Income Tax Appellate Tribunal - Ahmedabad
Kirtikumar Vinodray, Sanjaykumar ... vs Income-Tax Officer on 15 October, 1993
Equivalent citations: [1994]49ITD6(AHD)
ORDER
B.M. Kothari, Accountant Member
1. We will first deal with assessee's appeal for A.Y. 1985-86. The assessee has raised several grounds, running into 11 pages, which are more in the nature of arguments supporting a few grounds of appeal requiring our consideration.
2. The main ground in this appeal is that the CIT(A) has erred in confirming an assessment against the assessee-trust and has further erred in levying maximum marginal rate of tax Under Section 161(1A) by not appreciating the fact that beneficiaries of the trust had already been assessed directly Under Section 166 and those assessments still subsist.
3. The learned counsel for the assessee submitted that the assessee is a private specific trust. The beneficiaries and their respective shares are determinate and known. The three beneficiaries of the said trust, namely, Shri Kirtikumar Vinodrai, Shri Sanjaykumar Vinodrai and Shri Sandip Aswinkumar had 1/3rd interest each in the income of the said trust and each one of them had shown their respective share of income from the said trust in their respective returns of income and were duly assessed to tax Under Section 143(1) on 23rd September, 1987. The assessment made against the trust thereafter on 29th February, 1988 by invoking the provisions of Section 161(1A), levying maximum marginal rate of tax on the total income of the trust is invalid and ought to have been cancelled. He submitted that assessments in the cases of all the three beneficiaries of the trust were made directly in their respective hands as per Section 166 and as per the circular which was in force at the relevant time. Once the ITO exercised the option to assess the beneficiaries directly in respect of their share income from the trust, he cannot thereafter assess the same income in the hands of the trust. The learned counsel further submitted that Section 166 has not been abrogated by introduction of the provisions of Section 161(1A). This has resulted in double taxation of the same income in the hands of the beneficiaries as well as in the hands of the trust. This is clearly contrary to the provisions of law and various decisions referred to in the grounds of appeal. He also invited our attention towards the judgments reported in 161 ITR 166 (sic.), State of Uttar Pradesh v. Raza Buland Sugar Co. Ltd. [ 1979] 118 ITR 50 (SC), and GanpatraiSagarmal v. CIT[ 1982] 138 ITR 294 (Cal.). He further submitted that Section 166, which is a provision of a special nature, overrides all other provisions contained in the preceding provisions of Chapter XV including the provisions contained in Section 161(1A). The assessments made in the hands of the beneficiaries are perfectly valid in accordance with Section 166 and, therefore, the assessment made in the case of the trust, levying maximum marginal rate of tax in view of Section 161(1A) is invalid and should be quashed.
In the alternative, the learned counsel submitted that the CIT(A) ought to have accepted the assessee's alternative prayer that the tax paid by the beneficiaries in respect of share income from the said trust should be treated as tax paid by the trust in respect of the same income and appropriate reduction in the amount of tax payable ought to have been granted. He also invited our attention towards the judgment of Hon'ble Supreme Court in Kapurchand Shrimal v. CIT [1981] 131 ITR 451 to support his contention that the appellate authority is under an obligation to correct all errors which are obvious and glaring in the orders passed by the subordinate authorities. He further submitted that the decision reported in Govind Saran Ganga Saran v. CST [1985] 155 ITR 144 (SC), supports the construction of the relevant provisions in the manner as has been canvassed by him. He also invited our attention towards the Commentary on Income-tax Law by Kanga & Palkhiwala to support his argument that if a provision is capable of more than one interpretation, the one which fastens lesser burden or lighter burden upon the taxpayer should be adopted. He also invited our attention towards the judgment reported in Laxmichand Hirjibhai v. CIT [1981] 128 ITR 747 (Guj.) to support his contention that the beneficial circulars issued by the Board are binding on all the authorities under the provisions of the Income-tax Act. He invited our attention towards the elaborate grounds of appeal in support of the aforesaid main ground, as well as in support of the alternative submission made by him.
4. The learned D.R. submitted that it is not a case where the Assessing Officer had exercised the option of assessing the share income from the trust in the hands of the beneficiaries but the returns of income in the cases of the beneficiaries had been accepted under the summary assessment scheme contained in Section 143(1). Such assessments were completed under Section 143(1) in oversight of the availability of all the relevant facts for attracting the provisions of Section 161(1A). The provisions of Section 161 (1 A) were inserted by the Finance Act, 1984 w.e.f. 1 -4-1985. The trust is carrying on business and, therefore, the said provisions of Section 161 (1A), providing for levy of tax at the maximum marginal rate in the case of the trust which includes profits and gains of business, are clearly applicable in the present case. The departmental authorities were, therefore, fully justified in assessing the entire income in the hands of the trust and levying tax at maximum marginal rate in view of the new provisions of Section 161 (1A) inserted w.e.f. the year under consideration. The acceptance of the returns in the cases of the beneficiaries under Section 143(1), in consonance with the summary assessment scheme, cannot tantamount to exercising the option and also cannot put the provisions of Section 161 (1 A) into a nullity. The circular of Board is of a prior date before introduction of Section 161(1A) and that circular also cannot override the clear and specific provisions of Section 161 (1A), dealing with the cases of trusts carrying on business. The only object of the circular is to obviate double taxation and the CIT(A) has rightly directed the assessee to avail of such remedies as is available under the provisions of law before the administrative authorities. The provisions of Section 161(1A) being special in nature will override the provisions of Section 166, which is general in nature and is applicable to all cases of trusts. In the present case, there are no two views possible in relation to applicability of the provisions of Section 161 (1A) and, therefore, the contention of the learned counsel that the provisions fastening lesser burden or lighter burden should be applied to the taxpayers has no relevance or applicability in the facts and circumstances of the present case.
5. We have carefully considered the rival submissions and have also gone through all the relevant case laws on the point to which our attention was drawn by the learned representatives. The assessee-trust submitted a return of income on 18-7-1985 showing nil income. In the statements annexed with the return, the assessee, inter alia, stated that the share of each of the beneficiaries has been shown in the hands of the respective beneficiaries as per Section 166. The details of income shown in the hands of the respective beneficiaries are as under:
1. 331/3rd share of income allocated and shown in the return of income of:
Rs.
(i) KirtikumarVinodrai 1,21,534 (ii) Sanjaykumar Vinodrai 1,21,533 (iiij Sandeep Ashwinkumar 1,21,533 3,64,600
The return of income of each of the beneficiaries was filed on 18-7-1985 and the assessments had been completed on 23rd September, 1987. The Assessing Officer in the case of the assessee-trust completed the assessment on 29th February, 1988 in which the total income was determined at Rs. 4,03,800, which, inter alia, includes addition in respect of unpaid sales-tax liability of Rs. 37,534 added in view of sec. 43B and Rs. 2,268 on account of disallowance out of bonus. The ITO observed that the entire income derived by the trust is assessable in the hands of the trust in view of Section 161 (1 A) and tax at maximum marginal rate is livable thereon. The assessee placed heavy reliance on Board's circular dated 24th February, 1967 in which it has, inter alia, been clarified that Section 41 of the 1922 Act gave an option to the department to tax either the representative-assessee or the beneficial owner of the income. Once the choice is made by the department to tax either the trustee or the beneficiary, it is no more open to the department to go behind it and assess the other at the same time. The Hon'ble Supreme Court in the case of RazaBuland Sugar Co. Ltd. (supra) has also held that if an association or a firm is taxed in respect of its income, the same income cannot be charged again in the hands of the members individually and vice versa. The provisions of Section 166 also provides that "nothing in the foregoing sections in this chapter (Chapter XV) shall prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income". Hon'ble Supreme Court in the case of Jyotendrasinhjiv. S.I.Tripathi, inter alia, held that Sub-section (2) of Section 161 does not purport to deny the ITO the option to assess the income in the hands of the person represented by the representative-assessee. It merely indicates that when a representative-assessee is assessed to tax in exercise of the option of the revenue, he shall be assessed under Chapter XV and shall not in respect of that income be assessed under any other provision of the Act. It was further held that by virtue of Section 166, the revenue has an option in the case of a discretionary trust either to make an assessment upon the trustees or to make an assessment upon the beneficiaries. Of course, both the trustee and the beneficiary cannot be simultaneously taxed in respect of the same income. The above referred circular and the judgments and the principles of law laid down in various other judgments relied upon by the learned counsel for the assessee is that the same income cannot be taxed twice, once in the hands of the trustees in (.heir representative capacity and again in the hands of the beneficiaries. It also lays down that the option lies with the revenue either to make assessment in the case of the trustees in their representative capacity or to make a direct assessment in the hands of the concerned beneficiaries. In the circular it has also been stated that once the choice is made by the department to tax either of them, it is no more open to the department to go behind it and assess the other at the same time.
6. It is, therefore, necessary for us to first decide as to whether the acceptance of income declared by the beneficiaries including the share income from the trust in their respective return of income and its acceptance under the summary assessment scheme contained in Section 143(1) amounts to exercise of an option by the ITO with reference to the above referred provisions contained in Chapter XV and whether the ITO, at a later point of time when he becomes aware about a new and specific provision such as Section 161 (1A) and find that assessment in the hands of the assessee-trust (trustees in their representative capacity) is more beneficial to the revenue, can make an assessment in the case of the assessee-trust regardless of the fact that at an anterior point of time the income declared by the beneficiaries had been accepted Under Section 143(1). The provisions of Section 143(1), prior to insertion of a newly substituted section by the Taxation Laws (Amendment) Act, 1970, inter alia, provided that where a return has been made Under Section 139 and the ITO is satisfied without requiring the presence of the assessee or the production by him of any evidence that the return is correct and complete, he shall assess the total income or loss of the assessee on the basis of such return. After the aforesaid amendment, the words "and the ITO is satisfied" have undergone a change and the requirement of satisfaction of the ITO has been omitted in the amended provision. The amended provision does not require the ITO to be satisfied as regards the correctness and completeness of the return but he may without, requiring the presence of the assessee make an assessment of the total income after making certain prima facie adjustments to the total income on the basis of return of income submitted by the assessee. The Legislature introduced this provision for reposing trust by providing for acceptance of the income declared in the return in large number of cases in accordance with the provisions contained in Section 143(1). The assessments of the beneficiaries in the present case were also made under such a summary assessment scheme Under Section 143(1). If we look at the copies of statement of income annexed with the return of income of the beneficiaries, we would find that there is no mention about the newly inserted provisions of Section 161(1A). The income declared by the beneficiaries was accepted without considering the applicability of the provisions contained in Section 161(1A). In the circumstances it cannot be said that ITO had exercised the option of assessing beneficiaries in preference to the trust. It would also be necessary to keep in mind that the option was given to the revenue to assess the income in the case of the trust or in the hands of the beneficiaries with a view to choose that mode which is beneficial to the revenue and which ensures recovery of the tax on such income. It is also true that the same income cannot be taxed in the hands of both the trust as well as the beneficiaries. The provisions of Section 161 (1A), which has been inserted w.e.f. 1-4-1985 and which is applicable from A.Y. 1985-86 and onwards clearly provide that notwithstanding anything contained in Sub-section (1) of Section 161, where any income in respect of which the representative-assessee is liable, consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. It is, therefore, obvious that in a case of a trust carrying on business tax is livable at the maximum marginal rate in view of Section 161(1A). The revenue has still an option or a choice to make a direct assessment in the hands of the respective beneficiaries if such a course is found by the departmental authorities to be more beneficial in the interest of revenue. For instance, if company is one of the beneficiaries, the rate of tax applicable in the case of a company may be higher as compared to the maximum marginal rate and in such a situation the department has the choice to make an assessment directly in the hands of the beneficiaries even in a case of a trust which derives income by way of profits and gains of business. This, in our view, would be the harmonious construction of the provisions of Sections 161, 166 and Section 161(1A). In our considered view the provisions of Section 166 cannot nullify the very object of inserting the provisions of Section 161 (1A) providing for levy of tax at maximum marginal rate in the case of trusts carrying on business. If the interpretation suggested by learned counsel for the assessee is accepted, it would lead to the conclusion that once the assessment of the beneficiaries has been made under summary assessment scheme Under Section 143(1), thereafter the provisions of Section 161(1A) cannot be applied in the case of a trust carrying on business and the tax cannot be levied at maximum ' marginal rate and such a conclusion would amount to nullifying the very purpose and object of inserting the provisions of Section 161(1A). We, therefore, hold that the learned CIT(A) has rightly confirmed the view taken by the Assessing Officer that tax in the hands of the assessee-trust is livable at maximum marginal rate in accordance with the provisions contained in Section 161(1A).
7. However, the contention of the learned counsel that same income cannot be taxed twice - once in the hands of the assessee-trust and also in the hands of the respective beneficiaries, amounting to double taxation of the same income, is a valid contention and deserves acceptance. We, therefore, direct the ITO to delete the share income from the trust in the respective assessments of the three beneficiaries. The tax due on the remaining income of the respective beneficiaries may be determined and the excess tax found to have been paid by the respective beneficiaries in respect of such share income from the trust should be regarded as taxes paid by the assessee-trust in respect of its income. Once we hold that the entire income should be assessed in the hands of the trustees in their representative capacity Under Section 161 (1A), it is simultaneously necessary to also direct the Assessing Officer to delete the share income from the trust in the hands of the respective beneficiaries as otherwise it would result in levy of tax twice on the same income, which is not permissible under the aforesaid provisions and which is clearly invalid in view of the various decisions referred to herein before. Such a finding is, therefore, a necessary finding for a proper disposal of the present appeal before us. We have, therefore, directed the ITO to rectify the assessments in the case of all the three beneficiaries by passing appropriate orders. We would also like to make it clear that once the entire income has been held to be taxable in the hands of the trustees in their respective capacity Under Section 161 (1A), the inclusion of the same income in the hands of the respective beneficiaries in their respective returns and its acceptance Under Section 143(1) would only be in the nature of a protective inclusion in the hands of the beneficiaries which deserves to be deleted and cancelled Under Section 154 regardless of the fact that a period of more than 4 years have already passed. Such deletion of the share income from the trust in the hands of the beneficiaries will also be in consonance with Circular No. 71, dated 20-12-1971 issued by the Board Under Section 119, read with Section 154 of the IT Act, 1961. The ITO is, therefore, directed to grant necessary relief in the assessments of all the three beneficiaries as indicated above.
8 to 18. [These paras are not reproduced here as they involve minor issues.]