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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri Ramit Kochar
आदेश/ORDER 2021-22 is filed by the assessee with Income Tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad , which has arisen from the appellate order dated 03-01-2024 passed by ld. CIT(A), NFAC, Delhi u/s.250 of the Income-tax Act,1961 in DIN & Order No. ITBA/NFAC/S/250/2023-24/ 1059306516(1), which appeal filed by the assessee before ld. CIT(A) has in-turn arisen from the intimation dated 07.12.2022 issued by CPC, Bengaluru, u/s.154(CPC/2122/U5/ 314311772) of the Act.
The grounds of appeal raised by the assessee in memo of appeal filed with the Tribunal, reads as under:-
“1. Both Lower Authorities has erred in law and on facts has erred in law while processing the return as well as while passing order under S.250 taxed appellant trust at maximum marginal rate at 42.17 percent without knowing that above trust is the only trust declared by WILL assessed to second provision to section 164(1) of IT Act at Individual at Normal rate with Basic exemption limit of Individual and further allowed deduction under Chapter VI-A of IT act So, in past years appellant trust was assessed at normal rate but due to change in ITR CONSOL ITR-2 was not selected due to wrong PAN Number allotted by the Income Tax department mentioned 4th Character as "T" instead of "A" therefore, appellant trust compelled to file return in ITR-5 or in ITR-7 instead of ITR-2 due, this tax was charged at maximum marginal rate or say higher rate instead of at normal rate. Appellant AOP therefore compelled to file return in new Income Tax Portal on https://eportal.incometax. gov.in your appellant AOP trust therefore prays that tax may be levied as per the second provision to section 164(1) of IT Act and further appellant AOP trust was prevented for claiming eligible deduction under Section 80-C of Rs.1,50,000 under chapter VI-A which may be allowed in the interest of justice and return income may be accepted.
Both Lower Authorities has erred in law and on facts while processing the return as well as while passing the order under S.250 erred in for not granting TDS Credit shown as per Form Number 26AS for Rs.68,042 may be granted in the interest of justice.
Both lower Authorities has erred in law and on fact has levied interest under S.234A of Rs.9531 234B of Rs.57,186 and 234C of Rs.16,044 Rs.87,761/- may be removed in the interest of justice.
Appellant craves right to add amend and alter any Ground or Grounds during pendency of appeal.”
The brief facts of the case are that the assessee filed its return of income for the assessment year:2021-2022 in ITR-5 declaring total income of Rs.7,43,400/-. The AO/CPC did not give credit of TDS as per 26AS and taxed the assessee at the maximum marginal rate at 42.17%. The assessee filed rectification application which stood rejected by the AO/CPC by taxing the assessee at maximum marginal rate and TDS credit was also not given as per 26AS submitted by the assesse.
The assessee filed first appeal before Ld.CIT(A), and raised as many as five grounds of appeal. In the grounds of appeal and SOF filed by the assessee with ld. CIT(A), the assessee stated that the assessee trust being the only trust declared by Smt. Pashiben Shambhubhai Prajapati through her notorized WILL made on 21.07.2006 , which came into operation on her death on 02.10.2006. The assessee stated that this is the only Trust declared by the WILL of Smt. Pashiben Shambhubhai Prajapati for the benefit of her sons namely Shri Dhulabhai Shambhubhai Prajapati and Shri Ashokbhai Shambhu Prajapati, their wife , their children and his family. The assessee claimed that this is only trust declared by WILL and is covered by second proviso to Section 164(1) and also assessable as individual and eligible to claim deduction under Chapter VI-A for investment made u/s 80C and taxes are to be levied at normal rates as per prescribed slab. The assessee stated in SOF that the assessee was filing its return of income in ITR 2 online on E-filing portal and department was also accepting the return of income and processing as per normal provisions of the 1961 Act, from assessment year 2007-08 onwards. That upto assessment year 2020-21 , there was no difficulty and problem in filing return of income in ITR-2 , but it is only in assessment year 2021-22, income tax e-filing portal changed and the CONSOL thereof , the appellant could not filed return in Form No. ITR-2. The assessee trust was dissolved on 31.03.2021, and notorized deed of dissolution was made. The corpus was distributed in amongst the beneficiaries and therefore there is no income of the trust after 01.04.2021. There was change in ITR CONSOL and the assessee could file return of income in Form No. ITR- 5, and the assessee was taxed at maximum marginal rate @42.17% without getting deduction under Chapter VI-A . The assessee must be assessed to tax under second proviso to section 164(1) of the Act on individual basis with allowability of basic exemption and deduction under chapter VI-A of the Act and tax should be charged at normal rate. The Ld.CIT(A) dismissed the appeal of the assessee by holding as under:
“...4.1 The appeal is decided on merits after due consideration of facts of the case and submissions filed by the appellant along with appeal memo in statement of facts and grounds of appeal as discussed here under.
4.2 The appellant trust was declared by Smt. Pashiben Shambhubhai Prajapati through her notarized Will made on 21-07- 2006 which came into operation on her death on 02-10-2006, for the benefit of Shri. Dhulabhai Shambhubhai Prajapati and Shri Ashokbhai Shambhu Prajapati, their wife, their Children and family.
4.3 According to the appellant, the trust was covered by the Second Proviso to Section 164(1) of IT Act. Hence, the trust has to be assessed under the status of 'Individual' and accordingly deduction under Chapter VI-A of the Act has to be allowed.
4.4 The appellant also submitted that, from the financial year 2006- 07, the appellant first had been filing Income tax return in ITR-2 and the said returns were being processed as per the normal provisions of Income Tax Act. Since during the AY 2021-2022, the income tax e- portal changed and CONSOL, the appellant could not file the Return in ITR-2. Further, the trust was dissolved on 31.03.2021 and the entire corpus was distributed amongst the beneficiaries and therefore there was no income after 01.04.2021. Being the last year of the trust, TDS was also deducted on the interest income and the Return along with self-assessment challan was made. Subsequently, the appellant filed Return of income for the said AY in ITR-5 showing an income of Rs.7,43,400/- showing a TDS credit of Rs.68,042/- and penalty of Rs.5000/- and interest of Rs.1430/- was paid. But, in response to the ITR-5, the appellant was taxed at MMR without giving effect of deduction under Chapter-VIA.
4.5 It is the contention of the appellant that the appellant trust is eligible to pay tax as per the second proviso to section 161 of the Act and requested for allowing deductions falling under Chapter-VIA.
4.6 It has been noted from the above submissions that the appellant is a private trust having been created on the basis of the last Will of late Pashiben Shambhubhai Prajapati. Late Pashiben Shambhubhai Prajapati declared a notarised Will executed by her on 21.07.2006 and came into effect on her demise on 02.10.2006.
4.7 On the basis of the instructions and directions given, the beneficiaries of this Trust were the following persons: - Shri. Dhulabhai Shambhubhai Prajapati, Shri Ashokbhai Shambhu. Prajapati their wife, their Children and family.
4.8 The appellant requested the AO to tax as per the 2nd proviso to Sec. 164 (1) read in conjunction with Sec. 160 (iv) whereby the tax has to be levied on the trust as a representative assessee. Further, it was submitted that the taxes are to be charged at normal rates after allowing exemption as is available to an individual.
5.1 A plain reading of the provisions of section 164 of the Income Tax is that- "164. (1) Subject to the provisions of Sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub- section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for whose benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "part of relevant income" and "beneficiaries", tax shall be charged on relevant income or part of relevant income at the maximum marginal rate Provided that in a case where- (i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an [association of persons) or is a beneficiary under any other trust; or] (ii) the relevant income or part of relevant income is receivable under [a trust declared by any person by will and such trust is the only trust so declared by him], or (iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non- testamentary instrument and the [Assessing] Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance, or (iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, tax shall be charged [on the relevant income or part of relevant income as if it were the total income of an association of persons):
[Provided further that where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, the preceding proviso shall apply only if such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him.] [(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub- clause (iia) of clause (24) of section 2.] [or which is of the nature referred to in sub- section (4A) of section 11.] tax shall be charged on so much of the relevant income as is not exempt under section 11 [or section 12], as if the relevant income not so exempt were the income of an association of persons:
[Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate.]]"
"167B. (1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate:
Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate.
(2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under sub-section (1)]- (i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate."
5.2 From the above, it can be understood that according to Sec. 164(1) of the Act, only if the share of income of a trust is unknown and indeterminate, then such relevant income or part of the relevant income shall be taxed at Maximum Marginal Rate. Whereas, in the instant case, there are four beneficiaries & their shares is indeterminate (or) unknown as per the WILL submitted by the appellant during the course of appellate proceedings.
5.3 In view of the above, I am of the considerate opinion that in the instant case, there are many beneficiaries and their share of income is unknown and indeterminate, as per the WILL submitted by the appellant. Accordingly, the 2nd provision of Sec. 164(1) r.w.s. Section 167(B)(2)(i) of the Income Tax Act is squarely applicable in the appellant's case. Hence, the decision of the AO by taxing the appellant at MMR is upheld. Accordingly, this ground of appeal is dismissed.
6.1 Further, the appellant contended the charging of interest u/s 234A, 234B and 234C of Rs.9,531/-, Rs.57,186/- and Rs.87,761/- respectively.
6.2 Since the substantive ground of taxing at the MMR is dismissed, the consequential ground raised by the appellant on the ground of charging of interest u/s 234A, 234B and 234C is also dismissed
7. In the result, the appeal is dismissed.”
Aggrieved, the assessee filed second appeal before the Tribunal. The Ld.Counsel for the assessee drew my attention to the paper book filed with the Tribunal carrying 27 pages. It was pointed by the Ld.Counsel for the assessee that Smt. Pashiben Shambhubhai Prajapati had executed a WILL on 21.07.2006 which was her last WILL , and son(s) of Smt. Pashiben Shambhubhai Prajapati were the beneficiaries and the share was determinate . My attention is also drawn to the WILL of Smt. Pashiben Shambhubhai Prajapati which is placed in PB at pages 6 to 16 , and ld. Counsel for the assessee submitted that the assessee should be taxed under second proviso to section 164(1) read with section 160(iv) of the Act. It was submitted that the share was determinate and known , and authorities below has erred in denying the benefit to the assessee to be charged to tax at normal rates and further erred in not allowing deduction under Chapter VI-A, and the assessee being charged to tax at the maximum marginal rate. Further it was submitted that the assessee has been denied the benefit of TDS and my attention was drawn to Form No. 26AS which is placed in Paper Book at Pages 17 to 20. It was also submitted that the assessee filed ITR in Form No.5 which is placed at page no.21-23 of the paper book. It was submitted that for the earlier year, the return of income was filed and the Department has granted benefit of second proviso to section 164(1) of the Act. The said return of income for the AY 2020- 21 is placed in paper book at pages 24 to 27. the Ld.Counsel for the assessee relied on the Judgment of Hon’ble Gujarat High Court in the case of CIT v. Deepak Family Trust No.1 and others, reported in (1995) 119 CTR (GUJ)150, [1995]211 ITR 575(Guj) , and prayers were made to grant the relief by not bring to tax income on the maximum marginal rate and also to allow the deduction u/s.80C of the Act as it is claimed that the assessee is eligible for deduction under Chapter VI-A. The Ld.Counsel for the assessee relied upon the second proviso to Section 164(1) of the Act. Further it is submitted that the TDS deducted should be allowed as credit against the liability of the assessee to pay tax which has not been allowed by the authorities below.
5.2The Ld.Sr.DR relied upon the order of the Ld.CIT(A) and submitted that the assessee has filed its return of income wrongly in ITR-5, and further the shares of the beneficiaries are indeterminate and not known. He draw my attention to the WILL executed by Smt. Pashiben Shambhubhai Prajapati, and stated that share of the son(s) of Smt. Pashiben Shambhubhai Prajapati are not known. The said WILL was executed on 21/07/2006 which came into operation on her death on 02/10/2006. It was submitted that the said WILL is placed on record in PB at page 6-16. The ld. Sr. DR relied upon the appellate order passed by the Ld.CIT(A) , and prayed that the appeal filed by the assessee be dismissed.
I have considered the contentions of both the parties and perused the material on record . The brief facts of the case are that the assessee trust was declared by Smt. Pashiben Shambhubhai Prajapati through her notorized WILL made on 21.07.2006 which came into operation on her death on 02.10.2006. The WILL of Smt. Pashiben Shambhubhai Prajapati , dated 21.07.2006 is placed by the assessee in Paper Book at Page No. 6-16. The dispute has arisen between the parties, in the impugned assessment year, wherein Revenue has applied Maximum Marginal rate of taxes on the income declared by the assessee on the grounds that the trust is a private discretionary trust where the share of the beneficiaries are indeterminate or unknown. Further, deduction under Chapter VI-A were also denied to the assessee. The contentions of the assessee is that the trust is the only trust declared by WILL of Smt. Pashiben Shambhubhai Prajapati for the benefit of her sons’ Shri Dhulabhai Shambhubhai Prajapati and Shri Ashokbhai Shambhu Prajapati ,their wives, their children and his family, covered by second proviso to Section 164(1) and assessable as Individual and also entitled for deduction u/s 80C under Chapter VI-A, and thus the taxes are to be levied on normal rates in slab manner. The department is not contesting that this trust declared by Smt. Pashiben Shambhubhai Prajapati is not the only trust declared by WILL by Smt. Pashiben Shambhubhai Prajapati. The Revenue is contending that there are many beneficiaries and their shares of income is indeterminate and unknown, as per the WILL submitted by the appellant . Accordingly , the 2nd Proviso of Section 164(1) read with Section 167(B)(2)(i) of the 1961 Act are applicable , and hence the same is to be brought to tax at the maximum marginal rate of tax keeping in view aforesaid provisions , and further no deduction under Chapter VI-A can be allowed to the assessee. The assessee on its part is contending that this trust declared by Smt. Pashiben Shambhubhai Prajapati is the only trust declared by WILL by Smt. Pashiben Shambhubhai Prajapati for the benefit of her sons Shri Dhulabhai Shambhubhai Prajapati and Shri Ashokbhai Shambhu Prajapati, their wives, their children and his family.
6.2 Before , I proceed further, it will be relevant and useful to refer to the relevant provisions of the 1961 Act:
“Chapter XV Liability in Special Cases A*** B-Representative assesses-General provisions Section 160. Representative assessee (1) For the purposes of this Act, “representative assessee” means- (i)to(iii)…. (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise(including any wakf deed which is valid under the Mussalman Wakf Validating Act,1913(6 of 1913), receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees; (v)…. **** **** (2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act.
Charge of tax where share of beneficiaries unknown (1) Subject to the provisions of sub-section (2) and (3), where any income in respect of which the persons mentioned in clause (iii) and (iv) of sub-section(1) of section 160 are liable as representative assesses or any part thereof 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 such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as “relevant income” , “part of the relevant income” and “beneficiaries” , respectively, tax shall be charged on the relevant income or part of the relevant income at the maximum marginal rate: Provided that in a case where- (i) **** (ii) The relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him;or (iii)to(iv)*** tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of person *** *** [Explanation 1. - For the purposes of this section,- (i)any income in respect of which the persons mentioned in clause (iii) and clause (iv) of sub-section (1) of section 160 are liable as representative assessee or any part thereof shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previous year is expressly stated in the order of the Court or the instrument of trust or wakf deed, as the case may be, and is identifiable as such on the date of such order, instrument or deed; (ii)the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is received shall be deemed to be indeterminate or unknown unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in the order of the Court or the instrument of trust or wakf deed, as the case may be, and are ascertainable as such on the date of such order, instrument or deed.] 167B. [ Charge of tax where shares of members in association of persons or body of individuals unknown, etc. (1)Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1960), or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate:
Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate. (2)Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under sub- section (1),- (i)the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate; (ii) *** Explanation. - For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter.] Now , it will be relevant to refer to Gist/summary of relevant clauses of the aforesaid WILL :-
“Smt. Pashiben Shambhubhai Prajapati, Hindu, Adult Aged 80 years, Residing at….. I, hereby declare this to be my last will and Testes merit (sic. Testament), for the purpose of distribution of my property and management thereof according to my wish & desire after my death. I am happy and quite fortunate that I could get great love and very respectful & devotional services from my sons SHRI DHULABHAI SHAMBHUBHAI PRAJAPATI & SHRI ASHOKBHAI SHAMBHUBHAI PRAJAPATI , THEIR WIFE , THEIR CHILDREN AND HIS FAMILY. I hereby appoint my son SHRI DHULABHAI SHAMBHUBHAI PRAJAPATI & SHRI ASHOKBHAI SHAMBHUBHAI PRAJAPATI to be the executor and Trustee of-My this will…”
Thus, as could be seen that the trust is for the benefit of SHRI DHULABHAI SHAMBHUBHAI PRAJAPATI & SHRI ASHOKBHAI SHAMBHUBHAI PRAJAPATI , THEIR WIFE , THEIR CHILDREN AND HIS FAMILY, which was declared by Smt. Pashiben Shambhubhai Prajapati who was mother of SHRI DHULABHAI SHAMBHUBHAI PRAJAPATI & SHRI ASHOKBHAI SHAMBHUBHAI PRAJAPATI. The Will was declared on 21.07.2006, and came into operation on her death on 02.10.2006.
There are certain properties, shares and ornaments , which got bequeathed on her death vide part III(a) to III(c) as per aforesaid Will , to her relatives viz. daughters and daughter-in-laws.We are not concerned presently with Part III(a) to III(c). We are concerned with Para III(d) of the Will dated 21.07.2006 . It is vide Para III(d) , the Trustees got the asset s under the Trust viz.(1) Loan and Advance(Sundry Debtors), (2) Loan Deposits(Assets) , (3) Bank Balance in Union Bank Dr. S.R. Marg Branch, Flexi A/c. 111 and (4) any other properties and be held in a trust in accordance with the subject with the subject to the provisions contained in Part “A” of this WILL and schedule here under written. It further states that the proposed Trust shall be create in the name of Smt. Pashiben Prajapati Family Trust(Disc.) for the benefit of & Shri Dhulabhai Shambhubhai Prajapati , Shri Ashokbhai Shambhubhai Prajapati , their wife , their childrens and his family. Her sons Shri Dhulabhai Shambhubhai Prajapati & Shri Ashokbhai Shambhubhai Prajapati were appointed as first trustee of the trust , and right is vested in the trustees to appoint one or more other trustees. It further states that until the vesting day, the Trustee shall stand and possessed of the assets received in accordance with the provisions of Part III(a)(sic.III(d)) , and which assets and other assets may be added or substituted in the execution of this trust designated as Trust Fund. The Trust shall receive annual or other income thereof and there out in the first place shall reimburse or pay and discharge all the costs and expenses incurred in or about the administration of all Trust Fund including taxes and duties of all types and subject thereto the Trustee shall pay, divide or apply the whole or such part as they in their absolute discretion think fit of the residue of such annual or other income to or between of for the residue of such annual or other income to or between so far the benefit of Shri Dhulabhai Shambhubhai Prajapati & Shri Ashokbhai Shambhubhai Prajapati and his family in such proportions as the Trustee may from time to time in there absolute discretion think fit, provided that the Trustees may in here absolute discretion an a point (i.e. specify or determine) to the entire exclusion of one or other of the and in such manner as their absolute discretion think fit. Provided that the Trustees may in their absolute discretion accumulate the whole or such part as is an paid or an applied as aforesaid of the residue of such annual or other income and all such accumulation shall fall into , be treated as and from part of the original Trust Fund. The Trustees may in their absolute discretion also have recourses to and utilize the corpus of the Trust Fund or any other portion thereof at anytime and from time to time to provide any benefit to any of the aforesaid beneficiaries.It further states that the trustees may dissolve the trust, at any time before the vesting day, by an unanimous decision in writing after transferring the assets, of the Trust Fund to the beneficiaries (or to their legal representative) according to their absolute discretion.
It is observed by me that the aforesaid WILL is not happily worded , and there are many mistakes while drafting/typing of this WILL. Be it that may be , proceeding further, it will be relevant to gather intention of Mrs. Pashiben Shambhubhai Prajapati, author of the WILL. She was an old lady of 80 years at the time of writing the aforesaid WILL on 21.07.2006. She died on 02.10.2006 , and the WILL become operative on her death. While writing the WILL , she had stated that she is writing this WILL to distribute her properties , and for management thereof according to her wish and desires after her death. She stated that she is very happy and fortunate that she got great love and very respectful and devotional services from her two sons namely Shri Dhulabhai Shambhubhai Prajapati and Shri Ashokbhai Shambhubhai Prajapati, their wives, their children’s and his family. She appointed both her aforesaid sons as executors and Trustees of her WILL. Thus, both the sons were the joint executors as well trustees of her properties. The Properties are defined in Para III (a) to (d) of the aforesaid WILL. As executors of the WILL, both the sons were required to distribute the immovable as well movable properties listed at III(a) to III(c), to the wives of both the son as well to the three daughters, in the manner listed therein in the WILL by Smt. Pashiben Shambhubhai Prajapati, on the death of Smt. Pashiben Shambhubhai Prajapati, as the said movable as well immovable properties were bequeathed on her death as stipulated in the WILL. The assets listed at III(d) vide S.No. 1 and 4, became part of the assets/corpus of the Trust Fund vide the aforesaid WILL. The beneficiaries under the Trust , are the two sons and their families. The trustees were given absolute discretion to deal with the assets/corpus of the Trust Fund as well the income arising therein, to be used for the benefit of the beneficiaries. No doubt, the beneficiaries are defined i.e. the two family branches/Tree consisting of both the sons of Smt. Pashiben Shambhubhai Prajapati (including sons, their wives and children), but, however , share of each beneficiary is not specifically defined in the WILL, and the distribution of income of the trust as well distribution of the corpus on dissolution were left to the absolute discretion of the Trustees. Since, both the sons are Joint Trustees of the assets of the Trust as well to the income accruing thereof , it could be very well said that she cherished and desired that both the branches of families of her sons(including both the sons) who are beneficiaries of the Trust should have equal share, but individually the shares of beneficiaries were not determined and defined in her WILL, and it was left to the absolute discretion of the Trustees to deal with the income arising out of the Trust Fund as well to deal with the assets on dissolution of the assets and corpus of the Trust, with the limitation that it has to be for benefit of beneficiaries but the specific share of each beneficiary on whose behalf income is received by the Trustees are indetermined and unknown, as the same is not specified in the WILL. Under this fact situation , section 164(1) read with clause (ii) to Explanation 1 to Section 164 will become relevant and shall come into play, and such relevant income shall be chargeable to tax at maximum marginal rate. However, in certain circumstances as is provided in the clauses (i) to (iv) to first proviso to Section 164(1), the such relevant income shall not be assessable at the maximum marginal rate but at the rate applicable to it as if the relevant income were the total income of the association of person(AOP). In the impugned appeal, it will be suffice to refer to clause(ii) to first proviso to Section 164(1) , which stipulates that the relevant income or part of the relevant income is receivable under a trust declared by any person by WILL and such trust is only trust declared by him. The assessee herein is contending that the Trust herein is declared by WILL by Smt. Pashiben Shambhubhai Prajapati on 21.07.2006 and the said Trust being the only Trust declared by her. The Revenue is not contesting or disputing the same. As could be seen vide the terms of WILL, that the trustees have the absolute discretion to apply the income as well the corpus of the Trust. The beneficiaries no doubt under the WILL of Smt. Pashiben Shambhubahi Prajapati have an ‘interest’ and ‘right’ to be considered as a potential recipient of benefits under the Trust by Trustees , but that ‘interest’ or ‘right’ does not stretch to claiming a particular and specific share in the income and the corpus of the Trust in the absence of determinate and known share specified in the WILL, and thus, each beneficiary does not have specific enforceable right to claim any part of the income or the corpus of the trust , but rather it is a ‘right’ to be considered by the Trustees, and hence it is merely an hope that the discretion shall be exercised by Trustee in his favour . But at the same time, it could not be said that the Trustees can use their discretion in an arbitrary manner , rather it has to be used by Trustees in the fair and judicious manner , otherwise the beneficiaries have other recourses under the Indian Trust Act,1882 and under the court of equity, if the discretion is used by Trustee maliciously or capriciously, but it will not militate against the Trust being a discretionary trust liable and chargeable to tax under the Income-tax Act, 1961 to be taxed u/s 164(1) read with clause (ii) to first proviso to Section 164(1) , keeping in view the fact situation in the instant case. At this stage it will be relevant to refer to CBDT Circular No. 577, dated 04.09.1990. It will also be relevant to refer to judgment and order of Hon’ble Supreme Court in the case of CIT v. Smt Kamalini Khatau, (1994) 209 ITR 101(SC) and Gosar Family Trust v. CIT(1995) 215 ITR 55(SC).Thus, I hold that the income of the assessee shall be chargeable to be taxed under the provisions of Section 164(1) read with clause(ii) of the first proviso to Section 164(1), as it were the total income of an association of person(AOP). The Revenue has not disputed that this is the only Trust declared by WILL by Smt. Pashiben Shambhubhai Prajapati . Thus, the assessee be charged on the relevant income as if it is the total income of Association of Persons(AOP), and accordingly relevant provisions of the 1961 Act will apply. It is well settled that principles of res-judicata are not applicable to Income-tax proceedings. Further, all the beneficiaries under the Trust are individuals, and it is by virtue of deeming fiction created u/s 164(1) read with clause(ii) of the first proviso to Section 164(1), that the tax will be charged on the relevant income, in the instant case, as if it were the total income of an association of person(AOP), but that deeming fiction cannot be extended to denial of deduction u/s 80C and 80TTA of the 1961 Act, as the trust per-se is not a person defined u/s 2(31) and the trustees in the instant case are to taxed as representative assessee u/s 160(1)(iv) of the 1961 Act, and the beneficiaries of the Trust in the instant case being all individuals, in my considered view, deduction u/s 80C cannot be denied to the assessee albeit by deeming fiction u/s 164(1) read with clause (ii) of first proviso , the tax shall be charged on the relevant income as if it were total income of an AOP, but that deeming fiction cannot extend to an extent of denial of deduction u/s 80C and 80TTA which is otherwise available to individuals , as all the beneficiaries under the instant Trust being individuals. Reference is drawn to judgment and order of Hon’ble Bombay High Court in the case of Mrs. Amy F. Cama v. CIT reported in (1999) 237 ITR 82(Bom. HC) and judgment and order of Hon’ble Jurisdictional High Court in the case of Niti Trust v. CIT , reported in (1997) 90 taxman 169(Gij. HC) and judgment and order of Hon’ble Gujarat High Court in the case of Deepak Family Trust(supra). In view of my above discussions and on the same analogy, I also do not find any reasons and justification for the Revenue to deny the benefit of credit of TDS claimed by the assessee. The AO shall consider grievance of the assessee as to non credit of TDS and non allowability of deduction u/s 80C, and shall grant the same, after due verifications, if so warranted. Further, the chargeability to income-tax and scope of income is defined under the 1961 Act by the provisions of Section 4 and 5 of the Act, and it is irrelevant as to any deficiency in the prescribed ITR Forms, as the mandate of the 1961 Act is to collect correct income-tax from the correct assessee for the correct assessment year, strictly in accordance with the provisions of the 1961 Act , and any lacuna/deficiency etc. in the prescribed form of return of income(Form-ITR) is irrelevant. There is no reasons and justification to punish the assessee’s, if at all there was any deficiency in the prescribed ITR Forms, so long as the correct income as per mandate of the 1961 Act is brought to tax in the hands of the assessee. The appeal of the assessee is partly allowed in the manner as indicated above. I order accordingly.
Order pronounced on 16th August, 2024 at Ahmedabad in accordance with Rule 34(4) of the Income-Tax(Appellate Tribunal) Rules, 1963.
Sd/- (RAMIT KOCHAR) ACCOUNTANT MEMBER Ahmedabad : Dated:16/08/2024 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद