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income-tax Officer Vs. Hrishikesh Family Trust No. 1 - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1984)8ITD497(Mum.)
Appellantincome-tax Officer
RespondentHrishikesh Family Trust No. 1
Excerpt:
.....of the income-tax act, 1961 ('the act') (as it stood then) exempts capital gains from tax if the gross total income of the assessee did not, exceed rs. 10,000. the income of the assessee during the year consisted of rs. 9,750 from dividend and rs. 8,092 from capital gains. there was an item of expense being audit fees of rs. 100. hence, the balance came to rs. 17,750. the assessee claimed that it had distributed a sum of rs. 9,658 (being the net income from dividend only) to the sole beneficiary as per the terms of the trust deed and so the said amount should be deducted from the sum of rs. 17,750 in order to arrive at the gross total income of the assessee. if this is done then the gross total income comes to rs 8,092 which is less than rs. 10,000 and, consequently, the capital gains.....
Judgment:
1. This appeal filed by the department and the cross-objection filed by the assessee are heard together and disposed of by this common order for the sake of convenience.

2. The assessee is a private trust assessed in the status of an AOP.The assessment year involved in this appeal is 1980-81. The relevant previous year was the year ended 31-12-1979.

3. The assessee filed a return showing an income of Rs. 128. During the year under consideration, the assessee sold some shares which were the corpus of the trust and realised capital gains of Rs. 8,064. The case of the assess was that this capital gain of Rs 8,064 was not liable to capital gains tax because Section 80T(a) of the Income-tax Act, 1961 ('the Act') (as it stood then) exempts capital gains from tax if the gross total income of the assessee did not, exceed Rs. 10,000. The income of the assessee during the year consisted of Rs. 9,750 from dividend and Rs. 8,092 from capital gains. There was an item of expense being audit fees of Rs. 100. Hence, the balance came to Rs. 17,750. The assessee claimed that it had distributed a sum of Rs. 9,658 (being the net income from dividend only) to the sole beneficiary as per the terms of the trust deed and so the said amount should be deducted from the sum of Rs. 17,750 in order to arrive at the gross total income of the assessee. If this is done then the gross total income comes to Rs 8,092 which is less than Rs. 10,000 and, consequently, the capital gains become exempt from tax under Section 80T(a). The assessee based its claim on the fact that the income of the beneficiary from the assessee-trust amounting to Rs. 9,658 has already been assessed separately in the hands of the beneficiary. The ITO did not agree with the above claim of the assessee. He held that the gross total income of the assessee-trust should be computed at the figure of Rs. 17,750 without any deduction therefrom such as the payment made to the beneficiary. Doing so he found that the gross total income is more than Rs. 10,000 and so the exemption under Section 80T(a) was not available to the assessee. He completed the assessment on that basis.

4. The assessee appealed to the AAC and contended that its claim should have been accepted by the ITO. The AAC allowed the appeal of the assessee relying on his own order dated 22-3-1982 in the allied case of Hrishikesh Family Trust No. 2 for the assessment year 1980-81.

5. Shri K.K. Tuli, the learned representative for the department, urged before me that the learned AAC erred in his decision. He stated that Section 80T(a) refers to 'gross total income', which has been defined in Section 80B{5) of the Act as the total income computed in accordance with the provisions of this Act but before the deduction of any amount under Chapter VIA of the Act. He urged that there is no provisions under the Act for deducting the amount payable by the assessee to the beneficiary in order to arrive at the 'gross total income'. Hence, he urged that the order of the AAC deserved to be reversed and that of the ITO deserved to be restored.

6. Shri Dilip Chokshi, the learned representative for the assessee, on the other hand, supported the order of the AAC. He stated that the trust deed is silent as to what is to be done in the case of profits and surpluses arising out of the conversion of the assets held by the trust. The trust deed says that the income arising out of the corpus of the trust should be given to the beneficiary, It also says that the trustees can convert the assets of the trust. But the trust deed does not say anything about the treatment to be given to the surplus or deficit arising out of such conversion. He then referred to the fact that the dividend income payable to the beneficiary by the assessee-trust has already been assessed in the hands of the beneficiary under Section 161 of the Act and so the same cannot be said to be the income of the assessee-trust. In contrast thereto, the amount of capital gains realised by assessee has to be treated as its own income assessable under Section 164 of the Act. He, thus, made a distinction between the income assessable under Section 161 and that assessable under Section 164 and urged that only the latter (not the former) constitutes 'gross total income' of the assessee. Then he referred to the decision of the Bombay High Court in the case of CIT v.Trustees of Miss Gargiben Trust (No. 1) [1981] 130 ITR 479 and urged that the said decision indirectly supports his stand. In that case the trust had paid to the beneficiary the amount payable to the latter under the trust deed. The said amount had already been assessed in the hands of the beneficiary. The question arose as to whether that amount could be taken into account while determining the total income of the trustees for the purpose of determining the rate at which the income or capital gains was liable to be taxed as laid down in Section 114 of the Act. The High Court held that the amount which has already been taxed in the hands of the beneficiaries could not be taken into account for determining the 'total income' of the trustees for the purpose of Section 114 of the Act. Shri Dilip Chokshi urged that the instant case comes within the ratio of the aforesaid decision.

7. Shri K.K. Tuli replied that the aforesaid decision is distinguishable because it was concerned with the 'total income' of the trustees but not the 'gross total income' of the trustees as defined under Section 80B(J) and so the aforesaid decision is of no help to the assessee.

8. I have considered the contentions of both the parties as well as the facts on record. The question that is raised in this appeal is whether the amounts paid by an assessee-trust to the beneficiary and assessed in the hands of the beneficiary forms or does not form a part of the 'gross total income' for the purpose of Section 80T(a). I find that the Act contains a definition of the term'gross total income' in Section 80B(J) and the term 'total income' has been defined in Section 2(45) of the Act. Section 2(45) defines 'total income' as the amount computed in accordance with the provisions of the Act. Section 80B(5) also defines 'gross total income' as the income computed according to the provisions of this Act but before deducting two items. These two items are the deductions under Chapter VIA and the deduction under Section 280-O of the Act.

9. In the case of Trustees of Miss Gargiben Trust (No. 1) (supra) the facts were similar to the facts of this case, though the question raised therein was slightly different. In that case the trustees had already paid the regular income of the trust to the sole beneficiary.

As the trust deed was silent about the capital gains arising from the conversion of the assets of the trust, the trustees kept to themselves the capital gains arising from the conversion of the assets and offered the same to tax under Section 164. As stated earlier, the regular income of the trust was already assessed in the hands of the beneficiary under Section 161. The question arose as to whether the income assessed in the hands of the beneficiary should be regarded as a part of the 'total income' of the trust for the purpose of determining the average rate under Section 114 at which the capital gains had to be taxed. The High Court held that an income which has already been assessed under a different Section 1n the hands of a different assessee cannot again be included in the 'total income' of the assessee-trust.

The point to note in this decision is that Section 114 is not a part of Chapter VIA nor is Section 280-O. Hence, the principle laid down in this case relating to the determination of 'total income' will also apply to the determination of 'gross total income' except in a case where the amount to be deducted belongs to one of the aforesaid two categories which have been expressly excluded in the definition of 'gross total income'. In other words, the principle of the aforesaid case will also apply to the instant case because the assessee in this case wants to exclude the same amount which was excluded in that reported case. There is no amount involved in the instant case which would form a part of the 'gross total income' though not forming a part of the 'total income". The amount assesseed in the hands of beneficiary has been excluded from the 'total income' by virtue of Section 161.

Section 161 is one of the provisions of the Act not prohibited in the definition of Section 80B(5). Hence, the amount assessed under Section 161 also goes out of 'gross total income' as it goes out of 'total income'. Respectfully following the aforeaid decision of the Bombay High Court, I hold that the decision of the AAC is quite in order and so I uphold the same.

10. Coming to the cross-objection filed by the assessee, I find that the ground taken before me has not been adjudicated upon by the AAC in his order dated 13-9-1983, which is now in appeal before me. Hence, the said ground cannot be said to arise out of the aforesaid order.

Consequently, I reject the same as such.

11. In the result, both the departmental appeal and the assessee's cross-objection are rejected.


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