Delhi High Court in the case of CIT vs. SAE Head Office Monthly paid employees 271 ITR 159, that of Calcutta High Court in the case of CIT vs. Shri. Krishna Bandar Trust 201 ITR 989 and that of Apex Court in the case of C.R. Nagappa vs. CIT 73 ITR 626, assessee trust had to be treated as a representative assessee having the status of an individual, since all its beneficiaries were individuals. Further, as

per ld. JCIT, if Sec. 56(2) (vii) of the Act was to be confined only to individuals and HUFs then gifts received by individuals and HUFs through the medium of a private discretionary trust would be left out of scope of taxation. According to the ld. JCIT, definition of a relative given in Explanation to Sec.56(2)(vii) of the Act could not take out the applicability of said section to a private discretionary trust. In any case & 407/Mds/2017 :- 6 -:

as per ld. JCIT, benefit received by the assessee trust through the corpus donation would also get covered u/s. 2(24)(iva) of the Act. In other words, according to him, benefits which were convertible to money obtained by a representative assessee was a taxable income.

Based on the above reasoning’s, ld. JCIT directed the ld. Assessing Officer to treat the corpus donation received as income from other sources.

Adhering to the directions of the ld. JCIT, ld. Assessing 6.

Officer completed the assessment adding a sum of �25,00,00,000/- to the returned income.

Aggrieved, assessee moved in appeal before the ld. 7.

Commissioner of Income Tax (Appeals). Arguments taken by the assessee before ld. Commissioner of Income Tax (Appeals) are summarized hereunder:- The addition of ₹25 Crores as income made by (a) the Assessing Officer in the assessment made on 27.09.2016 is contrary to facts of the case and the relevant provisions of law.

(b) The Assessing Officer erred in implicitly giving effect to the order of the Joint Commissioner which was not guidance as envisaged u/s 144A ignoring the detailed submission contained in the appellant letter dated 09.09.2016 filed before the Assessing Officer on 15.09.2016.

(c) The Assessing Officer erred in bypassing the decisions of the AP High Court in CIT vs. SRMT Staff & 407/Mds/2017 :- 7 -:

Association 221 ITR 234 A.P, ITAT Delhi Bench C in Escorts Employees Welfare Trust vs. ITO (1983) 5 ITO 226 and the order dt 08.07. 2008 of the Chennai Bench in Pentafour Software employees Welfare Foundation vs. ACIT in and 752 / MOS / 2007 and bringing to tax the corpus donation received by appellant as income.

The Assessing Officer erred in applying Section (d) 56(2)(vii) to bring to tax as income corpus donations received by the Appellant Trust overlooking the fact that section 56(2)(vii) applies only to individuals and HUFs and ignoring the ratio decided in Cl'T vs Smt. Sodra 615 Devi(1957) 32 ITR on the contextual interpretation of the term individual and the decision of the Delhi Dalmia Parivar Trust vs. A.O (2016) 158 ITD 521 (e) The Assessing Officer erred in overlooking the fact that Section 56(2)(vii) applies only to what is actually received by individuals and HUFs.

The Assessing Officer erred in applying Section (f) 2(24) (iva) to bring to tax voluntary corpus donations of sums of money received by the appellant trust ignoring the interpretation of the expression value of any benefit or perquisite, whether convertible into money or not, laid down by the jurisdictional High Court in the cases of CIT vs. G. Venkataraman (1978) 111 ITR 444 and CIT vs. A.R. Adaikappa Chettiar (1973) 91 ITR 90.

Assessee also placed reliance on the following decisions:- (i) CIT vs. SRMT Staff Association 221 ITR 234 (AP High Court) (ii) Pentafour Software Employees Welfare Foundation vs. ACIT – Order dated 8.7.2008 of Chennai Bench in & 752/Mds/2007. 8. Ld. Commissioner of Income Tax (Appeals) after considering the above arguments of the assessee held that ld. JCIT had offered enough and sufficient opportunity to the assessee and he & 407/Mds/2017 :- 8 -: had also complied with the procedure laid down u/s. 144A of the Act.

As per ld. Commissioner of Income Tax (Appeals), directions issued by the ld. JCIT u/s. 144A of the Act were binding on the ld. Assessing Officer and therefore argument of the assessee that ld. Assessing Officer had not applied his mind to the issue could not be accepted.

Further, as per the ld. Commissioner of Income Tax (Appeals), reliance placed by the assessee on the judgments of Jurisdictional High Court in the case of CIT vs. Shri. G. Venkataraman 111 ITR 444 and CIT vs. A.R. Adaikappa Chettiar 91 ITR 90, for canvassing its argument that voluntary contribution could not be brought to tax, were irrelevant, since ld. Assessing Officer had brought the sum to tax u/s. 56(2)(vii) of the Act read with meaning 2(24)(xv) of the Act and not as a corpus donation simpliciter. Further, according to him, assessee was rightly considered in the status of individual since it was not an AOP within the meaning of that term as expounded by Hon’ble Apex Court in the case of Indira Balkrishna(supra).

Ld. Commissioner of Income Tax (Appeals) in his order, 9. distinguished the judgment of Hon’ble Andhra Pradesh High Court in the case of SRMT Staff Association (supra) relied on by the assessee, noting that the said case was in relation to applicability of Sec.

2(24)(iia) of the Act, which was relevant to charitable institutions and not private discretionary trusts. Similarly according to the ld. & 407/Mds/2017 :- 9 -:

Commissioner of Income Tax (Appeals) the decision of Delhi Bench of the Tribunal in the case of Escorts Employees Welfare Trust (supra) was also in relation to a charitable trust. Viz-a-viz decision of Co- ordinate Bench in the case of Pentofour Software Employees Welfare Foundation (supra), ld. Commissioner of Income Tax (Appeals) observed that the assessee there was formed as a company under Section 25 of the Companies Act, 1956 and not comparable to a private discretionary trust. Nevertheless, he agreed with the contention of the assessee that corpus donation received by the assessee would not come within the ambit of Sec. 2(24) (iva) of the Act, since it was not any benefit or perquisite. However, according to him Sec. 56(2)(vii) of the Act r.w.s. 2(24)(xv) squarely applied to any donation whether corpus or not received by the assessee. According to him, the ld. JCIT had taken a correct view in holding that income received on behalf of individual beneficiaries by a representative assessee was to be treated, for all purposes of the Act, as income received by an ‘individual’. Ld. Commissioner of Income Tax (Appeals), also considered the effect of clause (x) introduced in Sec.

56(2) by Finance Act, 2017 w.e.f. 01.04.2017. According to him, insertion of the said clause was prospective in nature and could not come to the aid of the assessee in any manner. He thus, held that the corpus donation of �25,00,00,000/- received by the assessee was & 407/Mds/2017 :- 10 -: rightly considered as income u/s. 56(2)(vii) of the Act r.w.s. 2(24(xv) of the Act. Nevertheless he directed the ld. Assessing Officer to grant basic exemption of �50,000/- available u/s. 56(2) (vii) of the Act.

Now before us, ld. Authorised Representative strongly 10. assailing the orders of the lower authorities submitted that assessee had filed its return in the status of a ‘trust’. As per the ld. Authorised Representative even in the assessment order the ld. Assessing Officer had mentioned the status of the assessee as ‘trust’. Ld. Authorised Representative pointed out that return for the assessee was filed in form ITR V prescribed for trusts and this was different from the return form prescribed for individuals.

had only a limited scope. Further, according to the ld. Authorised Representative, the limited scrutiny was intended and confined to examination of difference between turnover as per Income Tax return and turnover as per Service Tax return. Ld. Authorised Representative pointed out that the decision for taking up the case for a complete scrutiny was made only on 06.09.2016, by which time the ld. JCIT passed his order u/s.144A of the Act. Thus, according to him, ld. JCIT had passed the order even when no assessment proceedings were pending thereby rendering his direction void.

Continuing his attack on the order passed u/s.144A of the 12.

Act, ld. Authorised Representative submitted that ld. JCIT could have issued only direction as a guideline to the ld. Assessing Officer.

According to him, ld. Assessing Officer had simply followed the directions of ld. JCIT direction and made the addition, without applying his mind independently on the merits of the addition. As per ld. Authorised Representative the directions of the ld. JCIT were binding on the ld. Assessing Officer but such directions were binding only as a guidance to the ld. Assessing Officer and not as a direction to make an addition.

On the merits of the addition, ld. Authorised Representative 13. submitted that voluntary contribution received towards corpus & 407/Mds/2017 :- 12 -: donation was not taxable in the hands of a private discretionary trust.

According to him, assessee which was a private discretionary trust had returned its income in the status of a ‘trust’ and was assessed in the status of a trust. According to him, it could not be considered as an ‘individual’ only for making an addition. Relying once again Co- ordinate Bench of the Tribunal in the case of Pentafour Software Employees Welfare Foundation (supra) ld. Authorised Representative submitted that voluntary contribution towards corpus of a trust could not be considered as income. Further, as per the ld. Authorised Representative, a private discretionary trust could not be equated with an individual. For this ld. Authorised Representative relied on decision of Co-ordinate Bench of this Tribunal in the case of Gopal Srinivasan Trust vs. ADIT 46 ITD 157. According to him, corpus contribution received could not be roped in as income even u/s. 2(24) (iva) of the Act, since assessee had not obtained the contribution by way of a legal right or claim but it was only a gratuitous payment received by it.

Reliance was placed on the judgment of Hon’’ble Jurisdictional High Court in the case of A.R. Adaikapa Chettiar (supra). According to ld. Authorised Representative the question as to how a gift received by a private discretionary trust had to be treated had come up before the Delhi Bench of this Tribunal in the case of Mridu Hari Dalmia Parivar Trust vs. ACIT 158 ITD 521. According to him, in the said case the & 407/Mds/2017 :- 13 -:

Tribunal had clearly held that a gift received by a private discretionary trust could not be considered income u/s. 56(2)(vi) of the Act.

Per contra, ld. Departmental Representative, rebutting the 14.

arguments of the ld. Authorised Representative submitted that the directions given by the ld. JCIT u/s. 144A of the Act was after giving due opportunity to the assessee for representing its case and after taking into account all the averments made by the assessee, including the case laws relied on by the assessee. Contention of the ld. Departmental Representative was that ld. Assessing Officer was bound under law to follow the directions of the ld. JCIT u/s. 144A of the Act. According to him, whether the directions were for the guidance of the ld. Assessing Officer, mattered little.

Supporting the merits of the addition made by the ld. 16.

Assessing Officer, ld. Departmental Representative submitted that undisputedly the amount received by assessee was a capital inflow. As

per the ld. Departmental Representative the addition was not made considering the sum as value of a benefit or perquisite u/s. 2(24) (iva) of the Act nor was it considered as income u/s. 2(24)(iia) of the Act.

As per ld. Departmental Representative the sum was considered as income falling within Sec. 2(24) (xv) of the Act which clearly brought within its ambit all sums of money referred in Sec. 56(2)(vii) of the Act. According to him, the return form in which assessee filed its income and status shown by the assessee in such return were irrelevant, since Rules prescribing the forms could never whittle down the provisions of Act. Further, according to him, Rules could not take away what was conferred by the Act or water down its effect.

Argument of the ld. DR was that assessee being a private discretionary trust with individuals as its beneficiaries, had to be considered in the status of an individual only.

judgments held that said terms included in it, a private discretionary trust also, whose members were individuals. Relying on the decision of Mumbai Bench of the Tribunal in the case of Balgopal Trust vs. ACTI (In dated 03.05.2017), ld. Departmental Representative submitted that benefit u/s. 54F of the Act which was available only to an individual and HUF was given by the Tribunal to a private non discretionary trust. As per ld.DR, the Mumbai Bench in this decision had clearly held that a representative assessee had the same duties, responsibilities and liabilities as if income was received by him beneficially for an individual beneficiary.

Relying on the Jurisdictional High Court in the case of CIT vs. Venu Suresh Sheela Trust and Others 233 ITR 99, ld. Departmental Representative submitted that relief u/s. 80L of the Act which also was available only to an individual and HUF, was given to a private discretionary trust treating it as an individual, in a representative capacity. Relying on the judgment of Jurisdictional High Court in the case of CIT vs. Arihant Trust and Ors. 214 ITR 306, Ld. Departmental Representative submitted that an artificial juridical person was treated as an ‘’individual’’ for the purpose of application of Sec. 194A of the Act. According to him, judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. T.S.K. Enterprises 274 ITR 41 clearly rebutted the argument of the assessee that a & 407/Mds/2017 :- 16 -: discretionary trust could be assessed only as an AOP and not in the status of an individual. Finally ld. Departmental Representative relying on a judgment of Hon’ble Apex Court in the case of CIT vs. Kamalini Khatau 209 ITR 101, stated that a private discretionary trust could be deemed as an AOP only for the purpose of charging tax.

As for the amendment made by Finance Act, 2017, whereby 18. sub clause (x) to section 56(2) of the Act was introduced, according to the ld. Departmental Representative, this had no relevance, since it was brought in, only to bring within the fold of taxation, money received by firms and companies without consideration. Coming to the decision of Delhi Bench of the Tribunal in the case Mridu Hari Dalmia Parivar Trust (supra) relied on by the ld. Authorised Representative, ld. Departmental Representative submitted that Delhi Bench had not considered the judgments of the Madras High Court, with respect to the status of private discretionary trusts and therefore was not binding. According to him, on the face of a catena of judgments of Jurisdictional High Court, which was all in support of the Revenue, decision of Delhi Bench of this Tribunal paled into insignificance.

whether ld. JCIT invoked the powers vested on him u/s. 144A of the Act in accordance with said provision. Contention of the ld. Authorised Representative is that there was no assessment proceedings pending as on date when ld. JCIT issued order on 24.08.2016. However, the assessment order clearly states that notice u/s. 143(2) of the Act was issued to the assessee on 01.06.2016. Thus, clearly when the ld. JCIT passed his order under Sec. 144A of the Act, assessment proceedings were pending. We are in agreement with the contention of the ld. Departmental Representative that it mattered little whether such assessment proceedings was for a limited scrutiny or complete scrutiny assessment. At this juncture, it would be apposite to have a look at Section 144A of the Act which reads as under:-

‘’A Joint Commissioner may, on his own motion or on a reference being made to him by the (Assessing) Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the (Assessing) Officer to enable him to complete the assessment and such directions shall be binding on the (Assessing) Officer.’’ Section simply states that an assessment has to be pending and nothing more. We cannot read into the section, words which are not & 407/Mds/2017 :- 18 -: there and give an interpretation as canvassed by the ld. Authorised Representative.

Thus, in our opinion, the distinction sought to be drawn between guidance and directions hardly mattered. It might be true that ld. Assessing Officer had simply followed the directions of the ld. JCIT without applying his mind. However ld. Assessing Officer being duty bound under law to follow the directions of ld. JCIT, the question whether he had applied his mind over that issue, in our opinion became irrelevant. Thus we are of the opinion that the directions issued by the ld. JCIT were within the parameters of Sec. 144A of the Act and valid

not be roped in as income u/s. 2(24)(iva) of the Act. There can be absolutely no doubt on this aspect. In fact ld.CIT(A) had clearly held that amount received could not be considered as benefit or perquisite and Sec.2(24)(iva) of the Act. There can also be no doubt that the amount did not fall within the Sec.2(24)(iia) of the Act since assessee was not a trust created for a religious or charitable purpose.

56(2)(vii) of the Act. Both these Sections are reproduced hereunder:- Sec. 2(24) ‘’income includes--- (i)................ (ii)..........................

(xv) any sum of money or value of property referred to in clause (vii) [for clause (viia)] of sub-section (2) of section 56;] Section 56(2)

2) In particular, and without prejudice to the generality of the provisions of sub- section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :— (i) ………….; (ia) ……………….; ib) ……………….;; (ic) ………………; & 407/Mds/2017 :- 20 -:

(id) ………………"; (ii) ……………….. "; (iii) ………………";

(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 84[but before the 1st day of April, 2017],— (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b) any immovable property,— (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property; (c) any property, other than immovable property,— (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub- section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections : Provided further that this clause shall not apply to any sum of money or any property received— (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or & 407/Mds/2017 :- 21 -:

(d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 or (g) from any trust or institution registered under section 12AA [or] 85[(h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47] Explanation.—For the purposes of this clause,— (a) "assessable" shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C (b) "fair market value" of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed; (c) "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2; (d) "property" means the following capital asset of the assessee, namely:— (i) immovable property being land or building or both; (ii) shares and securities; (iii) jewellery; (iv) archaeological collections; (v) drawings; (vi) paintings; (vii) sculptures; (viii) any work of art; or (ix) bullion; (e) "relative" means,— (i) in case of an individual— (A) spouse of the individual; (B) brother or sister of the individual; (C) brother or sister of the spouse of the individual; (D) brother or sister of either of the parents of the individual; (E) any lineal ascendant or descendant of the individual; (F) any lineal ascendant or descendant of the spouse of the individual; (G) spouse of the person referred to in items (B) to (F); and (ii) in case of a Hindu undivided family, any member thereof; (f) "stamp duty value" means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property; & 407/Mds/2017 :- 22 -:

Main contention taken by the ld. Authorised Representative is that assessee could not be considered as an individual or HUF within the meaning of Sec. 56(2)(vii) of the Act, since assessee had filed its return in the status of a trust. It may be true that assessee had used the return form prescribed for trust/AOP while filing its return and not the return form prescribed for individuals. However, in our opinion status of an assessee for the purpose of assessment cannot be determined by the form in which a return of income was filed.

Definition of a person u/s. 2(31) of the Act does not give a specific classification for a trust, whether it is for private purpose or for public charity. However, the definition is an inclusive one and this by itself mean that all possible status in which a person can be assessed are not exhaustively detailed in it. Or in other words how the assessee described itself in its return may not be determinative of its status.

Status under Income Tax is a matter of law and not of choice.

Now coming to the application of Sec.56(2)(vii) of the Act 23. lower authorities had treated the assessee on par with an individual, taking a view that an individual did not always mean a natural person alone. At this juncture, it will be necessary to have a look at the judgment of Hon’ble Apex Court in the case of CIT vs. Smt. Kamalini Khatau 209 ITR 101. There the question before Hon’ble Apex Court was the liability in the case of a discretionary trust and the powers of & 407/Mds/2017 :- 23 -: the ld. Assessing Officer to assess and recover tax from a trustee or the beneficiary. What was held by the Apex Court at para 12 of its judgment is reproduced hereunder:-

‘’To begin with, the trustee even of a discretionary trust is, by reason of the terms of section 160, a representative assessee. Section 161(1) sets out the liability of a representative assessee. Its first part makes him subject, as regards the income in respect of which he is a representative assessee, to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and he is made liable to assessment in his own name in respect thereof. The second part affords protection to the representative assessee ; it states that such assessment shall be deemed to be made upon him only in his representative capacity and also that tax may be levied upon and recovered from him only in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. Section 161(2) gives the representative assessee a further measure of protection by making it explicit that "he shall not, in respect of that income, be assessed under any other provisions of this Act". This is of significance for "any other provisions of this Act" must plainly mean any provision of the Act other than section 161. Section 164 states that where any income in respect of which a trustee is liable as representative assessee is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or part thereof is receivable are indeterminate or unknown, tax shall be charged as if such income were the total income of an association of persons or such course benefits the Revenue. Put differently, section 164 states that tax shall be levied upon the income of a discretionary trust as if it were the total income of an association of persons, except that if it or part of it is actually received by a beneficiary it or that part of it becomes chargeable to tax at the rate applicable to the total income of the beneficiary if that course is beneficial to the Revenue. Section 164 does not create a charge on the income of a discretionary trust. The word "charged" in the context in which it is used in section & 407/Mds/2017 :- 24 -:

164 means only "levied". Section 164 does not make the trustee of a discretionary trust liable to assessment or the recovery of tax on the income of the trust. Section 164 harks back to section 161 when it refers to "persons . . . . liable as representative assessees". It is section 161, therefore, which has to be read to make the trustee even of a discretionary trust liable to assessment and recovery of tax on income received by him as a trustee. Further, section 161, as pointed out above, protects the representative assessee by stating that assessment upon him shall be deemed to be only in his representative capacity, by mandating that tax can be levied upon and recovered from him only in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him and by stating that he may not be assessed under any other provisions of the Act. Section 164 does not give any of these protections, as, clearly, they must be given to all representative assessees. The liability of a trustee of a discretionary trust to be assessed to tax in respect of its income and to recovery thereof is created by section 161 and it also states that he is not liable to such assessment under any other provisions of the Act. Section 164 sets out only how such tax shall be charged when the income is not distributed and when the income is distributed. It does appear, therefore, that section 164 cannot be read as being a code in itself applicable to the taxation of the income of a discretionary trust. Consequently, it cannot be held that the beneficiary of a discretionary trust, even if he has received its income in the accounting year, cannot be taxed thereon because section 164 does not provide for such contingency. The principal contention raised by Mr. Salve on behalf of the assessee must, accordingly, be rejected. Why, then, should the beneficiary of a discretionary trust stand on a footing different from that of the beneficiary of a specific trust ? It is true that the language of section 166 does not avail the Revenue because it states that sections 160 to 165 do not prevent "either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable or the recovery from such person of the tax payable in respect of such income". The section is clearly clarificatory. It does not empower any assessment or recovery by itself. It only makes it clear that & 407/Mds/2017 :- 25 -: sections 160 to 165 do not bar the direct assessment of the person on whose behalf or for whose benefit the income is receivable or the recovery from such person of the tax payable thereon, provided that is permissible under any other provisions of the Act. Even so, since the word used in section 166 is "receivable", it cannot apply to a discretionary trust for it cannot be said that the income thereon is "receivable" for one or more beneficiaries, it being left to the discretion of the trustees whether or not the income should be distributed to one or more of the beneficiaries or not at all. But that is not to say that the beneficiary of a discretionary trust, because he does not fall within the ambit of section 166, may not be assessed upon income received by him and tax recovered from him thereon if that is permissible under any other provisions of the Act for, as aforestated, section 166 is merely clarificatory. Section 5 of the Act defines the total income of any person to include income received by him or received on his behalf or which accrues or arises to him. A person may be directly assessed in respect of such income. The income of a discretionary trust which is within the accounting year distributed to and received by the beneficiary would, therefore, be subject to assessment in his hands and tax thereon would be recoverable from him. Such income would squarely fall within the broad sweep of total income under section 5 and the beneficiary would be liable to assessment and recovery of tax thereon under section 4’’.

What has been observed by the Apex Court is that tax is to levied on the income of the discretionary trust as if it was total income of an AOP, except for that part what was actually received by the beneficiary. By necessary implication this mean that private discretionary trust cannot be treated as an individual for all purpose of Act, especially when the term individual as such as is not defined therein. & 407/Mds/2017 :- 26 -:

No doubt a group of individuals may as well come in for 24. treatment in the status of an individual if the context, so requires as held by the Hon’ble Calcutta High Court in the case of CIT vs. Shri Krishna Bandar Trust, 201 ITR 0989. Their lordship while taking this view had considered the judgments of Apex Court in the case of Indira Balakrishna (supra) and of Jogendra Nath Naskar vs. CIT as well as that of Andhra Pradesh State Road Transport Corporation vs. ITO (52 ITR 524). What we discern from this decision is that a contextual meaning has given to the term ‘’individual’’. Thus just because a private discretionary trust been treated as individual for the purpose of taxation u/s. 80L or u/s. 194A or Sec. 54F of the act would not be a reason to treat it so u/s. 56(2)(vii) of the Act also. We are alive to the judgment of Hon’ble Jurisdictional High Court in the case of Venu Suresh Sheela Trust & Ors 233 ITR 0099 wherein it was held that for application of Sec. 80L, a private discretionary trust should be considered as an individual. It was similarly held by the Jurisdictional High Court in the case of Arihant Trust & Ors (supra) where the question was exemption from application u/s. 194A of the Act. There is also a decision of the Bombay Bench of this Tribunal in the case of Balagopal Trust (supra) where the benefit of Sec. 54F of the Act to a private trust treating it as equivalent to individual. However, the common strain running through all these decisions is that, the & 407/Mds/2017 :- 27 -: interpretations were in relation to a relief giving provision benefiting the assessee, and not a provision charging tax on an assessee. It is trite law that relief giving provisions are to be interpreted liberally whereas charging provisions are to be applied strictly. Section 56(2) of the Act is not akin to a relief giving provision like section 80L, 54F of the Act. It is a charging section wherein certain type of receipts, that may not otherwise be considered as income is roped in for taxation.

That apart, the definition of ‘relative’ given in Explanation 25.

(e) to said section leaves no room for doubt, that the term ‘individual’ used implied only a natural person. Thus irrespective of the status in which assessee was considered for assessment, in our opinion it could not be considered as an individual for application of Sec. 56(2)(vii) of the Act. The term individual as used in the said section, by necessary implication only can bring in natural persons. Thus, we are unable to accept the argument of the ld. Departmental Representative that the term individual having been defined to include an artificial juridical person as also a private discretionary trust u/s. 80L, 54F and 194A of the Act, it should be so considered for application of Sec. 56(2)(vii) as well. As held by Apex Court in the case of CIT vs. Sun Engineering Works P. Ltd 198 ITR 297, it is neither desirable nor permissible to pick out a word or sentence divorced from the context of a question raised before the Court and treat it as complete law. Any judgment & 407/Mds/2017 :- 28 -: has to be read as a whole and the observations from the judgment had to be considered in the light of the questions raised above. Thus, in our opinion the judgments of Jurisdictional High Court relied by the ld. Departmental Representative which were all rendered in different context, dealing with relief giving provisions of the Act would have no applicability for interpreting a charging Section.

‘’3. We have heard the rival submissions and perused the relevant material on record. The AO invoked the provisions of section 56(2)(vi) for coming to the conclusion that the amount of gift received by the assessee from Mrs. Abha Dalmia was not exempt under this provision and hence chargeable to tax. He satisfied himself as regards the fulfillment of three conditions as noted by him. At the outset, we find that the view point of the AO in construing section 56(2) as an exemption provision is not correct as it will be seen infra that it is rather a charging provision. Reverting to the point in dispute, the primary question which falls for our consideration is whether or not the amount of & 407/Mds/2017 :- 29 -:

Rs.1.60 crore is chargeable to tax as per the provisions of section 56(2)(vi).

"(vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 but before the 1st day of October, 2009, the whole of the aggregate value of such sum:

Provided that this clause shall not apply to any sum of money received (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or & 407/Mds/2017 :- 30 -: from any fund or foundation or university or other educational (f) institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g) from any trust or institution registered under section 12AA.

Explanation. For the purposes of this clause, "relative" means (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) brother or sister of either of the parents of the individual; (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii) spouse of the person referred to in clauses (ii) to (vi);"

(i) An amount exceeding Rs.50,000/- in aggregate should be received in a year; (ii) Such receipt should be without consideration; (iii) Such receipt should be by an individual or HUF; and (iv) Such receipt by individual or HUF should be from any person or persons within the designated period’’.

in the same way in which when some individuals enter into partnership, the body which comes into existence is called a 'Firm'. The AO has rightly admitted the status of the assessee as an AOP and not an individual or HUF. It is axiomatic from a plain reading of the provision that any sum exceeding Rs.50,000/- can fall within the ambit of section 56(2)(vi) of the Act only if it is received by an individual or HUF. Since the assessee in question is an AOP and not any individual or HUF, who received a sum of Rs.1.60 crore without consideration, such a receipt in our considered opinion cannot be included in its total income within the framework of section 56(2)(vi). We, therefore, set aside the impugned order on this score and order for the deletion of this addition.

Section 56(2)(vi) of the Act was the precursor to Sec. 56(2)(vii) of the Act, and therefore the above decision in our opinion squarely covers the issue in hand, before us also.

‘’Under the existing provisions of section 56(2)(vii), any sum of money or any property which is received without consideration or for inadequate consideration (in excess of the specified limit of Rs. 50,000) by an individual or Hindu undivided family is chargeable to income-tax in the hands of the resident under the head "Income from other sources" subject to certain exceptions. Further, receipt of certain shares by a firm or a company in which & 407/Mds/2017 :- 33 -: the public are not substantially interested is also chargeable to income-tax in case such receipt is in excess of Rs. 50,000 and is received without consideration or for inadequate consideration. The existing definition of property for the purpose of this section includes immovable property, jewellery, shares, paintings, etc. These anti-abuse provisions are currently applicable only in case of individual or HUF and firm or company in certain cases. Therefore, receipt of sum of money or property without consideration or for inadequate consideration does not attract these anti-abuse provisions in cases of other assessees. In order to prevent the practice of receiving the sum of money or the property without consideration or for inadequate consideration, it is proposed to insert a new clause (x) in sub- section (2) of section 56 so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head "Income from other sources". It is also proposed to widen the scope of existing exceptions by including the receipt by certain trusts or institutions and receipt by way of certain transfers not regarded as transfer under section 47’’.

A reading of the above explanatory note clearly indicate that the provisions as it stood prior to introduction of clause (x) covered only individuals and HUF and the legislature wanted to include in its fold other entities also, which were receiving gratuitous payments.

Applicability of this provision is only from 01.04.2017

Based on our discussion above, we are of the opinion that 28. the sum of �25,00,00,000/- received by the assessee could not have been considered as income from other source u/s. 56(2)(vii) of the Act r.w.s 2(24)(xv) of the Act. The said addition stands deleted. & 407/Mds/2017 :- 34 -:

The only other issue raised by the assessee which is common 29. for both the years is on disallowance u/s. 14A of the Act.

Limited arguments of the ld. Authorised Representative was 30. that while computing such disallowance, only those investments which yielded exempt dividend was to be considered and not other investments which did not yield any dividend. According to him, by virtue of decision of Delhi Bench of the Tribunal in the case of Interglobe Enterprises Ltd vs. DCIT ( in 1032 & 1580/Del/2013, dated 04.04.2014) and that of Kolkata Bench of the Tribunal in the case of Rei Agro Ltd vs. DCIT 144 ITD 141, only investments giving rise to dividend income claimed as exempt could be considered for calculation u/s. 14A of the Act. Reliance was also placed on the decision of Co-ordinate Bench in the case of Computer Age Management Services (P) Ltd vs. ACIT (ITA No.1259 to 1261/Mds/2014).

Per contra, ld. Departmental Representative submitted that 31.

import given to Sec. 14A of the Act by ld. Authorised Representative could not be accepted, since the wordings on the said section did not give room for any such interpretation. Further, as per ld. Departmental Representative the assessee trust itself was formed for making investments in shares and distributing the dividend among its & 407/Mds/2017 :- 35 -: beneficiaries. Therefore, according to him, Sec. 14A of the Act should be applied strictly. Reliance was also placed on the judgment of Apex Court in the case of CIT vs. Rajendra Prasad Moody 115 ITR 519.

We have considered the rival contentions and perused the 32. orders of the authorities below. Contention of the assessee is that dividend on which exemption was claimed by it, was only on few investments, whereas majority of its investments did not yield any income at all. Details of investments held by the assessee, as at the end of the relevant previous year is reproduced hereunder:-

Details of As on 31.3.14 As on 31.3.13 Dividend Investments Investment in 2,24,67,248 2,24,67,248 2,29,794 preference Shares Investment in Equity --- Shares Shriram Auto Mall land 55,89,940 30,89,940 --- holdings Pvt. Ltd. Shriram Financial 1,34,37,25,300 1,34,37,25,300 --- Ventures Pvt. Ltd Shriram Investment 2,25,010 2,25,010 --- Holdings P. Ld. Shriram Retail and --- 99,990 --- franchisees Pvt Ltd. Shriram Chits 8,52,05,000 8,52,05,000 --- Hyderabad P. Ltd Shriram Chits Karnataka 3,99,99,000 3,99,99,000 --- Pvt Ltd Shriram Chits Tamilnadu 11,99,99,800 11,99,99,800 --- Pvt Ltd Shriram Capital Ltd ---- 1 4,30,863 Shriram value services 1,49,80,600 1,49,80,600 --- P. Ltd TVS Shriram Growth 3,29,60,621 3,42,89,158 12,179 & 407/Mds/2017 :- 36 -:

Fund IB TVS Shriram Growth 39,18,91,446 39,74,94,530 2,45,217 Fund IA UTI Liquid plan 5,75,94,331 10,69,783 Shrilakha Financial 7,49,701 ---- --- Services – Firm UTI Money Market MF ---- ---- 53,48,579 Total 2,05,77,93,666 2,11,99,19,608 73,36,415 In the decisions of Interglobe Enterprises Ltd (supra) decided by Delhi Bench and Rei Agro Ltd (supra) decided by Kolkata Bench, it has been held that investments on which no income was received by an assessee, should not be considered while calculating the disallowance u/s. 14A of the Act. Therefore this aspect in our opinion, requires a revisit by the ld. Assessing Officer. We set aside the orders of the lower authorities and remit the issue regarding disallowance u/s. 14A of the Act back to the file of the ld. Assessing Officer for computation of such disallowance, after excluding those investments, which yielded no income during the relevant previous year. Ordered accordingly.

We also find that assessee has raised grounds in its appeal 33. for assessment year 2013-2014 where it says that credit for TDS of �1,22,329/- was not given to it. In our opinion, this can be verified & 407/Mds/2017 :- 37 -: by the ld. Assessing Officer and if such credit is available to the assessee under law it has to be given. Ordered accordingly.

In the result, the appeals of the assessee for both 34. assessment years are allowed pro tanto.

Order pronounced on Wednesday, the fifth day of July, 2017, at Chennai.