Madras High Court
Income-Tax Officer vs Arihant Trust And Others on 17 August, 1994
Equivalent citations: [1995]214ITR306(MAD)
JUDGMENT Rengasamy, J.
1. All these revisions arise from the common order of the learned Additional Chief Metropolitan Magistrate (E.O. II), Madras, in M.P. No. 670 of 1989 in E.O.C.C. Nos. 305 of 1988 to 331 of 1988 discharging the respondent herein under section 245(1), Code of Criminal Procedure.
2. The complainant, namely, the Income-tax Officer, filed 27 complaints against these respondents under section 276B of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for the failure of the respondents, the trust and its trustees, to deduct income-tax at source from the interest amount paid to the 27 beneficiaries of the trust. The trustees filed M.P. No. 670 of 1989 to discharge them as the first respondent trust has to be treated as an individual under section 194A of the Act and, therefore, the failure by the trust to deduct the tax will not amount to an offence. The learned Additional Chief Metropolitan Magistrate (E.O. II), accepting the contention of the respondents/accused that the first respondent has to be treated as an individual, discharged the respondents as no offence was made out under the Act. Therefore, the complainant has come forward with these revisions.
3. The first respondents, Messrs. Arihant Trust, is a private trust, formed for the benefit of 27 persons under the trust deed, exhibit P-41. Respondents Nos. 2 to 5 are the trustees of the first respondent and the activities of the trust, namely, carrying on the business of drilling wells and installing water pumps, are carried on by respondents Nos. 2 to 5 for the benefit of the abovesaid 27 beneficiaries. The income of the first respondent-trust for the year ended with January 31, 1983, has been distributed to its beneficiaries. Section 194A of the Act directs that any person other than an individual or a Hindu undivided family, who pays any income by way of interest to a resident, shall deduct income-tax thereon. As the first respondent-trust, in violation of this provision, namely, section 194A of the Act, paid the entire interest amount without deducting income-tax, the petitioner herein found it to be a violation of the Act and, therefore, filed 27 complaints under section 276B of the Act read with section 278B of the Act, to punish the respondents, the trust and its trustees.
4. The accused took up the contention that the trust has to be treated as an individual for the reason that the assessment also has been made against the first respondent trust only as an individual and, therefore, there cannot be any variation in the status of the first respondent for assessing and prosecution and when once the first respondent was treated as an individual for the purpose of assessment, the same character will continue for the distribution of the interest and, therefore, the penal provision under the Act is not attracted in this case. The learned Magistrate mainly relying upon the order of the Commissioner of Income-tax, which is marked as exhibit D-1 in this case, has accepted the contention of the accused that the first respondent has to be treated as an individual, who is exempted under section 194A of the Act. This order, exhibit D-1, was passed by the Commissioner of Income-tax for the purpose of assessment. The Income-tax Officer assessed income-tax on the first respondent in the status of an association of persons and the first respondent trust filed an appeal before the Commissioner of Income-tax, challenging the assessment on the basis of the status of association of persons and the Commissioner in his order, exhibit D-1, has held that as the first respondent was acting in its representative capacity, the assessment should be made under section 164(1) of the Act. The Commissioner of Income-tax made a distinction between the trust acting on the direction of the beneficiaries and the trust acting independently as per the direction of the creator of the trust. In this case, according to the Commissioner, as the trust deed provides for the distribution of the income among the beneficiaries in a specific ratio, and the beneficiaries, who are the individuals, have specific shares and the trustees were not carrying out the business of the trust at the direction of the beneficiaries but as per the direction in the trust deed, the trustees cannot be said to represent the association of persons and, therefore, the assessments were to be made in the like manner and to the same extent as would have been made on the beneficiaries whom the trustees represent and directed the Income-tax Officer to assess the tax on the trustees as per section 164(1) of the Act. Section 164(1) relates to the charge of tax where the shares of the beneficiaries were not known or not specifically receivable or the income receivable was indeterminate. Therefore, when the shares of the beneficiaries could not be ascertained under section 164 of the Act, the tax shall be charged on the relevant income at the maximum marginal rate. But under section 164(1) of the Act also, this assessment is only on the person who is a representative assessee as referred to in section 160(1)(iii) and (iv) of the Act. Section 160 of the Act defines the representative assessees and under section 160(1)(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 :"
5. Therefore, in this case, the first respondent trust is a representative assessee on behalf of the beneficiaries of the trust. Section 161(1) of the Act refers to the liability of the representative assessee and under this section, the assessment on the representative assessee shall be deemed to be made on him in his representative capacity only and the tax, subject to the other provisions, shall be levied upon and recovered from the trust in the like manner and to the same extent as it would be leviable upon and recoverable from the persons represented by the trust. It is only on the basis of section 161(1) of the Act, section 164(1) prescribes the maximum marginal rate when the shares of the beneficiaries were not ascertained or determined. Therefore, the enabling provision for the assessment on behalf of the trustees is only section 161(1) of the Act and the Commissioner of Income-tax in his order, applying the principle involved in section 161(1) of the Act, has ordered for the levy on the first respondent-trust in the like manner and to the same extent as it would be leviable upon and recoverable from the 27 beneficiaries.
6. The learned Additional Chief Metropolitan Magistrate (E.O. II), relying upon section 161(1) of the Act, the principle of which is emphasised in the order of the Commissioner of Income-tax under exhibit D-1, has held that as the Commissioner of Income-tax has treated the first respondent not as an association of persons, but as the representative of the individual beneficiaries, the status of the respondent is only that of an individual and, therefore, section 194A of the Act is not applicable to the first respondent-trust.
7. Learned counsel, Mr. Ramasamy, appearing for the appellant, referring to the decision of the Supreme Court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 would contend that the question in issue before the Commissioner of Income-tax in the assessment proceedings may not be relevant for the penal action taken by the Department and the criminal court has to judge the case independently on the evidence placed before it. In the decision cited above, the observation of the Supreme Court is that the criminal court no doubt has to give due regard to the result of any proceedings under the Income-tax Act having a bearing on the question in issue and in an appropriate case, it may drop the proceedings in the light of an order passed under the Act, but it does not mean that the result of a proceeding under the Act would be binding on the criminal court and the criminal court has to judge the case independently on the evidence placed before it. In another decision cited by learned counsel Associated Industries v. First ITO [1983] 139 ITR 269 (Mad), it is held that a complaint filed by the Income-tax Officer was independent of the assessment order passed by him and there could be parallel proceedings both in civil and criminal courts, that the proceedings before the income-tax authorities should be construed only as civil proceedings and it was for the complainant to establish offences in the criminal court. In this decision also, the criminal proceedings are said to be proceedings independent of the assessment order. There cannot be a second view with regard to the responsibility of the criminal court to judge independently on the evidence placed before it, but at the same time as observed above by the Supreme Court, the criminal court may arrive at its conclusion after giving due weight to the order passed under the Act and it need not always take a different view. Learned counsel for the respondents relying upon the decision of the Kerala High Court in Madras Spinners Ltd. v. Dy. CIT [1993] 203 ITR 282 would argue that when the Income-tax Appellate Tribunal as given a finding and the same was in force, the criminal court cannot come to a contrary conclusion a the effect of the decision of the Tribunal would be taken away by any contrary view and the criminal court's view should be in line with the view taken by the authorities under the Income-tax Act. In this case on hand, the short question is whether the first respondent is an individual or not for the purpose of section 194A of the Act. Section 2(31) of the Act, while defining a person, mentions the category of persons including the artificial juridical person as a person under this Act and such persons include an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, a local authority and every artificial juridical person not falling within the category mentioned above as a person. Therefore, under this definition, "person" has the widest meaning inclusive of not only the human beings, but also of a company, a firm and artificial juridical persons. In the light of this definition, it has to be considered whether the word "individual" referred to in section 194A of the Act will include artificial juridical persons. According to learned counsel for the revision petitioner, the word "individual" could refer only to a human being and for this argument, he draws the support from the decision of the Orissa High Court in Udham Singh v. CIT [1988] 171 ITR 471 which relates to a case of voluntary disclosure by individuals, who are members of a Hindu undivided family. In that case, it is expressed that an individual is a unit of assessment and referable only to a natural person, that is, a human being - a situation different from that in the Indian Income-tax Act, 1922. So, according to this view, individual would refer only to a human being and not to any other person falling within the definition of section 2(31) of the Act. But the Calcutta High Court has taken a different view in CIT v. Shri Krishna Bandar Trust [1993] 201 ITR 989, wherein it is observed that now the word "individual" does not necessarily and invariably always refer to a single natural person and a group of individual may as well come in for treatment as an individual under the tax laws if the context so requires and the trustees in that case were to be assessed in the status of an individual. Jogendra Nath Naskar v. CIT [1969] 74 ITR 33 is another decision of the Supreme Court on this question. In that case, after narrating the definition of person occurring in section 2(31) of the Act of 1961, it was argued that there was no ambiguity with regard to the word "individual" under the Act of 1961, but it had the restricted meaning under section 3 of the old Income-tax Act of 1922. In answer to that argument, the Supreme Court observes (at page 40) :
"On a comparison of the provisions of the two Acts, counsel on behalf of the appellant contended that a restricted meaning should be given to the word 'individual' in section 3 of the earlier Act. We see no justification for this argument. On the other hand, we are of the opinion that the language employed in the 1961 Act may be relied upon as a parliamentary exposition of the earlier Act even on the assumption that the language employed in section 3 of the earlier Act is ambiguous. It is clear that the word 'individual' in section 3 of the 1922 Act includes within its connotation all artificial judicial persons and this legal position is made explicit and beyond challenge in the 1961 Act."
8. In ITO v. Deepak Family Trust (No. 1) [1988] 73 ITR (Trib.) 56 (Ahd), the Income-tax Appellate Tribunal of the Ahmedabad Bench has held that the since the liability of the trustee of the trust is co-extensive with that of the beneficiary in the assessment of the trust, all such exemptions, deductions and abatements shall have to be given to the beneficiary in the assessment and if the persons represented fall within the category of individual, the representative assessee shall have the status of individual, but if the persons represented enjoy the status of association of persons or body of individuals, the representative assessee shall be assessed victoriously in that very status and section 164 in itself makes no basis for assessment on the trustees. Anyhow, in the view of the Supreme Court, which I referred to above, even an artificial judicial person is considered to be an individual and, therefore, it is futile to argue that the word "individual" refers only to a natural person or a human being.
9. Learned counsel for the revision petitioner would contend that the order of the Commissioner under exhibit D-1 should be restricted to assessment purposes alone in view of section 160(1) of the Act as the first respondent is the representative of the beneficiaries but the analogy of individual cannot be extended to section 194A of the Act, which is intended for deducting the income-tax of the beneficiaries and when the income tax of the beneficiary is being distributed by the trust, it is acting in its own capacity and, therefore, the benefit given under section 161(1) of the Act for the purpose of assessment cannot be applicable for section 194A of the Act, which is intended for some other purpose and, therefore, the word "individual" cannot refer to the body of persons but only to a human being. In other words, the argument of Mr. Ramasamy is that the status of trust as described in section 161(1) of the Act is limited only for the purpose of assessment and the status may differ under the Act for other purposes. Learned counsel Mr. Ramasamy, referred to the decision in C. Arunachalam v. CIT [1985] 151 ITR 172 (Kar) [FB], wherein the Karnataka High Court, while referring to section 61(1) of the Act, has held that the partner of a partnership in his representative capacity cannot be an individual and a karta of a Hindu undivided family or any other person in his representative character may be an individual, but for the purpose of section 64(1) of the Act, the individual is the person who is being assessed in his individual capacity. As section 64(1) of the Act directs to include the individual income of spouse and minor child for the purpose of tax, naturally only an individual can have spouse and minor child and therefore in that case, it was viewed that the individual referred to in section 64(1) of the Act necessarily should relate to a human being. Therefore, this analogy is not applicable for this case.
10. Learned counsel for the revision petitioner refers to another decision in CWT v. Bowring Institute [1992] 194 ITR 287, wherein the Karnataka High Court has held that the term "individual" in section 3 of the Wealth-tax Act of 1957 will not bring within its compass an association of persons or body of individuals such as a club registered under the provisions of the Societies Registration Act and, therefore, the assessee, an association of members, running a club is not an individual falling within the scope of section 3 of the Act. It is true that every trust cannot be treated as an individual for the purpose of assessment and in exhibit D-1 order itself, the Commissioner of Income-tax has given the distinction and for the reason that the business of the first respondent is not according to the intention or direction of the beneficiaries, but according to the direction of the creator of the trust, the Commissioner of Income-tax ordered assessment under section 161(1) of the Act. Whatever may be the view relating to other trusts, so far as this trust is concerned, in accordance with the order, exhibit D-1, the first respondent should be assessed under section 164(1) of the act in the manner to be assessed upon the individuals. Therefore, the is no controversy in this case that for the purpose of assessment, the first respondent has to be treated in the like manner of its beneficiaries, who are individuals.
11. Learned counsel for the revision petitioner referred to a few decisions to point but that the income-tax had been deducted at source in the case of trusts and these decisions are CIT v. Jayashree Charity Trust and CIT v. Smt. Shakuntala Banerjee . In the first case, tax deducted at source, was held not to be treated as income for the purpose of section 11 of the Act and the assessee was entitled to the benefit of exemption on that portion of the income which had been taken away by deduction of tax at source, even though that amount had not been spent for the purpose of charity. Even though the decision therein has no bearing on this case, only to point out that the deduction had been made at source from the income of the trust, this decision is cited. Similarly, in the next decision also, a settlor had created a trust vesting the Government securities with the Imperial Bank of India as trustee with the direction that the trustee should pay the net income of the trust to the settlor during his lifetime and thereafter to the assessee and another person. The beneficiaries received the interest amount from the bank and claimed certain deductions under section 80L of the Act and also for the credit of the tax deducted by the bank at source. In that case also, the point in controversy is not relevant for this case and that decision also has been quoted only to show the deduction of tax at source. At the risk of repetition, I am to say, it is not that every trust has to be treated as an individual and there are trusts which have to be treated as associations of persons, for which trusts, assessment cannot be on the basis of individual. Therefore, for the reasons that in the cases cited above, the tax has been deducted at source, it cannot be argued that in this case also, the deduction of tax ought to have been made by the trustees. Learned counsel for the respondents also cited certain decisions of different High Courts wherein the assessee-trust was assessed in a representative capacity under section 161(1) of the Act. It is needless to refer to those decisions because admittedly in this case, the assessment was in line with section 161(1) of the Act.
12. Now, if we take up the question whether the first respondent trust, which was assessed treating it as an individual, has to be treated as an individual under section 194A of the Act, as discussed above, even an artificial juridical person can be treated as an individual under section 194A of the Act, as there is nothing to restrict the applicability of the word "individual" only to a natural person or a human being and it applies to artificial juridical persons also, the first respondent which was treated as an individual while receiving the income of its business on behalf of its beneficiaries, there is no necessity to change its status while it was distributing the income to its beneficiaries and there is no law to alter its status for other purposes. Therefore, the status fixed for the purpose of assessment cannot get altered for the purpose of section 194A of the Act, while distributing the income to its members. In other words, the status of the first respondent remains unchanged for the purpose of the Act and the first respondent, which has to be treated as an individual under section 161(1) of the Act, has to be treated as the same individual under section 194A of the Act also. As an individual is exempted under section 194A of the Act to carry out the direction, certainly, the Department cannot prosecute the first respondent and its trustees for its failure to deduct the tax at source. Hence, I concur with the conclusion arrived at by the learned Additional Chief Metropolitan Magistrate (E.O. II) for the acquittal of the respondents and the result of it will be the dismissal of these revisions. Accordingly, all these criminal revisions are dismissed.