Income Tax Appellate Tribunal - Mumbai
Fifth Income-Tax Officer vs D.M.C.C. Employees Medical Aid Trust on 21 April, 1987
Equivalent citations: [1987]22ITD273(MUM)
ORDER
R.L. Sangani, Judicial Member
1. These appeals and the cross-objections were heard together with the consent of the parties and are being decided by this common order.
2. We shall first deal with the ITA No. 3425/Bom/1984 and CO. No. 391/Bom/1984 arising out of the said appeal.
3. The assessee is D.M.C.C. Employees Medical Aid Trust. The assessee is a discretionary trust. Assessment year is 1981-82. In the return filed by the assessee, the assessee had shown income by way of dividends. In the return, the status was shown as that of A.O.P. In the course of assessment proceedings, the assessee submitted a letter dated 16-3-1983 in which the assessee made a claim for deduction of Rs. 3,000 under Section 80L of the Income-tax Act, 1961. The said claim was not considered by the ITO. He passed an assessment order under Section 143(1) of the Act.
The assessee filed appeal before the AAC. The order passed by the learned AAC was in the following words :
I have considered the submissions made by the appellant and I hold that the appellant is entitled to deduction under Section 80L of the Income-tax Act. . . I.T.O. is directed to allow an opportunity to the appellant of being heard and allow deduction under Section 80L as claimed by the appellant. The appeal is allowed.
Against the above order, the department has come up in appeal before us and two grounds have been raised. The first ground is that the learned AAC erred in entertaining the appeal against an order under Section 143(1) of the Act. The second ground is without prejudice to the first ground and that ground is that the learned AAC had erred in holding that the assessee was entitled to deduction under Section 80L of the Act.
4. It is to be noted that the learned AAC has not recorded a clear finding whether the status of the assessee was that of an individual or an AOP. That finding was necessary in order to determine whether deduction under Section 80L of the Act was allowable. In fact, he appears to have assumed the status of the assessee that of an AOP and that the deduction under Section 80L was allowable even when the status was that of an AOP. The assessee has filed the Cross-Objection (CO. No. 391/Bom/1984) in which the plea is that the correct status of the assessee was that of an individual and not that of an AOP and as such, deduction under Section 80L was allowable.
5. We have heard the parties. As regards the first ground, we find that the assessee had submitted a claim for deduction of Es. 3,000 under Section 80L of the Act before the ITO. The ITO could not have rejected the said claim without giving an opportunity of being heard to the assessee in support of that claim. He rejected the said claim without giving the said opportunity and made the assessment under Section 143(1) ignoring the said claim. Consequently, although section mentioned in the assessment order is Section 143(1), in substance, the assessment was made under Section 143(3) of the Act. This is because, the assessment has been made after rejection of the claim for deduction under Section 80L. Since the assessment in substance is under Section 143(3) of the Act, the assessee was entitled to file an appeal before the AAC. The AAC was justified in entertaining the said appeal. There is no infirmity in entertaining the appeal. Consequently, the first ground is rejected.
6. The second ground involves interpretation of Section 80L of the Act. That section is in the following words :
80L. (1) Where the gross total income of an assessee being
(a) an individual, or
(b) a Hindu undivided family, or
(c) an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu includes any income by way of dividends...there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction as specified hereunder, namely (1)...
(2) in any other case, three thousand rupees.
7. The first question we have to decide is whether the words "consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu" in Clause (c) of Section 80L(l) governs only the words "body of individuals" or governs the words "an association of persons or body of individuals". We may mention here that the said question has now become academic because of retrospective amendment made in Clause (c) of Section 80L(l) by Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1972. By the said amendment, the words "in either case" have been inserted after the word 'consisting' and before the word 'only' in the said Clause. Besides, a 'comma' is inserted after the word 'consisting' and also after the word 'case'. In view of this amendment, it is obvious that the Clause (c) would apply to an association of persons or body of individuals only if the said association of persons or body of individuals consisted only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu. The result is that if the real status in which the assessee trust is liable to be assessed is that of an association of persons or body of individuals provisions of Section 80L(l) would not apply and as such, relief claimed by the assessee would not be admissible. It is for this reason that the assessee has raised the plea in the cross-objection that the true status of the assessee trust was that of an individual and such, relief was admissible under sub-clause (a) of Section 80L(l). Consequently, the only question that survives for decision is whether the status in which the assessee-trust is liable to be assessed is that of an individual or an association of persons. As already stated, we have to decide this question in the background of the fact that the assessee-trust is a discretionary trust and the assessment is to be made under Section 164(1) of the Act.
8. Section 164(1) reads as follows :
164. Charge to tax where share of beneficiaries unknown(1). Subject to 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 the benefit of any one person or where 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 on the relevant income or part of relevant income at the maximum marginal rate :
Provided that in a case where (i) ***
(ii) * ** (iii) ** **
(iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pensian 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 association of persons.
Explanation 2 : In this section, "maximum marginal rate means the rate of income-tax in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year.
9. The present case falls under Clause (iv) of proviso to Section 164(1). It is mentioned therein that 'tax shall be charged on the relevant income as if it were the total income of an association of persons". The question is as to what is the legal implication of this provision. In other words the question is whether the trustees who are assessed under Clause (iv) of the proviso to Section 164(1) are to be so assessed in the status of association of persons or whether they are to be so assessed in the status of individual but for purposes of rate to be treated as association of persons.
10. In this connection, it is to be noted that it is nowhere expressly stated that the trustees are to be assessed in the status of the 'individual'. We may refer to Sub-section (4) of Section 21 of the Wealth-tax Act, 1957 which is in pari materia with Section 164(1) of the Income-tax Act, 1961. There, the charging provision is expressed as follows :
the wealth-tax shall toe levied upon and recovered from the court of wards ....
(etc.), in the like manner and to the same extent as it would be leviable upon or recoverable from an individual who is citizen of India and resident in India for the purposes of this Act, and (a) at the rates specified in Part I of Schedule I or (ii) at the rate of three per cent whichever course would be more beneficial to the revenue.
11. Under the Wealth-tax Act, AOP is not a unit of assessment. Section 21(4) of the said Act lays down that tax shall be levied in the like manner and to the same extent as it would be leviable upon or recoverable from an individual who is citizen of India and resident in India. Because of this express provision, the trustees would be assessed in the status of individual who is citizen of India and resident in India. Thus, though the trustees would not ordinarily come in the category of 'individual' they would be assessable in the status of individual because of the deeming provision in Section 21(4). But for this provision, they would not have been so assessable. In the corresponding provision in the Income-tax Act, 1961, viz. Clause (iv) of proviso to Section 164(1), the expression used is that tax shall be charged on the relevant income as if it were the income of an association of persons. An association of persons (AOP) is a separate assessable entity under the Income-tax Act. As already observed by us, there is no indication in the language of any provision in the Act to the effect that trustees who are to be assessed under Section 164(1) are to be assessed in the status of individual and that only for the rate purposes they would be treated as association of persons. In the absence of such express provision there is no justification for the conclusion that the trustees should be assessed in the status of individual. There is no ground to presume that Legislature intended that the trustees would have status of 'individual' for assessment but when the question of rate would come, they would be treated as 'association of persons'. We have already indicated that under the Wealth-tax Act, the status under Section 21(4) is that of "individual who is citizen of India and who is resident of India" because of specific provision therein. In Clause (iv) of proviso to Section 164(1) of the Act, there is mention to AOP and not to 'individual' and as such and the latter provision the status would be that of AOP.
12. We are supported in this view of the matter by the decision of Calcutta High Court in Smt. Santimoyee Bose v. C1T [1969] 74 ITR 133. This is not a case of trustees. However, it is a case of a representative assessee. All the assessees who come in the category of 'representative assessee' are governed by the same provision of law. Hence, this decision would directly apply. In this case the mother and minor children obtained joint decree for maintenance and shares of these individuals in the joint decree were indeterminate and unknown and as such proviso to Section 41 of the Income-tax Act, 1922 applied. This proviso is in pari materia with Section 164(1) of the Income-tax Act, 1961. The said proviso was as follows :
provided that where any such income, profits and gains or any part thereof are not specifically receivable on behalf of any one person, or where individual shares of the persons on whose behalf they are receivable are indeterminate or unknown, the tax shall be levied and recoverable at the maximum rate; but where such persons have no other personal income...as if such income...were the total income of association of persons.
13. It was argued before the High Court that the said representative assessees cannot be assessed in the status of AOP because they had not associated to produce the income and there cannot be an A.O.P. unless they are said to have combined to produce the income. The High Court repelled this submission by observing as follows :
While there is good deal of force in Mr. Mitra's argument that joint decree holders like the plaintiffs in the present suit do not associate to produce the income, we are of the opinion that in view of the deeming provision contemplated by the proviso to Section 41, even though they do not associate to produce the income, if the person who is in actual receipt of the income fulfils the conditions mentioned in the main part of Section 41(1) and if the share of the persons on whose behalf the income is received is indeterminate, then such income can be taxed as if it were the income of an association of persons even though, in fact they are not an association of persons . . . Under the proviso to Section 41 of the Income-tax Act, 1922 even though the assessees did not associate or join in any endeavour or any purpose to produce the income, they would be deemed to be association of persons.
14. The above decision is a direct authority for the proposition that representative assessees to whom provisions of proviso to Section 41(1) of the Income-tax Act, 1922, or Section 164(1) apply are liable to be assessed in the status of an association of persons because of deeming provision contained therein in spite of the fact that they could not be said to have formed an association or combined together to earn the particular income. In other words, the status of A.O.P. has been conferred on them by the deeming provision. In view of this direct authority of Calcutta High Court, we are bound to hold that the trustees of the two funds in these appeals were liable to be assessed in the status of A.O.P, and not that of individual.
15. The learned representative of the assessee has relied on three decisions of the Tribunal where it has been held that the trustees should be assessed in the status of individual under Section 164(1) of the Income-tax Act, 1961. One of the reasons given there is that there cannot be an A.O.P. unless two or more persons join in a common purpose or action with the object of producing the income. The Tribunal in those decisions did not have the advantage of considering the above mentioned decision of the Calcutta High Court where it has been held that the representative assessees would be assessable in the status of A.O.P. not because they fulfil the condition regarding formation of association but because of deeming provision. Thus the view taken by the Tribunal is in conflict with the view expressed by the Calcutta High Court. The Tribunal took the view that they would be assessed in the status of individual because "individual" included body of persons. As already stated there was no express provision which said that they should be assessed in the status of individual. The Tribunal relied on the decision of the Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546. This decision was considered by Calcutta High Court in the above case and it was observed that the said decision was not applicable. The Tribunal held that trustees would be treated A.O.P. only for rate purposes and not for the purpose of status of assessment. This is also contrary to decision of Calcutta High Court where it has been held that status of assessment would be that of A.O.P. We have already stated that for wealth tax the trustees are treated as "individual" because of specific provision in Wealth-tax Act while corresponding provision in the Income-tax Act refers to A.O.P. and not individual.
16. We may mention here that the learned authors of Income Tax Law by Chaturvedi and Pithisaria have noticed this legal position at page 155 in the following words :
'Deemed association of persons'. In contingency contemplated by the proviso to Section 164(l)(i) or Section 164(2) of Section 164(3)(a) or the proviso to Section 164(3)(a) of the 1961 Act, even though there is no association of persons as contemplated by Section 2(31) it will be deemed to be an association of persons. See Smt. Santi-moyee Bose v. GIT [1969] 74 ITR 133 (137) (Cal.).
17. We may further mention here that in the earlier decision the Tribunal has strongly relied on CIT v. Sodra Devi [1957] 32 ITR 615 (SC) for the proposition that an individual would include a group of persons forming a unit. That decision was rendered under the Income-tax Act, 1922. Under the 1922 Act, the correct view was that; the word "individual" did not mean only a human being but was wide enough to include a group of persons forming a unit and included an idol or deity or a corporation created by a statute, e.g. a university or a bar council or a State Road Transport Corporation or a trustee of a baronetcy trust incorporated by a Baronetcy Act etc. Under the 1961 Act, artificial juridical persons are placed in a separate category by themselves and as such the word "individual" would mean only a natural person i.e. a human being. Deities and statutory corporations would be assessed as a juridical persons and body of individuals would be assessed in the status of body of individuals and not in the status of individual. This change has been noticed in all the standard books on this subject, namely, Kanga and Palkhiwala, Chaturvedi and Pithisaria, Sampath Iyengar. In Income-tax Law by Chaturvedi & Pithisaria, it has been expressly mentioned at page 114 that the trustees would be assessed in the status of an individual under the Wealth-tax Act but in the status of an Association of Persons under the Income-tax Act.
18. We may mention here that we are not concerned with the assessments under Section 161 of the Act. In assessments under the said section representative assessees would take their status from beneficiaries they are represent and it would be wholly immaterial whether there was one representative assessee or there were two or more of them representing the same beneficial interest or interests. For instance, the trustees under the said provision would be assessable in the status of "Individual", where they represent beneficiaries who are assessabley separately in the status of an individual ; and likewise they would be assessable in the status of A.O.P. where they represent beneficiaries who constitute an Association of Persons. As far as the assessments under Section 164(1) are concerned, the beneficiaries are unknown or their shares are indeterminate and they are to be taxed as if they formed an Association of Persons at the rates mentioned in said section. Consequently, their status would also be that of Association of Persons and specific rates mentioned therein would be applicable. As already emphasised, there is nothing in that section to indicate that they would be assessed in the status of individual and only for the rate purposes they would be treated as Association of Persons. They would be liable to be treated as Association of Persons for the rate purposes and also for status in which they are assessed. This is because of deeming the provision contained in the section as explained by the Calcutta High Court in the case of Smt. Santimoyee Bose (supra) which we have discussed in detail.
19. It has been held by Bombay High Court, in CIT v. Smt. Goda varidevi Saraf [1978] 113 ITR 589 that if there is a decision of a High Court on any point, the Tribunal was bound to follow the same. We, therefore, follow the above decision of the Calcutta High Court and hold that the assessee in these cases are liable to be assessed in the status of A.O.P. and not in the status of individual. Since the assessees do not come under Clause (c) of Section 80L(l), deduction under Section 80L is not allowable.
20. We now come to I.T.A. No. 6064/Bom/1984. The assessee is the same, namely, D.M.C.C. Employees Medical Aid Trust. The assessment year is also the same, namely, 1981-82. The appeal is by the assessee and it arises in the following circumstances. After the Income-tax Officer passed the assessment order purporting to be under Section 143(1) of the Act, the assessee filed form No. 6A under Section 143(2)(a) objecting to the assessment made under Section 143(1) of the Act. The attention of the Income-tax Offcer was drawn to the fact that prior to the completion of the assessment under Section 143(1), the assessee had filed a letter dated 16-3-83 in which the deduction under Section 80L had been claimed and that the said claim had not been considered while framing the assessment order which purported to be under Section 143(1). He, therefore, made a request to consider the claim or deduction under Section 80L and allow the said deduction. The Income-tax Officer rejected the claim by an order dated 7-3-1984. Thereafter the assessee filed the appeal and this appeal was heard by another A.A.C. He held that the status of the assessee was that of an A.O.P. and not that of an individual and as such relief under Section 80L was not available. Against that order of the A.A.C. the assessee has filed I.T.A. No. 6064/Bom/1984 and the ground raised is that the relief under Section 80L(l)(a) was available to the assessee because the assessee trust was assessable to income-tax in the status of an individual and not in the status of an A.O.P. Reliance is placed on the fact that for wealth-tax purposes, the assessee trust has been assessed as an individual. We have already considered this point. For the reasons given above, we hold that the assessee trust is assessable to income-tax in the status of an A.O.P. and not in the status of an individual, and that the deduction under Section 80L(I)(a) is not available.
21. We now deal with the I.T.A. Nos. 6065/Bom/1984 and 6066/Bom/ 1984 for the assessment years 1982-83 and 1983-84 respectively. For these two assessment years, the AAC has passed a common order along with the appeal for the assessment year 1981-82. For the reasons given while dealing with I.T.A. No. 6064/Bom/1984, we hold that for these two years also the assessees are liable to be assessed as an A.O.P. and not as an individual and the deduction under Section 80L(l)(a) is not allowable.
22. We now deal with the I.T.A. No. 3424/Bom/1984 and the CO. No. 390/Bom/1984 arising out of the said appeal. The assessee in this appeal and the cross objection is Dharamsi Morarji Employees (Kumhari Staff) Welfare Fund. The assessment year is 1980-81. In this case also, the assessee had filed return and then in the course of assessment proceedings, it had filed a letter dated 16-3-1983 claiming deduction under Section 80L of the Act. The Income-tax Officer did not consider the claim under section SOL and passed an assessment order under Section 143(1) of the Act. The assessee filed the appeal before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner allowed the same. The Appellate Assistant Commissioner did not record a definite finding whether the status in which the assessee should be assessed was that of an Individual or an A.O.P. However, the Appellate Assistant Commissioner held that the relief under Section 80L was allowable. He directed the Income-tax Officer to allow the said relief. In the appeal by the department, two grounds have been raised which are identical with the grounds raised in I.T.A. No 3425/Bom/ 84. In the cross objection, the assessee has pleaded that the status in which the assessee was liable to be assessed was that of an individual and not that of an A.O.P. and as such, relief under Section 80L(l)(a) was available. The facts are identical with the facts in I.T.A. No. 3525/Bom/1984 and CO. No. 391/Bom/1984. For the reasons given above, while deciding the said appeal and the cross objection, we hold that the order passed by the Income-tax Officer was in substance an order under Section 143(3) and not under Section 143(1) thereof and as such it was appealable. We further hold that the assessee trust is assessable to tax in the status of an A.O.P. and not in the status of an Individual and as such, relief under Section 80L(l)(a) is not allowable.
23. In the result, I.T.A. Nos. 3424/Bom/1984 and 3425/Bom/1984 are allowed while cross objection Nos. 390/Bom/1984 and 391/Bom/1984 are dismissed. I.T.A. Nos. 6064/Bom/1984, 6465/Bom/1984 and 6066/ Bom/84 are dismissed.