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Commissioner of Income Tax Vs. T.S.K. Enterprises - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case (A) No. 282 of 2004
Judge
Reported in[2005]274ITR41(Mad)
ActsIncome Tax Act, 1961 - Sections 3, 143(1), 161 and 161(1)
AppellantCommissioner of Income Tax
RespondentT.S.K. Enterprises
Advocates:J. Naresh Kumar, Adv.
DispositionAppeal dismissed
Excerpt:
.....tax act, 1961 - whether assessee trust subject to assessment in status of association of persons - trust income assessed in hands of beneficiary individually and not in hands of trustees as association of persons - held, trust not subject to assessment in status of association of persons. head note: income tax liability in special cases--liability of representative assesseeassessee trust whether could be assessed in the status of aopheld : the assessment of the assessee-trust, for the asst. yr. 1984-85 was originally completed under section 143(1). later on as per directions of the cit the assessment was completed under section 143(3) in the status of aop. on appeal the cit(a) following the decision of tribunal held that the trust income could be assessed in the hands of beneficiaries..........tribunal in the case of ers trust, salem, wherein an identical issue was involved, held that the trust income could be assessed only in the hands of the beneficiaries individually and not in the hands of the trustees, as an association of persons (aop). 2.3. aggrieved by the order of the commissioner of income tax (appeals), the revenue filed an appeal before the income tax appellate tribunal, chennai bench. the appellate tribunal following its own order, reference to which has been made in the order of the cit (appeals), upheld the decision of the cit (appeals). hence, the present appeal by the appellant/revenue.3. the substantial question of law raised in this appeal is answered against the appellant/revenue by a division bench of the bombay high court in 'commissioner of income tax.....
Judgment:
ORDER

P.D. Dinakaran, J.

1. Heard. The appeal is preferred against the order of the Income Tax Appellate Tribunal Madras Bench 'a' dated 12.9.2003 in I.T.A.2285/96. The following substantial question of law is raised for consideration:-

'Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the assessing officer was not correct in assessing the assessee trust in the status of Association of Persons for the assessment year 1984-85?'

2.1. In brief, the assessment of the assessee trust for the assessment year 1984-85 was originally completed u/s 143(1) determining the total income at Rs. 1,99,940/-. The Commissioner of Income Tax, on a perusal of the records, found that the order of the assessing officer was erroneous and prejudicial to the interest of the Revenue inasmuch as the assessing officer has not assessed the trust in the status of Association of Persons and levied tax at the minimum marginal rate. The Commissioner of Income Tax, therefore, set aside the assessment with the direction to the assessing officer to levy the tax in the status of AOP. The reassessment in pursuance of the order of the Commissioner of Income Tax was completed u/s 143(3) on 26.3.1990.

2.2. Aggrieved by the order of the assessing officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who, following the decision of the Income Tax Appellate Tribunal in the case of ERS Trust, Salem, wherein an identical issue was involved, held that the Trust income could be assessed only in the hands of the beneficiaries individually and not in the hands of the Trustees, as an Association of Persons (AOP).

2.3. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Revenue filed an appeal before the Income Tax Appellate Tribunal, Chennai Bench. The Appellate Tribunal following its own order, reference to which has been made in the order of the CIT (Appeals), upheld the decision of the CIT (Appeals). Hence, the present appeal by the appellant/Revenue.

3. The substantial question of law raised in this appeal is answered against the appellant/revenue by a Division Bench of the Bombay High Court in 'Commissioner of Income Tax vs Marsons Beneficiary Trust : [1991]188ITR224(Bom) , wherein it was held as follows:-

'Under Section 161 of the Income Tax Act, 1961, the tax shall be levied upon and recovered from a trustee in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. In other words, income which comes to the share of a beneficiary has to be assessed as if it were the income of the beneficiary, and tax has to be levied accordingly. Section 161(1) makes no distinction between the business income of a trust and any other income of a trust. Hence, all kinds of income of a trust have to be assessed under Section 161(1). Trustees who are authorised to carry on business under the terms of deed of trust are not in the same position as receivers. An association of persons as used in Section 3 of the Income Tax Act, 1961, means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. Trustees derive their authority to carry on business, nor from the beneficiaries, but from the settlor under the terms of the deed of trust. They do not require the consent of the beneficiaries for exercising their authority under the deed of trust. The authority is conferred on them by the settlor. The beneficiaries are mere recipients of the income earned by the trust.'

4. The aforesaid view has been reiterated by a Division Bench of this Court in T.C. Nos. 661 and 662 of 1994, by a judgment dated 15.12.1998.

5. Accordingly, the substantial question of law is answered against the appellant/revenue and the appeal stands dismissed.


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