Aquagel Promoters Group, Bhavnagar V. ITO, Ward-2(3), Bhavnagar

ITA 2336/AHD/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8780 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 23-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Maximum Marginal Rate; Set aside
• Section: 143(3); 133(6); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (CONDUCTED THROUGH VIRTUAL COURT) BEFORE: SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER M/S. AQUAGEL PROMOTERS GROUP SHARE HOLDERS TRUST, 147, GIDC ESTATE, VARTEJ, BHAVNAGAR PAN: AADTA7358N (APPELLANT) VS THE ITO, WARD-2(3), BHAVNAGAR (RESPONDENT) REVENUE BY: SHRI L.P. JAIN, SR. D.R. ASSESSEE BY: SHRI TUSHAR HEMANI, SR . A.R. WITH SHRI P.B. PARMA R, A.R. DATE OF HEARING : 29-07-2021 DATE OF PRONOUNCEMENT : 30-07-202 1 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THIS ASSESSEES APPEAL FOR A.Y. 2014-15, ARISES FRO M ORDER OF THE CIT(A)-6, AHMEDABAD DATED 24-08-2017, IN PROCEEDIN GS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE SOLITARY GROUND OF APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-6, AHMEDABAD IN CONFIRMING THE ACTION OF THE ASSESSING ITA NO. 2336/AHD/2017 ASSESSMENT YEAR 2014-15 I.T.A NO. 2336/AHD/2017 A.Y. 2014-15 PAGE NO M/S. AQUAGEL PROMOTERS GROUP SHARE HOLDERS TRUST VS . ITO 2 OFFICER IN MAKING AN ADDITION OF RS. 9,66,170/- BY HOLDING THAT THE SHARE OF THE BENEFICIARIES IS TAXABLE IN THE HANDS OF THE AS SESSEE TRUST. 3. THE FACT IN BRIEF IS THAT THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS. NIL ON 11 SEP, 2015. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE A CT WAS ISSUED ON 2 ND AUGUST, 2016. DURING THE COURSE ASSESSMENT, THE AS SESSING OFFICER NOTICED THAT ASSESSEE IS AN ASSOCIATION OF PERSONS AND AS P ER THE DISCLOSURES MADE IN THE NOTE TO COMPUTATION OF INCOME FILED BY THE ASSE SSEE, INCOME EARNED BY THE ASSESSEE SHALL BE CHARGED TO TAX IN THE HANDS O F THE BENEFICIARIES. DURING THE YEAR, THE ASSESSEE TRUST EARNED INTEREST OUT OF ITS SAVING BANK DEPOSITS AND FIXED DEPOSITS OF RS. 6,81,000/- AND RS. 1,27,18,38 1/- AND SAME WAS DISTRIBUTED AMONG THE BENEFICIARIES. THE ASSESSING OFFICER HAS NOTICED ON MAKING VERIFICATION U/S. 133(6) THAT FIVE BENEFICIA RIES HAVE REFUSED TO RECEIVE THE SHARE OUT OF THE AFORESAID INCOME FROM THE TRUS T. THE DETAIL OF SUCH INCOME SHOWN BY THE ASSESSEE TRUST AS DISTRIBUTED T O THE FIVE BENEFICIARIES WERE NAMELY BHARAT P. RAUT RS. 6,25,700/-, BHARAT R AUT HUF RS. 2,08,122/- , VIDYA R. RAUT RS. 3,78,889/-, MANAS RAUT RS. 11,7 6,103/- AND MS. J.P. RAUT RS. 1,65,430/-. THE ASSESSING OFFICER HAS HELD THAT SINCE THE ABOVE FIVE BENEFICIARIES HAVE NOT DISCLOSED THE SHARE AGGREGAT ING TO RS. 15,59,245/- IN THEIR RETURN OF INCOME, THEREFORE, THE SAME IS TAXA BLE IN THE CASE OF THE TRUST ONLY. 4. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE HOL DING THAT THE BENEFICIARIES HAD NOT DISCLOSED THE SAME IN THEIR B OOKS OF ACCOUNT AND RETURN I.T.A NO. 2336/AHD/2017 A.Y. 2014-15 PAGE NO M/S. AQUAGEL PROMOTERS GROUP SHARE HOLDERS TRUST VS . ITO 3 OF INCOME, THEREFORE, STATED THAT INTEREST INCOME O F RS. 15,54,245/- WAS INCOME FROM OTHER SOURCES AND TAXABLE IN THE HANDS OF THE ASSESSEE TRUST. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E US, AT THE OUTSET THE LD. COUNSEL HAS SUBMITTED THE COPY OF ORDER OF ITAT VIDE ITA NOS. 1348/AHD/2017 & 553/AHD/2018 DATED 02-06-2020 OF TH E CO-ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE ITSEL F WHEREIN THE SIMILAR ISSUE ON IDENTICAL FACTS WAS DECIDED IN FAVOUR OF THE ASS ESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT TH IS UNDISPUTED FACT THAT SIMILAR ISSUE ON IDENTICAL FACTS HAS BEEN ADJUDICAT ED BY THE CO-ORDINATE BENCH OF THE ITAT IN FAVOUR OF THE ASSESSEE. 6. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IS A SPECIAL PURPOSE TRUST CREATED FOR THE BENEFIT OF ITS BENEFICIARIES AND THERE WERE 38 MEMBERS WHO WERE HAVING DEFINITE SHARES AS BENEFICIARIES IN THE TRUST. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSEE HAS SUBMITTED THAT THE SHARES OF THE PERSONS WHO ARE EN TITLED TO ARE DETERMINATE AND KNOWN AND THE RECIPIENTS ARE ONLY TO BE SUBJECT ED TO TAX. IT IS ALSO SUBMITTED THAT THE TRUST IN FACT IS ONLY ESCROW MEC HANISM IN THE FORM OF SPECIFIC TRUST CREATED FOR THE PURPOSES. IT IS AL SO SUBMITTED THAT ASSESSEE WAS LIABLE TO DISTRIBUTE SUCH INCOME TO ITS BENEFICIARI ES WHICH WAS CLAIMED AS EXPENSE BY THE ASSESSEE. WITH THE ASSISTANCE OF TH E LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE DECISION OF CO-ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF PERTAINING TO ASSESSMEN T YEAR 2013-14 AND 2015- 16 VIDE ITA NOS. ITA NOS. 1348/AHD/2017 & 553/AHD/ 2018 DATED 02-06- 2020. THE RELEVANT PART OF THE DECISION IS REPRODU CED AS UNDER:- I.T.A NO. 2336/AHD/2017 A.Y. 2014-15 PAGE NO M/S. AQUAGEL PROMOTERS GROUP SHARE HOLDERS TRUST VS . ITO 4 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CAS E ARE NOT IN DISPUTE WHICH HAS BEEN ELABORATED DISCUSSED IN THE PRECEDING PARAGRAPH. TH EREFORE WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY AND CONVENIENCE. A DMITTEDLY, THE ASSESSEE IS A PRIVATE TRUST COMPRISING OF 38 MEMBERS AS BENEFICIARIES HAV ING DEFINITE SHARES AND ITS INCOME IS AVAILABLE ONLY TO THE BENEFICIARIES. THE ASSESSEE D ISTRIBUTED ITS INCOME AMONG THE BENEFICIARIES IN THEIR AGREED SHARES AS PROVIDED IN THE DEED OF TRUST. ACCORDINGLY, THE TAXES ON THE INCOME OF THE TRUST HAVE BEEN PAID BY THE BENEFICIARIES IN THEIR RESPECTIVE SHARE. 14. HOWEVER, SOME OF THE BENEFICIARIES DENIED TO HA VE ACCEPTED THEIR SHARE OF INCOME FROM THE TRUST. THERE IS NO DISPUTE TO THE F ACT THAT THE ASSESSEE HAS NOT MADE THE PAYMENT TO SUCH BENEFICIARIES BUT ADMITTEDLY TH E ASSESSEE HAS ACCOUNTED FOR THEIR SHARE IN THE BOOKS OF ACCOUNTS WHICH WAS SHOWN AS P AYABLE TO THEM. AS SUCH THE PAYMENT WAS NOT MADE BY THE ASSESSEE DUE TO SOME DI SPUTE. AS THE PAYMENT WAS NOT MADE BY THE TRUST TO THE BENEFICIARIES AMOUNTING TO RS. 15,54,245/- THE AO TREATED SUCH AMOUNT AS INCOME OF THE ASSESSEE WHICH WAS SUBSEQUE NTLY CONFIRMED BY THE LEARNED CIT (A). 15. HOWEVER, IN OUR CONSIDERED VIEW THE REVENUE HAS TAKEN CONTRADICTORY STAND BY TAXING THE SHARE OF BENEFICIARIES WHO HAVE NOT CLAI MED IN THE HANDS OF THE TRUST AND ALLOWING THE DEDUCTION TO THE TRUST FOR THE AMOUNT OF SHARE OF THE BENEFICIARIES WHO HAVE ACCEPTED THE SAME. IN OUR HUMBLE UNDERSTANDING, THE REVENUE CANNOT PICK AND CHOOSE CERTAIN AMOUNT REPRESENTING THE SHARE OF THE BENEFI CIARYS AND TAX IN THE HANDS OF THE TRUST AND SIMULTANEOUSLY NOT CHARGING THE TAX IN TH E HANDS OF THE TRUST WITH RESPECT OF MAJORITY OF THE BENEFICIARIES AS DISCUSSED ABOVE. 16. THE PROVISIONS OF SECTION 160(1)(IV) PROVIDES T HAT THE TRUSTEES OF THE TRUST HAVING VALID INSTRUMENT SHALL BE CHARGEABLE TO TAX IN THE CAPACITY OF REPRESENTATIVE ASSESSEE. 17. THE PROVISIONS OF SECTION 164(1) FURTHER PROVID ES THAT THE INCOME OF THE TRUST SHALL CHARGEABLE TO TAX AT THE MAXIMUM MARGINAL RAT E IN A CASE WHERE SHARES OF THE BENEFICIARIES ARE INDETERMINATE OR UNKNOWN. CONVERS ELY, IF THE SHARES OF THE BENEFICIARIES ARE DETERMINATE OR KNOWN THEN THE MAXIMUM MARGINAL RATE WILL NOT BE APPLICABLE. THUS IT IS TRANSPIRED THAT IN SUCH A SITUATION THE TAX CAN BE LEVIED IN THE HANDS OF THE BENEFICIARIES. IN HOLDING SO WE DRAW SUPPORT AND GU IDANCE FROM THE ORDER OF TRIBUNAL IN THE CASE OF TVS INVESTMENTS FUND VERSUS ITO REPORTE D IN 81 TAXMANN.COM 296 WHEREIN IT WAS HELD AS UNDER: 5.2 SECTION 164 OF THE IT ACT READS AS 'CHARGE OF TAX WHERE SHARE OF BENEFICIARIES UNKNOWN' LAYS DOWN THE CONDITIONS TO GIVE 'PASS THROUGH' STATUS TO A TRUST. AS PER EXPLANATION 1 TO THE SECTION, THE T RUST SHALL BE CONSIDERED TO BE A 'DETERMINATE TRUST', IF IT FULFILS TWO CONDITIONS: (I) NAME OF THE BENEFICIARIES ARE SPECIFIED IN THE TRUS T; AND (II) THE INDIVIDUAL SHARE OF THE BENEFICIARIES ARE A SCERTAINABLE ON THE DATE OF THE TRUST. THEREFORE, IT IS ESSENTIAL THAT THE DEED OF TRUST I TSELF SPECIFIES THE CATEGORY OF THE BENEFICIARIES THEREIN AND PRESCRIBES THE METHODOLOG Y FOR DETERMINATION OF SHARE OF EACH BENEFICIARY; SUCH TRUST SHALL BE A DETERMIN ATE TRUST. 5.3 AS PER SECTION 164(1), IF THE TRUST DOES NOT SATIS FY THE ABOVE TEST OF DETERMINACY, THEN THE INCOME OF TRUST WOULD BE CHAR GEABLE TO MAXIMUM MARGINAL I.T.A NO. 2336/AHD/2017 A.Y. 2014-15 PAGE NO M/S. AQUAGEL PROMOTERS GROUP SHARE HOLDERS TRUST VS . ITO 5 RATE (MMR), SUBJECT TO CERTAIN EXCEPTIONS AS LAID D OWN IN THE SECTION. HOWEVER, IF THE TRUST SATISFIES THE TEST, THEN THE TRUST WIL L BE TREATED AS 'PASS THROUGH' CONDUIT SUBJECT TO THE PROVISIONS OF SECTION 160 OF THE IT ACT. BY VIRTUE OF SECTION 160 OF THE IT ACT, THE ITD HAS AN OPTION TO ASSESS THE TAX IN THE HANDS OF THE BENEFICIARY OR IN THE HANDS OF THE TRUSTEE, AS THE CASE MAY BE. SECTION 160 LAYS DOWN THE MEANING OF REPRESENTATIVE ASSESSEE WHO SHA LL BE DEEMED TO BE AN ASSESSEE FOR THE PURPOSES OF THE IT ACT. SECTION 16 0(1)(IV) STATES THAT TRUSTEE(S) APPOINTED UNDER A TRUST WILL BE TREATED AS REPRESEN TATIVE ASSESSEE, IN RESPECT OF INCOME RECEIVED OR INCOME WHICH THE TRUSTEE IS ENTI TLED TO RECEIVE ON BEHALF OF ANY OF THE BENEFICIARIES UNDER A TRUST. 5.4 FURTHER, SECTION 161 READ WITH SECTION 160(1)(IV) OF THE IT ACT, A TRUSTEE OF A TRUST IS TREATED AS A REPRESENTATIVE ASSESSEE, AND THE REPRESENTATIVE ASSESSEE IS LIABLE TO PAY TAX ON THE INCOME IN RESPECT OF WHICH HE IS A REPRESENTATIVE ASSESSEE, 'IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON AND RECOVERABLE FROM THE PERSON REPRESENTED BY HIM' . 5.5 FOR GETTING A 'PASS THROUGH' TREATMENT, THE TRUST SHOULD BE A DETERMINATE AND NON-DISCRETIONARY TRUST. IN ORDER TO FORM A DET ERMINATE TRUST, THE BENEFICIARIES SHOULD BE KNOWN AND THE INDIVIDUAL SH ARE OF THOSE BENEFICIARIES SHOULD BE ASCERTAINABLE AS ON THE DATE OF TRUST DEE D. BUT IN THE CASE UNDER CONSIDERATION THE BENEFICIARIES ARE NOT INCORPORATE D IN THE TRUST DEED. THE INVESTMENT MANAGER GATHERS THE FUNDS FROM THE CONTR IBUTORS AND THE BENEFIT IS PASSED ON TO THE CONTRIBUTORS BASED ON THEIR PROPOR TION OF INVESTMENTS IN THE ASSESSEE TRUST. THE EXCEPTION TO THIS RULE, AND PRO VIDING 'PASS THROUGH' STATUS TO A TRUST, EVEN THOUGH THE CONTRIBUTING BENEFICIAR IES ARE NOT MENTIONED IN THE DEED OF TRUST, IS ONLY EXTENDED TO AIF (VCF) WHICH ARE REGISTERED WITH SEBI AND ELIGIBLE FOR EXEMPTION UNDER SECTION 10(23FB) R.W.S . 115U OF THE ACT. 18. IN VIEW OF THE ABOVE, WE HOLD THAT THE ASSESSEE BEING A TRUST IN THE PRESENT CASE CANNOT BE CHARGEABLE TO TAX MERELY ON THE GROUND TH AT THE BENEFICIARIES HAVE NOT CLAIMED THEIR AMOUNT OF SHARE FROM THE TRUST. AS SU CH THE ASSESSEE IN ITS BOOKS ACCOUNTS HAS MADE THE PROVISIONS FOR THE AMOUNT PAYABLE TO B ENEFICIARIES AS PER THE MERCANTILE SYSTEM OF ACCOUNTING. THE ENTRIES SHOWN IN THE BOOK S OF ACCOUNTS HAVE NOT BEEN DOUBTED BY THE AUTHORITIES BELOW. ACCORDINGLY WE A RE NOT CONVINCED WITH THE FINDING OF THE AUTHORITIES BELOW. HENCE WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. THUS THE GRO UND OF APPEAL OF THE ASSESSEE IS ALLOWED. IT IS NOTICED THAT SAME GROUP OF BENEFICIARIES COMP RISING OF FIVE MEMBERS HAVE ALSO NOT CLAIMED THEIR SHARE OF INCOME ON ACCO UNT OF SIMILAR DISPUTE WITH THE ASSESSEE TRUST AS WAS IN THE EARLIER ASSES SMENT YEAR 2013-14 AND 2015-16. THE CO-ORDINATE BENCH HELD THAT REVENUE C ANNOT PICK AND CHOOSE CERTAIN AMOUNTS REPRESENTING THE SHARE OF THE BENEF ICIARIES AND TAX IN THE HANDS OF THE ASSESSEE AND SIMULTANEOUSLY NOT CHARGI NG THE TAX IN THE HANDS OF THE ASSESSEE WITH RESPECT TO MAJORITY OF THE BENEFI CIARIES. THE FACTS OF THE I.T.A NO. 2336/AHD/2017 A.Y. 2014-15 PAGE NO M/S. AQUAGEL PROMOTERS GROUP SHARE HOLDERS TRUST VS . ITO 6 CASE AND ISSUE INVOLVED IN THE PRESENT APPEAL ARE I DENTICAL TO THE ASSESSMENT YEAR 2013-14 AND 2015-16, THEREFORE, RESPECTFULLY F OLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE ITAT AS SUPRA, ON SIMI LAR ISSUE AND IDENTICAL FACTS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALL OWED. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-07-2021 SD/- SD/- (MADHUMITA ROY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 30/07/2021 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,