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Educational Trust Fund Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1985)12ITD563(Hyd.)
AppellantEducational Trust Fund
Respondentincome-tax Officer
Excerpt:
1. these are the assessee's appeals against the consolidated order of the aac, visakhapatnam, dated 16-9-1983, and they relate to the assessment years 1978-79 to 1981-82. the assessee in these appeals is, admittedly, a discretionary trust. the administration of the trust was governed by the stipulations framed in the trust deed dated 14-7-1920, a copy of which is furnished to us. the government promissory notes worth rs. 2,50,000 constitute the corpus of the trust. the application of income derived from the corpus of the trust should be done according to clauses 4 to 7 of the trust deed, which are as follows : 4. the income of the fund shall be available for being expended towards the education of the young members, male and female, of the families of raja venkata kumara krishna ranga.....
Judgment:
1. These are the assessee's appeals against the consolidated order of the AAC, Visakhapatnam, dated 16-9-1983, and they relate to the assessment years 1978-79 to 1981-82. The assessee in these appeals is, admittedly, a discretionary trust. The administration of the trust was governed by the stipulations framed in the trust deed dated 14-7-1920, a copy of which is furnished to us. The Government promissory notes worth Rs. 2,50,000 constitute the corpus of the trust. The application of income derived from the corpus of the trust should be done according to clauses 4 to 7 of the trust deed, which are as follows : 4. The income of the fund shall be available for being expended towards the education of the young members, male and female, of the families of Raja Venkata Kumara Krishna Ranga Rao Bahadur, the present Rajah of Bobbili, who is the eldest son of the said author of the trust, and of Raja Ramakrishna Ranga Rao Bahadur, his second son, and towards the education of the lineal descendants of the said families.

5. The surplus of income, if any, after expenditure, as aforesaid, shall be utilised for the education of near relations of the said families at the discretion of the trustees for the time being, which shall be final as regards relationship or otherwise.

6. It shall not be competent to any trustee to utilise or expend any part of the income of the fund in payment of any salary or remuneration to any European male tutor, but the same may be expended in remuneration of the services of any lady tutor or governess employed for the education of any of the female members of the said families and their lineal descendants.

7. Any surplus of the income of the fund, not required for the education of any members of the said families or their lineal descendants or of any of their near relations in the manner aforesaid, may be applied by the trustee at his discretion in contributing towards the expenses, so far as may be practicable or any of the members of the said families or their lineal descendants or relations, as above detailed, and of other young men of any caste seeking education or training in any foreign country.

2. From the above provisions, it is clear that the assessee is a private discretionary trust under which neither the beneficiaries nor their shares in the income were determinate. The assessee-trust derived income in each of the four accounting years relevant to the assessment years, with which we are concerned, from three sources, viz., income from interest on securities, interest on savings bank account and income from other sources.

3. For the assessment year 1978-79 though the assessee had shown to have derived income of Rs. 3,840 as interest on securities, it did not return the said amount on the ground that the amount is not yet received. The ITO held that under Section 18 of the Income-tax Act, 1961 ('the Act'), it is enough if the interest is due and it need not actually be received before being brought to tax. The assessee claimed relief under Section 80L of the Act before the ITO, while each of the four assessments was going on before him. The assessee contended that it should be considered as a discretionary trust and its status should not be taken as an association of persons (AOP) ; on the other hand, its status should be determined as an individual and the relief under Section 80L should be granted. This claim of the assessee was rejected by the ITO on two grounds.

4. Firstly, he held that inasmuch as the assessee itself returned its income as an AOP, it cannot be heard while it had changed its version.

Secondly, under Section 164(1) of the Act, where its income is not specifically receivable on behalf of any one person or beneficiary, the status of the trust for the purposes of assessment should be determined as an AOP. The ITO also held that relief under Section 80L is available only for individuals and HUFs and not for AOP.5. Therefore, the ITO determined the income of the assessee at Rs. 10,400 for the assessment year 1978-79, Rs. 10,100 for the assessment year 1979-80, Rs. 13,610 for the assessment year 1980-81 and Rs. 11,260 for the assessment year 1981-82 as against the lesser amounts disclosed.

6. Appeals were filed against separate assessment orders for each of the assessment years under consideration before the AAC, assailing the legality and correctness of the denial of Section 80L relief to the assessee-trust. It was contended that for the assessment purposes only, the status of the assessee should be taken as an AOP but for allowing exemption under Section 80L the status of the assessee must be taken as individual. It was further contended that Section 80L exemption was available in the case of all discretionary trusts. It was also contended that wealth-tax was levied against the assessee as a discretionary trust. If it was to be considered as an AOP, no wealth-tax could be levied. It was also contended that simply because for the purposes of calculation of tax rate of tax applicable to an AOP was applied, it does not make the status of the trust an AOP. The decision of the Hon'ble Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546 was cited to show the essentials to be fulfilled before a group of persons can be considered as an AOP. According to the said decision, an AOP denotes an entity where two or more persons joined for a common purpose and common action to earn income. In case of a trust, the beneficiaries do not associate with each other to earn income. As such, the trust cannot be called an AOP. Reliance was also placed on the Bombay High Court's decision in the case of Orient Club v. CWT [1982] 136 ITR 697 and the Gujarat High Court's decision in Orient Club v. WTO [1980] 123 ITR 395, wherein it was held that a club is not an AOP and was not liable to wealth-tax. The AAC held in his consolidated order that even though the beneficiaries do not associate with each other in income earning process, the trustees were appointed under the trust to do so and, therefore, the trustees could be regarded as an AOP within the Supreme Court's ratio in Indira Balakrishna's case (supra). He relied upon an old decision in CIT v. Ibrahimji Hakimji [1940] 8 ITR 501 (Sind) to come to the abovesaid conclusion. The AAC distinguished the Bombay and the Gujarat High Court's decisions cited on behalf of the assessee by saying that they were rendered in different contexts and they were not clear authorities for the proposition that trusts cannot be regarded as AOPs. He greatly stressed on the fact that the assessee itself returned its status as an AOP. He laid down that by no stretch of imagination, could the assessee be regarded as an individual or HUF. He further held that even though the assessee-trust cannot be regarded as an AOP, still it can be considered as 'Body of individuals' (BOI). In support of his conclusion, he cited the Madras High Court's decision in the case of N.P. Saraswathi Animal v. CIT [1982] 138 ITR 19, wherefrom he had quoted in his impugned order. In the said case, the Madras High Court held that when persons who do nothing but stand and wait may not be an AOP : but, they may yet be a BOI, if they stand together, and wait for something to be shared between them. When such is the correct position in law, the AAC held, even without active association for earning income, a BOI can exist.

Therefore, even if a trust cannot be regarded as an AOP, it can always be regarded as a BOI. Deduction under Section 80L is not available to BOI. Hence, he confirmed the denial of Section 80L relief for all the four assessment years and dismissed all the four appeals by a consolidated order.

7. The assessee, having been aggrieved by the impugned order, filed these four second appeals contending that the status of the assessee as an AOP was taken only for the purposes of calculating tax but not for the purposes of computing income, that relief under Section 80L was to be granted with reference to the status of the beneficiaries and not the trust and that the assessee, though a discretionary trust, is entitled to Section 80L relief. At the time of hearing, an additional ground was filed to the effect that the assessee-trust fell under Clause (iii) of the proviso to subsection (1) of Section 164 and, therefore, the income was liable to be charged to tax as if it were the total income of an AOP and not at 65 per cent of the income or at the maximum marginal rate. This ground should be considered separately irrespective of determination of status as an individual or as AOP.8. We heard Shri Ch. Srirama Rao and Shri M.J. Swamy, the learned advocates for the assessee, and Shri N. Santhanam, the learned representative for the department. Shri Srirama Rao argued that conceding everything in favour of the department, the tax levied by the ITO for the assessment years 1980-81 and 1981-82 exceeded the maximum marginal rate, and to the extent of the excess, relief to the assessee should be granted irrespective of the merits of the case. It is argued that during these two years the maximum marginal rate was 60 per cent but not 65 per cent. As far as this argument is concerned, the learned departmental representative had nothing much to oppose. Therefore, we hold that the excess tax of 5 per cent should be reduced for the assessment years 1980-81 and 1981-82.

9. It is next contended by Shri Srirama Rao that Section 164 had undergone changes from time to time and for the assessment years 1978-79 and 1979-80, Section 164(1) reads as follows : (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 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-- (i) as if the relevant income or part of relevant income were the total income of an association of persons, or Whereas for the assessment years 1980-81 and 1981-82, Section 164, along with Explanation 2 to Section 164(3), which defined the maximum marginal rate, reads as follows : (1) Subject to the provisions of Sub-sections (2) and (3), where any income in respect of which the persons mentioned in Clauses (in) 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 : Explanation 2 : In this section 'maximum marginal rate' means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year.

For 1980-81 and 1981-82, the change was brought about in the wording of the section by the Finance (No. 2) Act, 1980, with effect from 1-4-1980, whereas the section applicable to 1978-79 and 1979-80 is as substituted by the Finance Act, 1970, with effect from 1-4-1971. Under Explanation 2 to Section 164, which is applicable to the assessment years 1980-81 and 1981-82, 'maximum marginal rate' is defined as the rate of income-tax including surcharge on income, applicable in relation to the highest slab of income in the case of an AOP. This rate, as per the Finance Acts of 1981 and 1982, was only 60 per cent but mistakenly the ITO took the maximum marginal rate at 65 per cent.

Hence, the relief which we have granted in the prior para.

10. Next it is contended on behalf of the assessee that the incomes of the assessee-trust for these four assessment years fall under Clause (iii) of the proviso to Sub-section (1) of Section 164 and, therefore, the said income was liable to be charged to tax as if it were the total income of an AOP and not at 65 per cent of the income or at the maximum marginal rate. Proviso (hi) to Sub-section (1) of Section 164 is as follows : (iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Income-tax Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance ; or 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.

The learned departmental representative objected to the admissibility of this additional ground as it was raised for the first time only before us and it is not a pure question of law but presents a mixed question of law and fact inasmuch as a finding that the trust was bona fide created exclusively for the benefit of the relatives of the settlor, and that those relatives were mainly dependent upon the settlor for their support and maintenance was required to be established before the benefit under the said proviso can be claimed.

However, such a finding was neither called for nor given by either of the lower authorities. It is also contended that in any view, a reading of clauses 7 and 8 of the trust deed would make the plea of the assessee-trust ex facie untenable. We have already extracted Clause 7 and Clause 8 reads as follows : Provided always and it is hereby declared that, if, at any future time, Rajkumar college wholly or mainly on the lines laid down in G.C. No. 1956, dated the 19th August, 1919, of the Government of Madras, it shall be competent to the then trustee to transfer the fund in his hands to the duly constituted authorities of that college for being applied to its purposes.

11. After considering the rival contentions on the point, we are inclined to agree with the submission put forward by the learned departmental representative and uphold the objection both on admissibility as well as on merits. Firstly, we hold that it is not a pure question of law. The argument of the learned Counsel, Shri Srirama Rao, that it involves a mere application of correct provision to a set of facts already on record cannot be accepted. His further submission that no new fact is required to be brought on record before appreciating the claim, is also not acceptable to us. From the wording of proviso (iii) to Sub-section (1) of Section 164, which is already extracted above, it can be seen that in order to bring the case within the four corners of the proviso, a finding that the trust was created bona fide for the benefit of the relatives of the settlor and those relatives were mainly dependent on the settlor for their support and maintenance should be given by either of the lower authorities.

However, no such finding was either invited or given in this case. The word 'maintenance', as per the definition given in the Hindu Adoptions and Maintenance Act, 1956, includes provision for food, clothing, residence, education, medical attendance and treatment. The trust deed does not say that the beneficiaries were all dependent on the settlor for food, clothing, residence, medical attendance and treatment. When the interest of the beneficiaries under the trust deed was indeterminate and unknown, having special regard to clauses 7 and 8 of the trust deed, it is highly difficult to hold that the beneficiaries were all relatives of the settlor and they were mainly dependent on the settlor for their support and maintenance. Especially, Clause 7 of the trust deed gives discretion to the trustees to spend the surplus of the income from the corpus of the trust, if not required for the education of any member of the families or their lineal descendants, for contributing to the educational expenses of any young man of any caste seeking education or training in any foreign country. As it is a discretionary trust, we do not know either the beneficiaries or their interest in the income derived from the corpus of the trust to which they are entitled in any of the four assessment years under consideration. When that is the position, it is highly difficult to accept the position that the beneficiaries under the trust deed comprised only relatives of the settlor and they were mainly dependent on the settlor for their support and maintenance. Assuming that the beneficiaries are all of a class, who are only descendants of the settlor, they being the sons of the then impartible estate holder of Bobbili and the sons of the junior members in the family of the impartible estate holder, it is but logical to presume that the fathers of the beneficiaries are responsible to provide maintenance to the whole class of beneficiaries contemplated under the trust deed in question. It is significant that the trust deed speaks only of making a provision for the education of the beneficiaries, which is only one among the many components of maintenance. Inasmuch as the trust deed does not speak about other types of maintenance and clauses 7 and 8 contemplate rank outsiders to the family of the settlor also becoming entitled as beneficiaries, it is difficult to hold that the trust comes within Clause (iii) of the proviso to Sub-section (1) of Section 164.

Thus, the additional ground cannot be admitted and in any view of the matter, on merits also, the said ground has no legs to stand.

12. Now let us come to the main plank, on which Shri Srirama Rao based his arguments. According to him, Section 164 determines only how much tax is payable on the 'relevant income', when such income is to be taxed in the hands of trustee in a case where the beneficiaries and their interests are indeterminate or unknown. According to him, it only provides the measure of tax. He also argues that this provision comes into play only after the total income of the assessee is determined.

His main contest is that this provision cannot be invoked to determine the status of the assessee, with reference to which the total income has to be determined, especially after Chapter VI-A deals with deductions to be made in computing the total income and Section 80L deduction is to be determined at a stage when computing total income of the assessee. He further argues that the status of the assessee and computation of the total income of the assessee are quite different and distinct from the rate of tax, he is liable to pay on the said income.

Section 164(1), according to Shri Srirama Rao, deals with the second aspect mentioned above but not with the first aspect. He further contended that the trustees assessable under Section 161 of the Act, as well as under Section 164, are only to be regarded as the representative assessees within the meaning of Section 160(1)(m) of the Act. What has to be taxed is the interest which the beneficiary derives from the income of the trust. In a case 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 income derived from the trust properties. In such a case, it is obviously not possible to make a direct assessment on the beneficiaries in respect of their interest in the income, because their shares are indeterminate or unknown and that is why it is provided under Section 164(1) that the assessment may be made on the trustee as if the beneficiaries, for whose benefit the trust properties are held, were an individual. In support of his contention, the learned Counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555. He explain that though the said decision was rendered with reference to Section 21(4) of the Wealth-tax Act, 1957 ('the 1957 Act'), it equally applies to a case under Section 164(1) of the 1961 Act, as the wording of both the provisions are in pari materia with each other and it is held to be so by the Gujarat High Court in CIT v.Smt. Kamalini Khatau [1978] 112 ITR 652 (FB) as follows : ...In view of this pronouncement of the Supreme Court it is clear that the provisions of Section 21 of the Wealth-tax Act being almost in identical language and being analogous to the provisions regarding representative assessee as enacted in Section 161 and Section 164 of the Income-tax Act, the decisions under the Wealth-tax Act will also have their impact in interpreting Section 161 and Section 164 of the Act of 1961....

In Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust's case (supra), the Supreme Court, speaking about the status of the trustee in a case where it is a discretionary trust, held as follows : ...Obviously, in such a case, it is not possible to make 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 trustee as if the beneficiaries for whose benefit the trust properties are held were an individual....

The question whether while assessing a discretionary trust deduction under Section 80L is to be allowed or not, directly came up before the Madras Bench of the Tribunal in Gopal Srinivasan Trust v. ITO [1983] 3 ITD 322. In that case, the Division Bench of the Tribunal held that the status of the trustee should be determined with reference to the status of the beneficiaries. It was also held that the beneficiaries under the three trusts before them cannot be considered as either AOP or BOI within the meaning of the Madras High Court's decision in CIT v.Deghamwala Estates [1980] 121 ITR 684. In order to constitute a BOI, the following requirements are essential, according to the Madras Bench. It held as follows : ...A common purpose, a common tie, actual or potential capacity to hold properties or disposable income, it was observed, would be a minimum requirement of a body of individuals. In the present case, these attributes cannot be said to be fulfilled with reference to the beneficiaries under the three trusts. Except that they are beneficiaries under a common fund of the trust, they have no other capacity or potentiality to hold or dissolve the funds. We must, therefore, hold that the status in the assessment cannot be that of body of individuals....

Next, they considered whether the beneficiaries under the trust deed can be considered to be within the definition of the word 'individual'.

The Bench held that the word 'individual' was not defined under the Act but the ambit of the word 'individual' takes in a group of persons forming a unit. For instance, a corporation created by statute, viz., a university, a bar council or the trustee of a baronetcy trust, can as well be considered as an individual. They relied upon the decisions of the Supreme Court in CIT v. Sodra Devi [1957] 32 ITR 615 and Sri Sridhar Jiew v. ITO [1967] 63 ITR 192 (Cal.). Having regard to the wide amplitude of the word 'individual', as explained by the Supreme Court in the abovesaid cases, the Madras Bench came ultimately to the conclusion that the correct status of the three assessees in the cases before them, in respect of whom undisputably tax had been levied at the rate of 65 per cent by virtue of Clause (ii) of Section 164(1) is individual. To the same effect is the decision of the Pune Bench of this Tribunal in the case of Shri Rajesh B. Rathi Trust v. ITO [1984] 8 ITD 273. They also followed the decision in Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust's case (supra) for determining the status of the trustee under a discretionary trust. While rejecting the contention that the status of the trust cannot be determined as an AOP, it is held as follows : ...All that has happened is that certain shares of a company have been settled on trust, testamentary, non-testamentary or oral and the income receivable by the trustees on behalf of the beneficiaries accrues by way of dividends on these shares : there is, therefore, no voluntary association or joining together of persons with any common object or common purpose of earning or producing income. As such, the status of AOP ascribed to these assessees by the authorities below is erroneous.

They have also rejected the argument that the status of the trust can be determined as BOI and in that connection, they followed the Madras High Court's decision in Deghamwala Estates' case (supra) as well as the Andhra Pradesh High Court's decision in Deccan Wine & General Stores v. CIT [1977] 106 ITR 111, the Gujarat High Court's decision in CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 and the Punjab and Haryana High Court's decision in Meera & Co. v. CIT [1979] 120 ITR 564 and also the latest decision of the Madras High Court in N.P.Saraswathi Animal's case (supra). Ultimately, they held, following the decisions of the Supreme Court in Sodra Devi's case (supra) and WTO v.C.K. Mammed Kayi [1981] 129 ITR 307, that the status of the trust can be determined as individual in which case the deduction under Section 80L was available while determining its total income.

13. As against this contention of the learned Counsel for the assessee, the learned departmental representative, Shri Santhanam, raised the contention that while assessing the trustee under a descretionary trust, the status of the trustee should always be taken to be an AOP, and he relied upon the decision of the Gujarat High Court in Smt.

Kamalini Khatau's case (supra), where B.J. Divan, C.J., expressing the majority view, held as follows : When one comes to Section 164, the only departure that is made from the scheme of Section 21(4) of the Wealth-tax Act is that instead of creating the fiction that the body of beneficiaries is a single individual, under Section 164 the fiction is created that the income received by the representative assessee in the case covered by Section 164 is 'as if the income were the total income of an association of persons'. It is to be borne in mind that unlike the fiction in Section 21(4) of the Wealth-tax Act, the fiction under Section 164 is that the income is deemed to be the income of an association of persons and the tax has to be charged as if the income of the trust were the income of an association of persons when it is not specifically receivable on behalf of 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. Therefore, it is clear that the tax is to be charged on such income as if it were the total income of an association of persons and the rates applicable to an association of persons and all provisions applicable in law to the income of an association of persons are applicable to this income which is covered by Section 164.

Shri Santhanam specifically brought to our notice that in the case cited by him, the Supreme Court's decision in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (supra) was fully considered and the difference between Section 21(4) of the 1957 Act vis-a-vis Section 164(1) of the 1961 Act was clearly brought home.

Therefore, it is the contention of Shri Santhanam that the question as to the status of the trustee under a discretionary trust, when assessed under Section 164(1), should no longer be a matter of controversy and it should be taken to have been concluded by the Full Bench decision of the Gujarat High Court and it should always be held to be an AOP. We express our inability to accept this contention of the learned departmental representative for the following reasons. The question referred to the Gujarat High Court is, whether the assessee, who is in receipt of certain income from six discretionary trusts, is assessable individually with regard to the income thus derived by him from the six discretionary trusts. That means the question which cropped up before the Full Bench was, whether under Section 164(1) the interest of the beneficiary in the income, while she is in receipt of such income under the discretionary trusts, is assessable under the provisions of Section 166 of the Act. Ultimately, the majority decision of the Full Bench held that the revenue cannot proceed against the beneficiary under Section 164 and in a case falling under Section 164, the provisions of Section 166 cannot be applied. The ratio of the majority decision can be found as : ...The crucial question is not the provisions of Section 166 but Section 164 because if under Section 164 it is not open to the tax authorities to proceed against the beneficiary where the beneficiary is not 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 and unknown, it is not open to the tax authorities to treat the income of the trust except as the income of a fictional association of persons and the last portion of Section 164 is only for the purpose of giving an option as to rates as explained above, the question of proceeding under Section 166 against the beneficiary directly or recoverable from the beneficiary the tax payable by the representative assessee in respect of the amount paid in the course of a particular year of account by the trustees under a discretionary trust to one or other of the beneficiaries under Section 164 can never arise. As the very language of Section 166 says, it is an enabling section and as the Supreme Court has pointed out in C.R. Nagappa's case [1969] 73 ITR 626 Section 166 makes express what is implicit in Section 161(1) but, as we have pointed out above, since Section 164 is an exception to Section 161(1), the provisions of Section 166 can only apply to those cases falling under Sections 159 to 165 where they can possibly apply and since it is not possible, as pointed out by the Supreme Court in Trustees of Nizam's Family Trust's case [1977] 108 ITR 555 to proceed against the beneficiaries under Section 164, the provisions of Section 166 cannot apply to cases falling under Section 164.

Thus, it can be seen that there is no necessity or compulsion for the learned Full Bench to decide about the status of the trustee under a discretionary trust. Thus, the portion on which reliance is placed by the learned departmental representative, which is extracted above, is a mere obiter. Further, assuming, without admitting, that the portion of the Full Bench decision relied on for any reason is taken to be the ratio of the decision, we are compelled to observe that the said ratio or the opinion expressed about the status of the trustee under a discretionary trust is quite opposed to the status of the said trustee under discretionary trust determined by the Hon'ble Supreme Court in Trustees of H.E.H Nizam's Family (Remainder Wealth) Trust's case (supra), in which case we have to prefer the Supreme Court decision and follow it rather than the Gujarat High Court decision which strikes a different note. We may also mention that there is no necessity for the Full Bench to adopt the particular reasoning found in the portion of the judgment, relied upon by the learned departmental representative, while disposing of the real controversy in issue before it. We, therefore, hold that the Gujarat High Courts Full Bench decision, on which the learned departmental representative relied upon, is rendered on altogether different facts and circumstances and the portion, on which reliance was placed by the learned departmental representative, is only an obiter and the said obiter runs counter to what was held by the Supreme Court in Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust's case (supra) regarding the status of the trustee under a discretionary trust, while he was being assessed under Section 164(1). Therefore, we refuse to follow the Gujarat High Court's decision but prefer to follow the Supreme Court decision as well as the Division Bench decisions of this Tribunal referred to above.

14. Reference was made to the decision of the Kerala High Court in CIT v. V.S. Kumaraswamy Reddiar Trust [1982] 138 ITR 808. Having gone through the decision, we are not able to find as to how it helps the assessee in any of its contentions. There the question was whether the trust has to be assessed under Section 161(1). Thus, the question that is referred to the High Court as well as the decision thereon is quite foreign to the real point in controversy before us and we, therefore, hold that it has no relevance for our purpose.

15. Reference was also made to the decision rendered by the Madhya Pradesh High Court in CIT v. Karelal Kundanlal Trust [1984] 148 ITR 412 for the proposition that when there are more trustees than one under the trust deed and when they are to be assessed as the representative assessee under Section 161, whether they can be assessed as an AOP. The Hon'ble High Court held that they cannot be so assessed. It was held that the assessment should be made either in the hands of the representative assessee or directly in the hands of the beneficiaries but while assessing the representative assessees, it could be only with regard to the income to which the beneficiaries are entitled and the liability of the representative assessee will also be restricted to that extent. In our opinion, this decision does not fully cover the issue before us. The assessment under Section 161(1) and the assessment under Section 164(1) are quite different and separate. Under Section 161(1), two options are open to the revenue. It can assess the representative assessee on the income derived by the beneficiary and the liability is limited to the extent of the interest of the beneficiary whereas under Section 164(1), the trustee under a discretionary trust should, in the words of the Hon'ble Supreme Court, be treated as an individual though the trustee receives the total beneficial interest of all the beneficiaries under the trust and he should be assessed with maximum marginal rate.

16. The learned Counsel for the assessee also relied upon the Supreme Court decisions rendered in Banarsi Das v. WTO [1965] 56 ITR 224 and Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973) 88 ITR 47, for the proposition that mere realisation of interest does not involve earning of income, much less the trustees under a discretionary trust earning income for themselves. This matter was already dealt with by the Pune Bench of the Tribunal in its order in which it has approved this proposition. As we are following the Pune Bench decision, it is quite redundant to say that we are accepting the proposition canvassed before us.

17. In the result, we hold that the status of the trustees under the trust deed dated 14-7-1920 should be held to be that of an individual and, therefore, we hold that the assessee is entitled to the deduction under Section 80L. In view of our decision, all the four appeals filed before us are allowed.


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