GUPTA FAMILY TRUST,MUMBAI vs. ITO 21(3)(2), MUMBAI

Only grievance of the assessee relates to taxing rental income in the hands of assessee trust in spite of the fact that shares of each beneficiary is determined and each beneficiary has included their share of income so received from the trust in their individual return of income.

Rival contentions have been heard and record perused. The facts of the case are that the assessee is a private Trust having income mainly in the form of rental income. The rental income derived by the trust is allocated to the beneficiaries in respect of the ratio of shares given in the trust deed. During the year, the assessee trust has derived gross rent of 2 Rs.25,91,803/- and after claiming deduction of municipal taxes of Rs.5,90,438/-, bank charges of Rs.2,278/- and deduction @ 30% u/s.24(a), the income from house property has been computed at Rs.13,99,360/- and after allocating the whole income to the beneficiaries, the trust has filed return of income showing Nil income. However, the AO has taxed the income in the hands of the trust.

By the impugned order the CIT(A) confirmed the action of the AO.

It was argued by ld. AR that beneficiaries have already included their share in their respective returns and also paid tax thereon, therefore, the AO was not justified in again taxing the trust with respect to the same income. Further ld. AR placed reliance on the order of jurisdictional High Court in the case of Marsons Beneficiary Trust, 188 ITR 224, wherein it was held as under :- “In the applications which are before us, the shares of the beneficiaries in the trust income are known and determinate. There can, therefore, be no question of section 164 being attracted. Looking to section 161(1) and the decisions of our High Court and the Supreme Court, the income of the trust, whether it is business income or any other income, will therefore, have to be treated as if it were distributed to the beneficiaries. Tax on the share of each beneficiary will have to be separately calculated as if it formed a part of the beneficiary's income. Tax payable by the trustees will be the sum total of the tax so calculated on the share of each beneficiary. In fact, under section 166, the Revenue has the option to assess the beneficiary directly. This does not make any difference to the quantum of tax which is liable to be paid. But the income cannot be taxed in the hands of the trustees as one unit under section 161 (1).”

On the other hand, ld. DR relied on the order of lower authorities.

We have considered rival contentions, carefully gone through the order of Hon’ble Bombay High Court as relied by ld. AR. We found that share of beneficiaries are determined, therefore, provisions of Section