Bombay High Court
Seth Jivatlal Purtapshi Family Trust vs Commissioner Of Income-Tax on 15 March, 1993
Equivalent citations: [1993]204ITR574(BOM)
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the assessee, the Income-tax Appellate Tribunal ("the Tribunal"), has referred the following question of law to this court for opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the capital gains amounting to Rs. 60,650 is assessable in the hands of the trustees and not allocable amongst the nine beneficiaries ?"
2. The assessee is a trust and has been assessed in the status of an association of persons. During the accounting period relevant to the assessment year 1973-74, it had sold one of the properties of the trust thereby making a capital gain of Rs. 60,650. Besides capital gain, during the relevant assessment year the trust had also income by way of interest on securities amounting to Rs. 650 and interest from other sources amounting to Rs. 9,517. There is no dispute about the fact that under the terms of the trust deed, the shares of the nine beneficiaries in the income thereof are determine and known. the Income-tax Officer ("the ITO") allocated the income from interest on securities as well as interest from other sources equally amongst the nine beneficiaries. So far as the capital gain was concerned, the Income-tax Officer computed the amount assessable under that head after making necessary deductions therefrom in accordance with the provisions of the Act and assessed the same in the hands of the trustees instead of allocating the same equally amongst the nine beneficiaries as had been done by him in the case of other income referred to above. The amount of capital gain which was brought to tax in the hands of the trustees after making necessary deductions was Rs. 36,172. The assessee was aggrieved by this action of the Income-tax Officer. He took the matter in appeal before the Appellate Assistant Commissioner of Income-tax ("the AAC"), who accepted the contention of the assessee that this amount of capital gain was also to be allocated amongst the nine beneficiaries equally as had been done by the Income-tax Officer himself in the case of interest income. It was held that the same should not have been charged in the hands of the trustees as an association of persons. Against the order of the Appellate Assistant Commissioner, the Revenue went in appeal to the Income-tax Appellate Tribunal ("the Tribunal"). The Tribunal reversed the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. Hence, this reference under section 256(1) of the Act at the instance of the assessee-trust.
3. Learned counsel for the assessee submits that the Tribunal was not justified in making a distinction between incomes falling under different heads for the purpose of application of section 161 of the Act. According to learned counsel, in the instant case, there is no dispute that section 161 of the Act is applicable, the beneficiaries are known and their shares are determinate and it is in that view of the matter that the Income-tax Officer himself has allocated the income for the purpose of assessment amongst the nine beneficiaries instead of assessing the same at the maximum marginal rate. That being so, it is contended that there was no justification for treating the capital gain differently which also was admittedly "income" within the meaning of the expression as defined under section 2(24) of the Act.
4. The submission of learned counsel for the Revenue, on the other hand, is that section 161 applies only to "income" and not to "Capital gains". He also referred to certain clauses of the trust deed which contain some restrictions on the distribution of such income. According to him, under the trust deed itself "capital gain" has not been treated as "income" but has been considered as a part of a "capital gain" has not been treated as "income" but has been considered as a part of a "capital" receipt on sale of an asset and that being so, the assessee is not entitled to get the same treatment thereof as income.
5. We have carefully considered the rival contentions. We have perused section 161 of the Act, which reads as follows :
"161(1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him.
(1A) Notwithstanding anything contained in sub-section (1), 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 consist of, or includes, profits and gains of business, tax shall be charged on the while of the income in respect of which such person is so liable at the maximum marginal rate :
Provided that the provisions of their sub-section shall not apply where such profits and gains are receivable under a trust a 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) Where any person is, in respect of any income, assessable under this Chapter in the capacity of a representative assessee, he shall not, in respect of that income, be assessed under any other provision of this Act".
6. From the above section, it is clear that the tax is levied upon and recovered from the representative assessee under this section "in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him". In the instant case, as pointed out earlier, there is no dispute that section 161 applies in the case of the assessee and the income of the trust has to be assessed "in like manner and to the same extent as the persons beneficially entitled to the income" and the Income-tax Officer himself has done so in his order of assessment in respect of all income other than capital gains. The controversy is, therefore, confined to the assessment of income falling under the head "Capital gains". The Income-tax Officer has treated "capital gain" differently from "income" and so also the Tribunal.
7. The point for determination is whether it is permissible. For that purpose we will have to refer to some of the provisions of the Act. The expression "income" has been defined in section 2(24) of the Act to include specifically "any capital gains chargeable under section 45" (sub-clause (vi)). Section 4, which is the charging section, also imposes the tax in respect of the "total income" of a person. The expression "total income" too has been defined in section 2(45) of the Act to mean "the total amount of income referred to in section 5, computed in the manner laid down in the Act". Section 5, which deals with the scope of total income, provides, inter alia, that it includes all income from whatever source derived. Income for the purpose of charge of income-tax and computation of total income has been classified in section 14 of the Act under the following heads :
A. Salaries B. Interest on securities C. Income from house property D. Profits and gains of business or profession E. Capital gains F. Income from other sources
8. Evidently, capital gain is also one of the heads under which income has been classified. Section 45(1) of the Act provides that "any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54C and 54D, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place". A conjoint reading of the above provision makes it abundantly clear that the expression "income" as used in the Act is wide enough to include income from all sources including capital gains. The effect of section 14 is merely to classify income under different heads for the purpose of providing for each, appropriate rules for computing the amount of income. That being so, in the absence of any provisions in the Act excluding the capital gains, from the ambit of "income" for the purpose of application of section 161 of the Act, it is difficult to exclude the operation of the same to assessment of "capital gains". It is evident from a plain reading of section 161 itself that it applies to all income, which naturally and on the face of the provisions set out above, includes income falling under the head "Capital gains".
9. In this connection, it may be pertinent to mention that wherever the Legislature intended to exclude "capital gains" from the expression "income" for any particular purpose, it has specifically said so. Reference may be made in this connection to sections 207 and 209 of the Act. Under section 207 of the Act, while providing for payment of advance tax in the case of income, it has specifically been mentioned "other than (a) income chargeable under the head "Capital gains". Similarly, dealing with computation of advance tax in section 209, it has been clearly provided that out of the total income of the latest previous year in respect of which the assessee had been assessed by way of regular assessment, the amount of capital gains, if any, included in such income shall be excluded. These provisions leave no scope for doubt that wherever the Legislature intended to exclude capital gain from "income" it has specifically done so. In section 161, there is no such exclusion. To read such an exclusion will require the reading of the word "income" as "income other than the capital gain" which will amount to adding words to the statute which is not a permissible mode of interpretation of statutory provisions.
10. Under the circumstances, we are of the opinion that section 161 applies to all income including income falling under the head "Capital gains". That being so, we find no justification for treating "capital gains" for the purpose of assessment differently from other income.
11. In view of the above discussion, it is evident that the Tribunal was not justified in holding that the income falling under the head "Capital gain" was not allocable amongst the nine beneficiaries. In that view of the matter, we answer the question referred to us in the negative, i.e., in favour of the assessee and against the Revenue.
12. Under the facts and circumstances of the case, we make no order as to costs.