Income Tax Appellate Tribunal - Bangalore
Assistant Commissioner Of Income-Tax vs Guru Trust on 9 November, 1995
Equivalent citations: [1996]57ITD247(BANG)
ORDER
S. Bandyopadhyay, Accountant Member
1. A trust was created by Shri Manjit Singh Sachdev by way of declaring an amount of Rs. 5,000 as the trust property for the benefit of the sole beneficiary, i.e., son of Shri Param jit Singh, being a minor. Under the Trust Deed, Shri Paramjit Singh and his wife Smt. Amarjeet Kaur were appointed as the trustees. During the accounting year corresponding to assessment year 1985-86, the trust credited interest amount of Rs. 3,68,342 to M/s. Guru Investments and of Rs. 5,425 to M/s. Bajaj Electronics. No tax was however deducted at source in terms of the provisions of Section 194A. It was the plea of the assessee initially before the Assessing Officer that tax had not been deducted as the payees had submitted statements in Form Nos. 15A and 15H. The Assessing Officer, however, observed that no statement under Section 206A had been filed within the prescribed time. The Assessing Officer levied interest of Rs. 23,074 under Section 201 (1A) and penalty of Rs. 37,376 under Section 221 for non-deduction of tax by the trust.
2. Before the CIT(A), it -was pleaded on behalf of the assessee that inasmuch as the assessee was to be assessed as an "individual", there was no liability for deduction of tax at source under the provisions of Section 194 A and hence, there was no question of levying either interest or penalty on the alleged ground of non-deduction of tax. The CIT(A) accepted this contention of the assessee and cancelled both the interest as well as penalty as levied by the Assessing Officer. In the present appeals before us, the Department agitates against the aforesaid action of the CIT(A) in cancelling the interest and penalty.
3. The learned Departmental Representative has argued before us that Section 161(1) merely provides a mechanism for collecting tax from trusts but does not determine the status of the assessee. He strongly contends that the status of the assessee in this case is "trust". He argues that the definition of "person", being the assessable entity, as found in Section 2(31), is merely inclusive and not exhaustive. He thus strongly argues that inasmuch as the status of the assessee in this particular case was "trust", the assessee cannot get the exemption from deducting tax at source by being considered as an individual.
In support of his contention, he has cited the judgment of the ITAT, Bangalore Bench in the case of Trustees of A.S. Chinnaswamy Raju Bros., Family Trust, Hotel Chalukya [IT Appeal Nos. 391 and 392 (Bang.) of 1989 dated 8-4-1993] (for assessment years 1985-86 and 1986-87). It was found that in the aforesaid order, which was rather very short, the Tribunal had proceeded to confirm the levy of interest under Section 201(1A) by observing that the issue raised in those appeals was squarely covered by the decision of the ITAT, Bombay Bench, in the case of ITO v. Subhash Metal Indl. [1993] 44 ITD 677. The learned DR has also relied on the aforesaid decision of the ITAT, Bombay Bench in the case of Subhash Metal Indl. (supra) in which the following observations are found to have been made:
Trust connotes a legal concept of relationship just as other relationships subsist under the law. The relationship of the partners is governed by the Indian Partnership Act, 1932. Similarly, the relationship which exists pursuant to the creation of trust is governed by the Indian Trust Act, 1882. In explaining the concept of 'individual' it is a sine qua non to indicate the essence of the object reflected in the concept which reveal the content of the concept and, thus, describe the term 'individual' visa-vis the concept of trust. A definition of the term can be taken into consideration provided it is precise and clear. Definitions of concepts should be free from ambiguity. While dealing with the concept it is not admissible to substitute metaphors, comparison, etc., form them.
The meaning of the words 'person responsible for paying' has been defined in Section 204 according to which the payer himself is person responsible for paying. Without dragging the said matter into the labyrinth of precedents one has to enquire who is the person responsible for paying? Indisputably 'trust' is the person responsible and not the 'cestui que trust'. If that be so, one is concerned about the status of the trust and not that of beneficiaries.
4. The learned DR furthermore argued that in this case, the assessee is the trust, and the responsibility for deducting tax at source lies squarely with the trust, which was different from the trustees as well as the beneficiaries thereof. In support of his contentions in this regard, further reliance was placed on the following decisions :
(i) British Airways v. CIT[1991] 54 Taxman 470 (Cal.)
(ii) Shilal N. Shah v. ITO [1991] 188 ITR 376 (Mad.),
(iii) John Patterson & Co. (India) Ltd. v. ITO [1959] 36 ITR 449 (Cal.).
5. The learned Counsel for the assessee, on the other hand, strongly contended that the trust is to be equated with its sole beneficiary and hence, its status has rightly been considered by the CIT(A) to be as an "individual". He also referred to the judgment of the ITAT, Bangalore Bench dated 5-4-1995 in ITA No. 1250 (Bang.)/1989 and C.O. No. 54 (Bang.)/1989 in the case of the assessee-trust for this very assessment year in which the Tribunal had cancelled the assessment of the assessee in the status of association of persons. The learned Counsel for the assessee, therefore, argued that the assessee is required to be assessed as nothing but "individual" and hence, the provisions of Section 194A should not apply to it. In support of his contention, he relied on the decision of the Karnataka High Court in the case of CIT v. K. Shyamaraju (Trustees) [1991] 189 ITR 392. He furthermore relied on the following two High Court decisions which, according to him, are directly comparable with regard to the facts of the present case and in which the High Courts have held that the trust having been assessed as individual for assessment purpose, the same status is to be considered for the purpose of considering whether it is liable to deduct tax at source from interest:
(i) Arihant Trust v. ITO
(ii) M.L. Family Trust v. State of Gujarat
6. We find that the two decisions of the Calcutta High Court and one of the Madras High Court as cited by the learned DR simply go to the extent of saying that in the case of a company, though payments of salaries are made by an officer or a clerk of a company, such payments are made for and on behalf of the company and, thus, "person responsible" for payment of salary is the employer, i.e., the company itself. In the case of John Patterson & Co. (India) Ltd. (supra), a similar decision was arrived at by the Calcutta High Court although a private arrangement or agreement had been made between the company and one of its employees to the effect that the tax liability on commission paid by the company was required to be paid by the employee himself. In the case of Shital N. Shah (supra) also, it was held by the Madras High Court that the partner of a firm cannot be treated as "person responsible for paying" and that the firm itself will be liable to be held as responsible and guilty for the offence of not deducting tax at source on behalf of the firm.
7. We completely agree with the contentions of the learned DR in this regard. Section 204 defines "person responsible for paying" (as appearing in the various sections relating to deduction of tax at source including Section 194A). As per Clause (iii) of Section 204 which applies to the present case, the person responsible for paying shall mean the payer himself, or, if the payer is a company, the company itself including the principal officer thereof. Thus, if the payer be an HUF, the person responsible for deducting tax at source shall be the HUF only and not the karta of the HUF who is actually incharge of making payment of the interest amount. Similarly, for a firm, AOP, BOI or a co-operative society, it will be the assessees themselves who will have to be considered as persons responsible for paying the interest amount and not the actual individual who physically performs the act of payment. In the case of a trust also, therefore, although it is the trustees who physically perform the act of paying the interest to the creditors, under the provisions of Section 204 therefore, it is the assessee, i. e., the beneficiary alone who is required to be considered as the payer and the status of the assessee is, therefore, required to be reckoned for the purpose of applicability of the provisions of Section 194A. If a trust be found to be defaulter in respect of deduction of tax at source, interest, penalty, etc., the same will ultimately have to be paid by the trust and the pecuniary interest of the beneficiary alone will therefore, be hurt. The trustees themselves or their private properties shall in no case suffer from levy of interest, penalty, etc., unless mala fide can be proved against the trustees. It is, therefore, felt that the trustees are merely placed in the position of the physical agent carrying on the functions relating to administration of the trust like the manager of a business belonging to an individual, the managing partner or an outside manager of a firm or the kartha of an HUF. In none of these cases, the status of the individual, firm or the HUF, whatever the case may be, can be taken as anything other than the entities themselves and the status of the person physically incharge of the affairs of the entities can, in no circumstances, be taken into consideration.
8. However, it is very difficult to accept the other contention of the learned DR that the trust is something different from the trustees. An argument has been placed by him before us that in the case of M.L. Family Trust (supra), the counsel for Revenue had submitted that it is the liability of the representative assessee, i.e., the trustees and, therefore, the trustees being the representative assessee who have the liability to deduct the tax and to pay the same to the Revenue should be considered as persons responsible for paying interest and deducting tax at source therefrom. The learned DR has tried to argue before us that the trustees are different from the trust and in the instant case, it is the trust which is responsible for making payment and deducting tax at source therefrom. It has thus been tried to be argued by him that the trust cannot be considered as an "individual" and hence, the provisions of Section 194A should apply to the same.
We are unable to accept the logic of this argument. There is no separate existence of the trust apart from the trustees. A trust is just a compendious name for the trustees who are actually the representative assessees in cases like these. The law takes cognizance of the trustees and the beneficiaries who are also known as "cestui que trust". The position is exactly the same as between a partnership firm and its partners in the eyes of general law. The Income-tax Act however, makes a distinction between the firm and its partners specially for the application of that law. Such a distinction is, however, not provided by the Income-tax Act between the Trust and its trustees. Section 16.1 and all other related sections clearly hold the trustees as the representative assessees on behalf of the beneficiaries of the trust. There is no scope for admitting the separate existence of the trust apart from that of the trustees.
9. In the Gujarat case of ML. Family Trust (Supra), it was decided by the High Court that inasmuch as the beneficiaries were individuals, the status of the trustees bring same as that of beneficiaries, the trustees were also individuals and not AOP. It was thus held that the provisions of Section 194A were, therefore, not applicable in case of such trustees.
The Madras High Court also held in the case of Arihant Trust (supra) that when the trust was treated as an individual while receiving the income, there is not law to change its status for other purposes and hence, it was to be treated as same individual for the purpose of Section 194A. In both the cases, the respective High Courts held that inasmuch as there was no liability with the trusts to deduct tax at source, prosecution proceedings as launched by the Department against them for failure to deduct tax at source cannot stand.
In the face of the above two clear decisions of two different High Courts, we are of the view that what the ITAT, Bombay Bench, held in the case of Subhash Metal Indl. (supra) to the effect that a trust is to be considered as a separate assessee than the individual beneficiaries, does not render the correct position of law. On the other hand, we must follow the decisions of the abovementioned two High Courts in coming to the conclusion that the trust has essentially the status of its beneficiaries, whether for the purpose of the assessment of its income or for considering its liability to deduct tax at source under Section 194A. In the instant case, the ITAT, Bangalore Bench, has already held by relying on the decision of the Karnataka High Court in the case of K. Shyamaraju (supra) that the trustees are required to be assessed in the like manner and to the same extent as the beneficiaries themselves. We have, therefore, no other option but to consider the trustees in the instant case also as assessable in the status of individual. The same status should again apply to the case of deduction of tax at source under Section 194A. We thus finally come to the conclusion that inasmuch as the assessee in the instant case, is an "individual", provisions of Section 194A were not applicable to it and it was not liable to deduct tax at source from the interest payments made by it. Hence, the Assessing Officer has wrongly levied interest under Section 201(1A) and penalty under Section 221 for non-deduction of tax by the assessee. The action on the part of the CIT(A) in cancelling such levies is hence, being affirmed.
10. In the result, the departmental appeals are dismissed.
11. The cross-objections are merely of the nature of bolstering the order of the CIT(A) and have got no separate grounds. Hence, it is not necessary to pay separate attention to the cross-objections as filed by the assessee. For statistical purposes, however, the cross-objections shall be treated as having been allowed.