Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Deepak Family Trust No. 1 on 15 June, 1988
Equivalent citations: [1989]28ITD249(AHD)
ORDER
M.A.A. Khan, Judicial Member
1. This is an appeal by Revenue from the order of the Commissioner of Income-tax (Appeals) III, Ahmedabad CIT(A), dated 14th April, 1986,
2. The Respondent (Assessee) is a private discretionary trust, deriving income, inter alia, by way of dividend and interest. For the assessment year under consideration, i.e., 1981-82, for which the previous year ended with the calendar year 1980, the assessee filed its return of income on August 22, 1981, declaring its income at Rs, 97,157. In its return the assessee had claimed deduction under Section 80L of the IT Act, 1961 (the Act) of Rs. 3,000 in respect of its interest income. The ITO rejected its claim on the ground that deduction under Section 80L of the Act was available to 'Individuals' and/or 'HUF' only and since" the assessee was neither of the two and instead fell within the category of assessable entity known as "Association of persons" (AOP) not contemplated by Section 80L(l)(c) it was not entitled to deduction under Section 80L of the Act.
3. On appeal, however, the learned CIT(A), relying upon Tribunal's Hyderabad Bench 'B' decision in the case of Educational Trust Fund v. ITO [1985] 12 ITD 563 where it had been held that the trustees of discretionary trusts, whose beneficiaries and shares of beneficiaries were indeterminate could be treated as 'individuals' and such trusts could be allowed deduction under Section 80L of the Act, accepted assessee's contention and directed the ITO to allow deduction under Section 80L of Rs. 3,000 to the assessee in the computation of its total income. Hence this appeal by the department.
4. The controversy involved in this appeal would not have arrested our attention for long in view of the clear opinion consistently held by the Tribunal on the point and expressed by it not only in the case relied upon by the learned CIT(A) but also in several other similar cases including the one decided by Ahmedabad Bench 'B' in the case of Manan Trust v. ITO [IT Appeal No. 2367 (Ahd.) of 1985] but for the reason that Mr. A.K. Hajela, the learned departmental representative, brought to our notice a decision of the Bombay Bench 'B' of the Tribunal in the case of Fifth ITO v. D.M.C.C. Employees Medical Aid Trust [1987] 22 ITD 273, where a somewhat contrary view on the point appears to have been expressed. The arguments advanced by the learned representatives of the parties for and against the entitlement of a discretionary trust to the deduction under Section 80L of the Act are, therefore, required to be considered on their own merits.
5. Opening his arguments on the point on hand, Mr. Hajela pointed out that in order to avail of the deduction in respect of interest on certain securities, dividends, etc., an assessee should fall in any one of the categories contemplated by Section. 80L. According to him a trust, or for the purpose of assessment of the income of a trust, its beneficiaries or trustees, did not fall within the definition of the term "Individual" or "HUF" or "AOP" or "Body of individuals (BOI)", visualised by Section 80L. That being the position the deduction contemplated Under Section 80L would not be available to a discretionary trust. As stated above this argument was sought to be supported by Mr. Hajela with the decision of the Bombay Bench 'B' of the Tribunal in the case of D.M.C.C. Employees Medical Aid Trust (supra).
6. On the other hand, Mr. H.M. Talati, the learned Advocate appearin g for the assessee, has not only supported the order under appeal but has further submitted that the point under considera tion had been gone through by the Madras Bench of the Tribunal in detail in the cases of Gopal Srinivasan Trust v. ITO [1983] 3 lTD 322 and by Pune Bench 'B' in the case of Shri Rajesh B. RathiTrust v. ITO [1984] 8 ITD 273 where it had been clearly declared by the said Benches of the Tribunal that the correct status in which a discretionary trust was required to be assessed would be as "individual" and the trust would be entitled to deduction Under Section 80L of the Act. Mr. Talati emphasised that in the said cases a number of authorities were examined to arrive at the above conclusion.
Mr. Talati further submitted that the same view was again reiterated by the Hyderabad Bench 'B' of the Tribunal in the case of Educational Trust Fund (supra) where the earlier two decisions of the Tribunal, as mentioned above, were considered and it was observed that in arriving at their decisions the Pune and Madras Benches had followed the decisions of the Supreme Court in CWT v. Trustees of H.EM. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 and CIT v. Sodra Devi [1957] 32 ITR 615 and WTO v. C.K. Mammed Kayi [1981] 129 ITR 307. Mr. Talati further sub mitted that in its decision in the case of D.M.C.C. Employees Medical Aid Trust (supra), Bombay Bench 'B' of the Tribunal could not take note of the Supreme Court decisions on the point, as mentioned above. He finally submitted that the question of entitlement of deduction Under Section 80L to a discretionary trust stands finally settled by several decisions of the Supreme Court, which the various Benches of the Tribunal have consistently followed.
7. In order to resolve the controversy involved in this appeal it is necessary to understand the scheme of the Act and the principles underlying certain basic concepts, running through the web of this statute. A study of the charging section 4 would inform us that the basis of charge is "total income", the unit of assessment is "person" and the mode of recovery of tax is "assessee". The Act seems to be revolving around these three concepts of "income", "person" and "assessee". As Section 4 speaks, it is the "total income" of a previous year or previous years of a ''person" which is sought to be subjected to the charge, contemplated by the Act, at the rate or rates which may be prescribed from time to time under a Central Act. The main subjects of the Act deal within a systematic order are, therefore, three vis., what income is to be taxed, to whom does such income belong and from whom tax on' such income should be realised or recovered.
8. Commencing our study with the concept of 'income' making the very basis of charge under the Aet we may note that Sections 5 to 9 in Chapter II and Sections 10 to 13 in Chapter III explain, quite elaborately, the scope of 'total income' which may arise or accrue or may be deemed to have arisen or accrued to a 'person' in a particular previous year and would form or would not form part of one's 'total income'. While Sections 5 to 9 elaborate the scope of total income Sections 10 to 13 in Chapter III enumerate various kinds or types of incomes, which, though might have arisen or accrued to a person in a particular previous year, yet, are not to be included in the computation of total income of such person. Incomes falling within the purview of one or the other provisions of various sections in Chapter III, therefore, do not form part of the "total income" of a person. Then Chapter IV speaks of various "sources" of income and how the income coming to a person from one or the other source is to be computed. It may be noted that in this chapter not only the various "sources of income" have been discussed under a particular "head" but also "deductions" admissible and allowable in computing the income from that source have been specifically referred to and dealt with. Chapter VI-A enlists various types of exemptions, deductions, allowances, etc., which are available to an assessee in the computation of his income in the manner laid down in Chapters VII, IV and VI-A and others and as these directly affect the liability to tax, these are necessarily required to be considered in his assessment before the levy and recovery of any tax.
9. Now coming to the definition of the term 'person' we find that Section 2(31) defines the said term as follows :
2(31). 'person' includes-
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person not falling within any of the preceding sub-clauses ;
It may be noted that the definition of the term "person" embraces certain categories of assessable units. The income sought to be charged to tax should belong (and it would necessarily so belong) to any of the categories of assessable units defined in Section 2(57).
10. The term 'assessee' has been defined in Section 2(7) as follows :
2(7). 'assessee' means a person by whom any tax or any other sum of money is payable under this Act, and includes-
(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;
(b) every person who is deemed to be an assessee under any provision of this Act ;
(c) every person who is deemed to be an assessee in default under any provision of this Act;
It may be noted that the term "assessee" has, in general, been defined to mean "a person by whom any tax or any other sum of money (like penalty) is payable under the Act. The definition of the term is inclusive and brings three specific categories of persons within its fold as mentioned in Clauses (a), (6) & (c). A bare reading of Clauses (a), (6) & (c) of Section 2(7) would show that the scope of the word "person" as defined in Section 2(31) has sufficiently been widened by bringing such persons within the ambit and scope of definition of the term "assessee" who, under given conditions, may be held vicariously liable and responsible for assessment of the incomes of and payment of the taxes for other persons. It is thus the definition of the term "assessee" which gives birth to "Representative" assessee by enacting the deeming provisions for the purpose in Clauses (a), (b) & (c) of Section 2(7) of the Act. The term "assessee" as defined in Section 2(7) is thus wider in scope and meaning than the term "person" as defined in Section 2(31) of the Act.
11. Reverting to our subject of study it may be pointed out that in the direction of collection and recovery of taxes the first stage is the computation of the total income of the previous year or previous years of a person in accordance with the provisions contained in Chapters III, IV and VI-A. And, as stated above, in computation of the total income of a person, as per provisions contained in those chapters, exemptions, deductions, allowances and abatements, as are admissible to that "person", have to be given before the stage of levy of tax is arrived at. A representative assessee, who simply enters into the shoes of another person whom he represents, cannot be in a position worse than the person whose income is to be assessed for levy of tax. Keeping these fundamental characteristics of the position of the "Representative Assessee" in the Act we should now approach the controversy in this appeal.
12. Section 160 defines "representative assessee" and the part of this section which is relevant for our purposes runs as under :
160. (1) For the purposes of this Act, 'representative assessee' means-
(i) ** ** ** (ii) ** ** ** (iii)** ** **
(iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913)] receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees ;
(v) ** ** , '** Explanations 1 & 2 : ** ** **
(2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act.
It may be noted that Sub-section (2) of Section 160 clearly declares that every representative assessee shall be deemed to be an assessee for the purposes of the Act. It may further be noted that insofar as the trustees appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise, are concerned the definition of the term "representatives" as given in Clause (iv) of Section 160(1) would govern the case.
13. Section 161 deals with the liability of representative assessee and it is this section which in fact makes provision for making assessment on the trustee or trustees of a trust in their representative capacity. It would be useful to reproduce this section, as it stood at the relevant time, in extenso :
161. (1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject 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 releva.nt 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, pension 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 an association of persons.
(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in Sub-clause (iia) of Clause (24) of Section 2, or which is of the nature referred to in Sub-section (4A) of Section 11, tax shall be charged on so much of the relevant income as is not exempt under Section 11 or Section 12, as if the relevant income not so exempt were the income of an association of persons."
16. Before we consider the purpose of Section 164, we should read Section 166 as well which runs as under :
166. Nothing in the foregoing sections in this Chapter 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.
It may be noted that Section 166 clearly provides that the mere fact that certain provisions of Chapter XV create liability of representative assessee for assessment and recovery of taxes in respect of other persons would not prevent the revenue either to make direct assessment of the person on whose behalf or for whose benefit the income, as referred to in the relevant sections, is receivable or the recovery from such person of the tax payable in respect of such income. Reading Section 161 along with Section 166, it is clear that the liabilitjr of the representative assessee, as has been stated above, is coextensive with that of the 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..
(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.
It may be noted that the liability of a representative assessee (insofar as the case relates to a trust) to be assessed for and/or on behalf of another person is created by Section 161. Section 161(1) clearly lays down that the assessment shall be deemed to have been made upon a representative assessee in his representative capacity only and that the tax shall, subject to other provisions contained in the 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". The italicised words clearly suggest that the liability of a representative assessee is coextensive with that of a person represented by him and is not wider or larger than that of the person represented. The heading given to Section 161 being "Liability of Representative Assessee" again clearly suggests that it is Section 161 only which would govern the case of assessment on a representative assessee for the income received or receivable by him for and on behalf of the person represented by him. In fact Section 161(2) makes the things quite clear. A reading of further provisions of this chapter would help us in understanding the position.
14. Section 162 deals with the right of representative assessee to recover the tax paid from the person on whose behalf such taxes have been paid and this shows that for all practical purposes it is the income and the status of the person represented which is most relevant in the cases of assessments on representative assessees.
15. Section 164 which is again relevant for our purposes deals with the charge of tax where share of beneficiaries are unknown. The relevant part of this section runs as under :
164. (1) Subject to the 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 person represented by Mm. The provisions of Section 164(1) along with its proviso do not at all alter the position in the case of assessment on the trustees of a trust-be it specific or discretionary.
17. A study of various sections occurring in Chapter XV as have been mentioned by us above would clearly suggest that it is Section 161 which deals with the vicarious liability of a representative assessee to be assessed and taxed for the income of other person. The basis of assessment of representative assessee has been made in Section 161 and that point is clear from the provisions of Section 161(2) read with Section 166. In our opinion the provisions of Section 164 makes no basis for assessment of a representative assessee. In fact the words "in like manner and to the same extent" occurring in the language of Section 161(1) make the things quite clear. Every representative assessee is liable to tax under Section 161 in the like manner and to the same extent as the person beneficially entitled to the income is. Since liability of trustee of a trust is coextensive with that of the beneficiary, in the assessment on the trustee all such exemptions, deductions and abatements shall have to be given as the beneficiary would have been entitled to in case of direct assessment. For, the trustees of a trust simply take the colour of their status from that of the beneficiary or beneficiaries. Their status cannot be different from the person(s) they represent. If the persons represented fall within the category of individual, the representative assessee shall have the status of 'individual', but if the persons represented enjoy the status of AOP or BOI the representative assessee shall be assessed vicariously in that very status. Section 164 in itself makes no basis for assessment on the trustees. In cases of assessment on the trustees of a discretionary trust even, one shall have to go to Section. 161 due to the force of the words "in the like manner and to the same extent". These words contain the very nature and extent of the assessment on the trustees whether of the specific trust or of a discretionary trust.
18. In the case of CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187, Chagla, CJ., of the Bombay High Court exposed the law on the subject thus :
If the assessment is upon a trustee, the tax has to be levied and recovered in the manner provided in Section 41. The only option that the Legislature gives is the option embodied in Sub-section (2) of Section 41 and that option is that the department may assess the beneficiaries instead of the trustees, or having assessed the trustees it may proceed to recover the tax from the beneficiaries, But on principle the contention of the department cannot be accepted that, when a trustee is being assessed to tax, his burden which will ultimately fall upon the beneficiaries should be increased and whether that burden should be increased or not should be left to the option of the department. The basic idea underlying Section 41, and which is in conformity with principle, is that the liability of the trustees should be co-extensive with that of the beneficiaries and in no sense a wider or a larger liability. Therefore, it is clear that every case of an assessment against a trustee must fall under Section 41, and it is equally clear that, even though a trustee is being assessed, the assessment must proceed in the manner laid down in Chapter III... Section 41 only comes into play after the income has been computed in accordance with Chapter III. Then the question of payment of tax arises and it is at that stage that Section 41 issues a mandate to the taxing department that, when they are dealing with the income of a trustee they must levy the tax and recover it in the manner laid down in Section 41.
[Emphasis supplied] The above observations of Chagla, CJ., were quoted with approval by the Supreme Court in the case of C.R. Nagappa v. CIT [1969] 73 ITR 626 and the court in that case further observed that:
the same consideration must apply in the interpretation of Section 161(2) of the Income-tax Act, 1961.
The Supreme Court had taken a similar view in an earlier decision in the case of CIT v. Nandlal Agarwal [1966] 59 ITR 758 and reiterated the same' in CWT v. Kripashankar Dayashankar Worah [1971] 81 ITR 763.
19. From the discussion made above it is crystal clear that a trustee of a trust, be it a specific or a discretionary trust, is to be assessed in his representative capacity 'in the like manner and to the same extent' as the beneficiary of that trust would have been in his direct assessment. It follows, therefore, that in the assessment on trustees they would be entitled to all such exemptions, deductions, etc., as the beneficiary or beneficiaries would have been entitled to in the case of direct assessment, Plurality of number either in the case of beneficiaries or in the case of trustees is quite immaterial unless such plurality alters the very status of the beneficiaries in accordance with the provisions of law.
20. The status of the trustees of a discretionary trust vis-a-vis the beneficiaries of such a trust was considered by the Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (supra) and the court laid down the law on the point in the following words :
The revenue has thus two modes of assessment available for assessing the interest of a beneficiary in the trust properties : it may either assess such interest in the hands of the trustee in a representative capacity under Sub-section (1) or assess it directly in the hands of the beneficiary by including it in the net wealth of the beneficiary. What is important to note is that in either case what is taxed is the interest of the beneficiary in the trust properties and not the corpus 6f the trust properties. So also where beneficiaries are more than one, and their shares are indeterminate or unknown, the trustees would be assessable in respect of their total beneficial interest in the trust properties. Obviously, in such a case, it is not possible to make a direct assessment on the beneficiaries in respect of their interest in the trust properties, because their shares are indeterminate or unknown and that is why it is provided that the assessment may be made on the trustees as if the beneficiaries for whose benefit the trust properties are held were an individual. The beneficial interest is treated as if it belonged to one individual beneficiary and assessment is made on the trustees in the same manner and to the same extent as it would be on such fictional beneficiary.
We need not add that it has been the consistent view of the Supreme Court that the decisions given under the Income-tax Law must apply equally in the interpretation of Section 21 of the Wealth-tax Act, 1957 "since the relevant provisions of both the statutes are almost identical".
21. There is thus no basis for the assumption that Section 164(1) or any of the provisions of the provisos thereunder would affect the very basis of assessment on the trustees of a discretionary trust as contemplated by Section 161/162 of the Act. As held by the Supreme Court the status of the beneficiaries in the discretionary trust is necessarily that of "individual" and, therefore, that would also be the status of the trustees for the purposes of assessment under Section 161/162. In fact Clause (iv) of proviso 1st to Section. 164(1) visualises quite an altogether different situation. Relevant income receivable by the trustees of a provident fund, gratuity fund, pension 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, fall within the purview of this Clause (iv) to. 1st proviso to Section 164(1). It is the nature of income and the purpose of the trust which are required to be taken note of in applying this clause.
22. Coming now to the merits of the case before us, we find that it is a case of discretionary trust. There is no material on record to show that the situation contemplated by Clause (iv) of 1st proviso to Section 164(1) exists here. Without dispute the trustees of the discretionary trust before us earned dividend and interest income and there is no suggestion that such income was earned from business activities and the trust was created through any of the funds, mentioned in Clause (iv) for benefit of employees of the businessman testator. The status of the beneficiaries before us. had they been directly assessed for their income, would be that of individual as held by the Supreme Court in Trustees of H.E.H. Nizam's Family {Remainder Wealth) Trust's case {supra). That would also be the status of the trustees of this trust for the purposes of their assessment under Section 161 in their representative capacity.
23. Now coming to the justification in assessee's claim, we find that Section 80L(l) reads as follows :
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, in either case, 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 :
** ** ** ** ** **
24. Since the status of the trustees of the trust before us is found to be that of 'individual' the learned CIT(A) has rightly held the assessee entitled to the deduction of Rs. 3,000 in the computation of their total income.
25. We thus find ourselves in complete agreement with the views expressed on the point by the Pune, Madras, Hyderabad and Ahmedabad Benches in the cases referred to above. In fact in the case before the Ahmedabad Bench 'B', to which one of us (the Accountant Member) was a party, the point was thoroughly examined in the light of law pronounced by the Supreme Court in Trustees of H.E.H. Nizam's Family {Remainder Wealth) Trust's case {supra) and the views expressed by the learned authors Kanga and Palkhiwala at pp. 948, 952, 953, 954 in their famous work "The Law and Practice of Income-tax", Seventh Edition, Vol. 1 and the Bench finally observed in para 10 as follows :
10. It would appear from the aforesaid that the Hon'ble Supreme Court has held that the provisions of Section 161 of the Act are in pari materia with the provisions of Section 41 of the Indian Income-tax Act, 1922 as well as the provisions of Section 21 of the Wealth-tax Act, 1957. Further, it would be clear that in case of a representative assessee, like the present one, the representative assessee takes the colour of the beneficiaries, since the representative assessee has to be assessed 'in like manner and to the same extent'.
26. In view of the above opinion of the Ahmedabad Bench on the very point, which is presently before us in this appeal, we would have ordinarily not-entered into such a lengthy discussion on the subject but for the reason that in the presence of the contrary views expressed by Bombay Bench 'B' in the case of D.M.C.C. Employees Medical Aid Trust (supra) necessity may arise to refer the question involved herein to a larger Bench as per practice and procedure. But as we would point out on later discussion Bombay Bench 'B' had decided the case before it on altogether different footings and appreciably on materially different facts.
27. In the case of D.M.C.C. Employees Medical Aid Trust (supra), the facts before Bombay Bench 'B' were that the assessee, a discretionary trust had filed its return showing its income by way of divideads and its status as 'AOP'. In the course of assessment proceedings the assessee had submitted a letter claiming deduction of Rs. 3,000 under Section 80L. The ITO had not considered the claim of the assessee and had passed assessment order under Section 143(1) of the Act. On appeal, the AAC directed the ITO to allow deduction under Section 80L to the assessee as claimed by it. It was on these facts that the Bombay Bench 'B', heavily relying upon the Calcutta High Court decision in the case of Smt. Santimoyee Base v. CIT [1969] 74 ITR 133, held that the assessee-trust was liable to be assessed in the status of AOP because of deeming provisions of Section 164(1) in spite of the fact that the assessee-trust could not be said to have formed an association or combined together to earn their income.
28. The facts of the case in Smt. Santimoyee Bose {supra) before the Calcutta High Court were that in a suit for maintenance filed by the assessee on behalf of herself and her minor sons and daughters against her husband the Court had directed payment of maintenance at certain rates and also arrears of maintenance. The assessing officer rejecting the contention of the assessee that under the decree the shares of each plaintiff was specific and determinate, assessed the decretal amount treating the assessee and her children as AOP. The AAC and the Tribunal also upheld the assessment on the assessee in the status of AOP. It was on these facts that the Calcutta High Court held that the shares of individual plaintiff being indeterminate or unknown the assessee could be deemed to be an association of persons under proviso to Section 41 of the IT Act, 1922 though they did not associate or enter on a joint venture. It may be pointed out that in this case the Calcutta High Court had stated in unambiguous words that in the case before them it was quite apparent that the IT authorities had proceeded to apply the maximum rate by applying the proviso to Section 41 of the IT Act, 1922. The applicability of Sub-section (1) of Section 41 was never challenged or disputed before the Tribunal. Neither a question to that effect was referred to their Lordships. Their Lordships had clearly observed that "in view of the matter we have to proceed on the basis that Section 41(1} of the IT Act, 1922 applied".
29. The Bombay Bench 'B' of-the, Tribunal found the facts of the case before it quite similar to the facts of the case before the Calcutta High Court and had clearly mentioned that the provisions of Section 161 were not applicable to the case before it. The Bench had, therefore, proceeded to consider the question before it on the declared basis that the case fell under Clause (iv) of proviso to Section 164(1). We have pointed out above as to under what circumstances Clause (iv) of proviso (1) to Section 164(1) may stand attracted. Since the Bombay Bench 'B' had proceeded on the footing that the case before it fell under Clause (iv) of proviso to Section 164(1) we find the facts of the case before us distinctly distinguishable. We are, therefore, of the opinion that the case before the Bombay Bench 'B' was decided on its own individual merits and the views expressed therein by the said Bench do not come in our way to agree with the views of other coordinate Benches of the Tribunal on identical facts and which we have referred to above.
30. In the end we would like to make it clear that it is by virtue of the deeming provisions of Section 2(7) read with Sections 161, 162(2) and 164 that assessment on the trustee of a trust for the beneficial income of the beneficiaries under the trust is made in a representative capacity by creating a legal fiction. Such a legal fiction should not be allowed to travel beyond the territories it was intended to operate in. Deeming provisions are required to be strictly construed in their application and operation as laid down by the Supreme Court in the case of CIT v. Prem Bhai Parekh [1970] 77 ITR 27. Since computation of 'total income' necessarily requires the consideration of the claims of an assessee for certain exemptions, deductions, etc., before the levy of taxes at the prescribed rates, an assessee cannot be denied such legal claims with the help of a legal fiction which too, incidentally, does not run counter to his claim in this case.
31. To sum up, we find no force in this appeal and dismiss it accordingly.