ITO 19(1)(1), MUMBAI vs. LEWIS FAMILY TRUST, MUMBAI

The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO of rent assessed under the income of house property and income from other sources in the hands of the assessee u/s 162 (1A) of the Act. For this Revenue has raised following ground No.1: -

Briefly stated facts are that the property named ‘Oscar Lodge’ situated on Hill Road, Bandra (W), admeasuring about 1985 sq yards bearing Nos. C/15, C/16 and C/17 with four structures thereon bearing Municipal Ward No. H and Street No.82, belong to one Shri Joseph Anthony D’Abreo who was having sole and exclusive possession and ownership of the said property for 30 years as on 24-12-1975. He agreed for the sale of the land together with structures standing thereon to Shri Bellampali Sitaram Shetty (Vendor), Vide agreement dated 24.12.1975. Shri BS Shetty prepared plans for construction of the building. In lieu of this, Shri Anthony Patrick Lewis entered into an agreement dated 22-03-1978. Shri Bellampali Sitaram Shetty, who was a builder in the name and style of Kirti Builders and Contractors. Shri Anthony Patrick Lewis paid a sum of Rs.3.50 lakh being purchase price in respect of entire ground for space of the said building. The vendor agreed for possessing to Shri Anthony by the end of July 1979. Vide indenture made at Bombay on 15-06-1982 between Shri Ashlyn Sena, (the settlor) and (1) Shri Anthony Patrick Lewis and (2) Dr. Norman Francis Lewis and (3) Shri Jude Francis Sena (the trustees), the settlor, created the trust. The Trust Deed also stipulates that the trustee shall divide the income of trust among the beneficiaries viz. (1) Mrs. Renee Lewis 15%, (2) Mis Nicora Lewis and all other children of Mr. Anthony Patrick Lewis as an when born 40%, provided however, that if a son is born he shall get 50% of the total share of the children and the balance to be divided equally between the daughters. (3) Miss Antoinette Lewis 5%, Mr. A.P. Lewis 15%, Mr. Rosanne Lewis 15%. Mr. Anthony Patrick Lewis was appointed as Managing Trustee of the Trust.

Further, Vide agreement dated 24.06.1982 between Anthony Patrick Lewis (Vendor) and Mr. Jude Sena (Purchaser) trustee of the assessee trust, vendor agreed to assign to the purchaser benefits of the agreement dated 22.03.1978 along with the obligation to be performed on the part of the purchaser and, the purchaser (Assessee Page 2 of 9 Trust) agreed to pay the vendor a sum of Rs. 6 lac by way of consideration for the assignment of the benefits of the said agreement in favour of the said trust, to be paid in two parts. The first part being Rs 25,000/- and execution of the agreement and thereafter the balance of Rs,5,75,000/-. The vendor also handed over possession of the entire ground floor to the purchaser and the purchaser agreed to abide by and carry out and fulfils all the duties and obligations to be performed by the vendor in terms of the agreement dated 22.03.1978. The settlor vide letter dtd.7.10.1981 had already granted permission to the vendor to let out, se1l, and/or part with the possession of the said ground floor to any persons or persons. Further, under agreement dated25.01. 1983, between (1) Anthony Patrick Lewis, (2) Dr. Norman Lewis & (3) Jude Sena (Borrowers), trustees of the assessee trust (Lessors) and State Bank of Patiala (Lendor), the borrowers approached the lendor with a request to lend an advance to pay a sum of Rs. 10 lac and the lendor agreed to advance to the borrowers the said sum of Rs. 10 lac on the terms and conditions mentioned therein. Further, under another agreement dated. 25.01. 1983 between Anthony Patrick. Lewis, Dr. Norman Lewis and Jude Sena (Lessors) and the State Bank of Patiala (Lessee), Lessors represented to the Lessee, that Mr. Anthony Patrick Lewis has since, paid the entire consideration amount payable to the builders (M/s. Kirti Builders and Executors) of Shri Ballampalli Sitaram Shetty under the agreement dated 22.03.1978 and the Lessors have since paid the entire consideration amount payable by them to Anthony Patrick Lewis under the said agreement dated 24.06.1982 and the respective parties have complied with all the terms and conditions of the agreement dated 22.03.1978 and 24.06.1982 and the lessors have put in vacant possession of the said office premises and whereas the lessors are entitled to the office premises for entire ground floor determining approximately 2350 sq. ft. built up area of the building known as 'Meena Apartments' and whereas the lessees approached the lessors to give the lessee the said office premises on lease for period of 9 & 1/2 years with two renewal options to the Lessee for a term of not exceeding five years for the purpose of opening a branch which the Lessors agreed to do on the terms and conditions mentioned in the agreement, whereas, the Lessor vide letter dated 8-8-1982 applied to the Controller of accommodation for permission to lease the said office, premises to the Lessee. The Lessors agreed to grant the lessee agreed Page 3 of 9 to accept the lease of the said office premises for a term of 9 & 1/2 years commencing froth- the date mutually agreed upon between the parties and that the lessee was agreed. To advance to the Lessor a sum of Rs. 10 lac in a separate agreement to be entered into between the lessee and the lessor and the lessee and the lessee shall at the execution of the agreement deposit with the lessor a sum of 1 Rs. 6 lac which amount shall be adjusted in full against the total loan of Rs. 10 lac to be advanced to the lessor by the lessee at the time of execution of the Deed of Lease.

By another deed of Confirmation dated 29.04.2002 signed between Anthony- Patrick Lewis, Managing Trustee of the assessee Trust and the Trustee of the Trust of the assessee Trust lodged a trust deed dated 15.06.1982 under the Bombay Stamp Act, 1958 and ratify and confirm that contents of the recited Deed of trust dated 15.06.1982 known as the 'Lewis Family Trust’ created for the benefits of the beneficiaries therein. The above facts, therefore, show that the Trust became owner of the said property in the year 1982 vide agreement dated 20.06.1982 and has since been receiving rent. Before the AO the assessee claimed that the rent and income from other sources aggregating to Rs. 1,68,88,096/- after claiming deductions was allocated among beneficiaries of the Trust and offered nil income while filings its return of income. It was also claimed that even in earlier years the assessee filed returned under the status of AOP and assessment were completed as an AOP. It was claimed that the method of allocation of income amongst the beneficiaries and nil income in the hands of the AOP was consistently followed year after year and accepted by Revenue as it is. It was also informed that the members have included their share of income from the Lewis Family Trust, the assessee, in their respective income tax returns and paid income tax thereon. The assessee also filed copies returns of income for assessment year 2008-09, 2009-10 and 2010-11 for all the beneficiaries. But according to AO the assessee trust does not fulfill the conditions laid down in section 160 of the Act and therefore assessee is not a representative assessee as claimed by assessee. According to AO, the assessee’s case fall under section 161(1A) of the Act. Therefore, he brought to tax the rent and interest income at Rs. 2,34,44,164 /-. Aggrieved assessee preferred appeal before CIT(A).

The CIT(A) allowed the claim of the assessee after considering the submissions of the assessee and the facts of the case, by observing as under: -

We have heard rival contentions and gone through facts and circumstances of the case. Before us, now the assessee contended that the provisions of section 164 of the Act is applicable where shares of the beneficiaries are unknown and in that situation a trustee is liable as a representative assessee either at maximum marginal rate of tax or at normal rate depending upon the nature of income or nature of trust. Since, the facts in the assessee’s case are different the provisions of section 164 of the Act are not applicable. It was contended that the assessee is not an AOP but a family trust. It was claimed that the trust is created for the sole motive of the benefit of the settlor/ contributor and the trust has three constituents i.e. settlor, contributor and beneficiaries. It was claimed all the constituents are independent and distinct. The assessee before us explained that the beneficiaries whose shares are determinate and they have included the income in their respective return of income including allocated share from the assessee. The assessee has filed complete details, which will show that the tax paid by the beneficiaries on their allocated income with regard to each of the assessment years, which is as under: -

From the above facts, now we have to determine what will be the tax incidence on an AOP/BOI, which will depend upon whether or not shares of members are determinate. We are of the view that the shares of members in the income of AOP is treated in three different ways depending upon whether the AOP is chargeable to tax at the maximum marginal rate or at the normal rate or is not chargeable to tax at all. Following are the three conditions : -

According to us section161(1) can obviously apply only where income is specifically receivable by the representative assessee on behalf or for the benefit of a single beneficiary or where there are more beneficiaries than one, the individual shares of the beneficiaries are determinate and known. Tax in such a case would be levied on the representative assessee on the portion of the income to which any particular beneficiary is beneficially entitled in the same manner and to the same extent as it would be leviable upon the beneficiary and in respect of such portion to the income, the representative assessee would be assessed in a representative capacity as representing the beneficiary. On the other hand, where the income is not receivable or received by the representative assessee specifically on behalf of or for the benefit of a single beneficiary or where the beneficiaries are more than one, the individual shares of the beneficiaries are indeterminate or unknown, the last part of section161(1), which prescribes that tax shall be levied upon the representative assessee in the like manner and to the same extent as it would be leviable upon the person represented by him, would not be applicable. In such a case the assessment on the representative assessee is to be made under and in accordance with the provisions of section 164. In this view of the discussion, where the share of the beneficiaries are determinate and known, section 164(1) of the Act can have no application.

In the present case before us also, we are of the view that the assessee is a trust validly came into existence and all the parties i.e. settlor, trustees and beneficiaries are the same and the assessee being a trust fall under section 161 (1) of the Act not liable to tax in its hand because the beneficiaries have already declared the income in their hands. The trustee is not to be assessed for all the income which the trustee receives where the beneficiaries are known and their shares are determinate as in the present case. Accordingly, the order of CIT(A) is upheld and the appeal of Revenue is dismissed.

The issue in CO of assessee is as regards to different in rent on account of reconciliation. For this assessee has raised following ground No. 1:- “i. the CIT(A) erred in confirming the order of the Assessing officer in adding an amount of Rs. 10,92,512/- (Rupees Ten Lakhs Ninety Two Thousand Five Hundred Twelve Only) as difference in Rent instead of Rs. 7,20,142- (Rupees Seven Lakhs Twenty Thousand One Hundred Fourty Two only) ignoring the factual explanation offered by the assessee at the time of hearing and by way of written submissions. The impugned order has been passed on a non- appreciation of the facts of the case and is therefore liable to be set aside.”

After hearing both the sides, we remand the matter back to the file of the AO as regards to reconciliation of the amounts. The AO will verify the amounts after hearing the assessee and accordingly assess the correct income.

In the result, the appeal of Revenue is dismissed and the CO of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 29-03-2017.