Madras High Court
The Commissioner Of Income Tax vs M/S.Tamilnadu Urban Development Fund on 11 February, 2019
Author: V.K
Bench: Vineet Kothari, C.V.Karthikeyan
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 11.2.2019
CORAM
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN
Tax Case Appeal Nos.122 and 123 of 2019
and
C.M.P.No.3227 of 2019
The Commissioner of Income Tax
Chennai Appellant
Vs.
M/s.Tamilnadu Urban Development Fund
No.19, T.P. Scheme Road,
Raja Street Extension, Raja Annamalaipuram
Chennai 600 028.
PAN: AAATT0859N Respondent
Tax Case Appeals filed under Section 260A of the Income Tax Act,
1961 against the order of the Income Tax Appellate Tribunal, Madras 'B'
Bench, Chennai, dated 23.3.2017 made in ITA Nos.2316/Mds/2016 and
2317/Mds/2016.
For Appellant : Mr.T.Ravikumar
Senior Standing Counsel
For respondent : Mrs.Pushya Sitaraman for
Mr.Arun Kurian Joseph
COMMON JUDGMENT
(Delivered by DR.VINEET KOTHARI,J) The Revenue has filed these two Tax Case (Appeals) under Section 260-A of the Income Tax Act, by raising the following purported substantial questions of law arising from the order passed by the Income Tax Appellate http://www.judis.nic.in 2 Tribunal on 23.3.2017 for the Assessment Years 2008-2009 and 2009- 2010:-
"i) Whether the Tribunal was right in conceding that the Assessee Trust was a revocable one entitled to claim status under section 61 when the Trust Deed itself clearly state that as per clause 29 it was an irrevocable Trust which would come to an end only when all the contributors as a whole decide to put an end to it?
ii) Whether the Tribunal was right in treating the Assessee is not a commercial in nature especially when the Assessee has submitted Form 3CB and 3CD complying with the provisions of Section 44AB which would imply that the Assessee is a commercial enterprise?
iii) Whether the finding of the Tribunal is correct especially when the Assessee Trust is an indeterminate one as per Explanation 1(ii) to Section 164 read with Section 160(1)(vi) and that the liability is fashioned to the representative Assessee only especially when the name of the beneficiaries and their respective shares is not spelt out in the Trust Deed but only in the supplementary contribution agreement?
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iv) Whether the Tribunal was correct in granting relief to the Assessee especially when the Assessee itself has withdrawn the status claimed under section 61 by filing the return of income for the Assessment Year 2010-11 onwards and there was no change in the Trust Deed for the previous assessment year and therefore, differential treatment of status under Section 61 cannot be enjoyed by the Assessee on the income which is otherwise taxable?"
2. The Tribunal allowed the Appeals of the Assessee holding that the Trust created by the Settlor, State of Tamil Nadu under the Trust Deed dated 29.11.1996 which was to create Urban Infrastructure Fund for the development of the infrastructure within the State of Tamil Nadu through Local Bodies and contributions to the said fund were made under the Contribution Agreement dated 18.11.1996 by the three Companies viz., HDFC, ICICI and IL&FS.
3. The Tribunal held that the Assessee Trust could not be taxed in its own hands in respect of the income earned by it as the aforesaid three contributors/beneficiaries which had already been taxed in respect of the said income distributed to them by the said Trust. The Tribunal invoked Section 61 of the Income Tax Act, 1961 and held that the income arising by virtue of a revocable transfer of assets shall be chargeable to the income of the transferor and shall be included in his total income. The relevant paragraph http://www.judis.nic.in 4 of the order passed by the Income Tax Appellate Tribunal is quoted below for ready reference:-
"From the above extracts of the Paper Book, which are extracted from the Trust Deed and the contributor's agreement, it is evident that the assessee is not carrying on any business with commercial motive. The beneficiaries of the trust are identifiable and the shares are determined by contributor's agreement and the contributors are free to call upon the Trust to cancel any units held by them and return the value. Therefore, the trust is revocable trust and squarely covered by section 61 of the Income Tax Act. Accordingly, we hold that Trust is a revocable Trust and the income derived by the assessee required to be taxed in the hands of the beneficiaries in accordance with the provisions of section 61 and 161(1) of Income Tax Act. This view is supported by the decision of the Co-ordinate Bench in the case of DCIT v. India Advantage Fund-VII cited supra relied upon by the assessee. The assessee also filed evidence regarding the admission of income by the beneficiaries in Page Nos.81 to 83 from the contributors ICICI Bank, IL&FS and the HDFC. Therefore, the appeals of the assessee http://www.judis.nic.in 5 for the A.Ys 2008-09 and 2009-10 are allowed and the orders of the lower authorities are set aside."
4. Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the Revenue, drawing our attention to clause 29 of the Trust Deed submitted that the Trust in question was irrevocable by the Settlor i.e., the Government of Tamil Nadu and the Assessing Authority was justified in applying the maximum marginal rate of tax applicable to Associate of Persons (AOP) invoking section 164 of the Act and the learned Tribunal erred in holding that the income in question was taxable in the hands of the transferor/beneficiaries (the 3 Companies, who contributed the funds in the said Trust) under the Contribution Agreement dated 18.11.1996).
5. On the other hand, Mrs.Pushya Sitaraman, learned Senior Counsel appearing for the Assessee, relying upon the basic documents in question, which were on record of the Revenue viz., Contribution Agreement dated 18.11.1996 and Trust Deed dated 29.11.1996, submitted that even though the Trust was irrevocable by the Settlor i.e., the Government of Tamil Nadu, but, section 61 and 62 in Chapter V of the Income Tax Act, talks about the 'Transfer' of assets. Section 61 of the Act deals with revocable transfer of assets and Section 62 of the Act deals with Transfer Irrevocable for a specified period. She has urged that the contributions of the 3 Companies viz., HDFC, ICICI and IL&FS are not revocable only for a fixed period of three years, whereafter, they can revoke the transfer and recall the said http://www.judis.nic.in 6 contributions from the said Trust fund. Therefore, as per proviso (2) of Section 62(2) of the Act income arising to any person (Trust) by virtue of such transfer shall be chargeable to income tax as the income of the transferor (3 Companies) as and when the power to revoke the transfer arises and shall then be included in his (beneficiaries) total income. She further submitted that factually also, the income distributed by the Trustee in question to its beneficiaries who are duly identified and units purchased by them were also specified. Therefore, the income already taxed in the hands of the beneficiaries cannot be again taxed in the hands of the Assessee Trust itself. No double taxation is permitted in the Scheme of the Act, she urged.
6. She further urged that the Contribution Agreement dated 18.11.1996 was a part of Trust Deed which was later entered on 29.11.1996 wherein in specific terms, the Contribution Agreement as well as Beneficiaries have been defined. She further submitted that the Trust Period as defined in clause 'w' of the Trust Deed also clearly stipulates that the Trust Period means the period from the date hereof (29.11.1996) until such date as shall be agreed by one hundred percent (100%) in interest of the Contributors. Referring to clause 6.03 in the Contribution Agreement dated 18.11.1996, the learned Senior Counsel submitted that at the end of 3 years, each Contributor is entitled to call upon the Trustee to cancel all or part of the Units held by it and return the nominal value thereof of such cancelled Units. Therefore, she submitted that the contributions by these 3 companies, was, undoubtedly, a Revocable Transfer of assets/funds to the Trust and by virtue http://www.judis.nic.in 7 of Section 61 and 62(2) of the Act, the income arising to the Trust could not be taxed in the hands of the Trust and because as per the provision, the same was taxable in the hands of the beneficiaries alone and the fact remains that the said income had been taxed in the hands of the beneficiaries.
7. We have heard the learned counsels appearing for the parties at length and perused the record.
8. The relevant provisions of the Act touching the controversy in hand are quoted below for ready reference:-
"CHAPTER V INCOME OF OTHER PERSONS, INCLUDED IN ASSESSEE'S TOTAL INCOME Transfer of income where there is no transfer of assets.
60. All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income.
Revocable transfer of assets.
61. All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to http://www.judis.nic.in 8 income-tax as the income of the transferor and shall be included in his total income.
Transfer irrevocable for a specified period.
62.(1) The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer—
(i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee; or
(ii) made before the 1st day of April, 1961, which is not revocable for a period exceeding six years:
Provided that the transferor derives no direct or indirect benefit from such income in either case. (2) Notwithstanding anything contained in sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total income. ... "
164.Charge of tax where share of beneficiaries unknown--(1) Subject to the provisions of sub-
sections (2) and (3), where any income in respect of http://www.judis.nic.in 9 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 the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "part of relevant income" and "beneficiaries", respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate."
9. In view of the clear Scheme of the Act and the provisions quoted above, we find little force in the submission made by the learned counsel for the Revenue. Section 62(2) clearly stands attracted to the present case. The funds and transferred by the beneficiaries viz., the 3 Companies to the Trust created by the Settlor viz., State of Tamil Nadu were revocable after the specified period of three years. But, besides being Settlor, also a contributor of funds to the Trust in question, since the Units were revocable after a period of 3 years, at any point of time, irrespective of the fact whether they have been actually revoked or not or contributions have been actually http://www.judis.nic.in 10 recalled or not, Section 62(2) stands attracted and the said provisions clearly provide that the income in question would be taxed in the hands of the transferors which has, in fact, been taxed so far and that fact has not been disputed by the learned counsel appearing for the Revenue at all.
10. The contention raised by the learned counsel appearing for the Revenue on the anvil of Section 164 of the Act falls to the ground on the bare reading of the Section itself which provides that Section 164 will be applicable only if the share of the beneficiaries is unknown or indeterminate. The facts are otherwise. Not only the 3 companies in question viz., HDFC, ICICI and IL&FS but the Government of Tamil Nadu itself contributed the funds from time to time in the said Trust Fund created in the Trust Deed. Both of them were entitled to revoke the same after a period of 3 years. The number of shares, their extent of benefits and their identity have not been found in dispute. Therefore, the question of applying Section 164 of the Act to the facts of the present case does not simply arise.
11. Therefore, we are satisfied that the Tribunal was perfectly justified in invoking Section 62(2) of the Act read with Section 61(1) of the Act which would apply only to the Revocable Transfer of the funds made for a period which is not specified and these above circumstances, it would be taxable in the hands of the Transferor/beneficiaries and not in the hands of the Trust. As a matter of fact, the findings rendered by the Tribunal are mere findings of facts and on application of relevant provisions of the Act which, in the facts of the case, does not give rise to a substantial question of http://www.judis.nic.in 11 law requiring our consideration under section 260A of the Act. The appeals are, thus, found devoid of merits and the same are liable to be dismissed. Accordingly, they are dismissed. No order as to costs. The connected miscellaneous petition is closed.
(V.K.,J.) (C.V.K.,J.)
11.2.2019
Index : Yes
Internet : Yes
ssk.
1. The Commissioner of Income Tax
Chennai
2. Income Tax Appellate Tribunal,
Madras 'B' Bench, Chennai
3. The Income Tax Officer,
Business Ward-II(4), Chennai,
New Jurisdiction,
ITO-Non Corporate Ward-2(5),
Chennai 600 034.
http://www.judis.nic.in
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DR.VINEET KOTHARI, J.
and
C.V.KARTHIKEYAN, J.
ssk.
TCA Nos.122 and 123 of 2019
11.2.2019.
http://www.judis.nic.in