The Commissioner Of Income Tax Tamil Nadu-Iv Madras v. Shri P.n.bajaj

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19/11/2002 CORAM THE HONOURABLE MR.JUSTICE N.V.BALASUBRAMANIANANDTHE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN T.C.NO.213 OF 1998 The Commissioner of Income TaxTamil Nadu-IV Madras ..Applicant -Vs- Shri P.N.Bajaj850,Mount Road, Madras ..Respondent Tax case arises out of the order of the Income Tax Appellate Tribunal,Madras Bench-A dated 13.9.1994 in I.T.A.No. 337/Mds/1989 at the instance ofthe Revenue. !For applicant : Mrs. Pushya SitharamanSenior Standing counsel(IncomeTax) ^For respondent : Mr.G.RamachandranSenior Counselfor M/s Anita Sumanth :JUDGMENT (Judgment of the Court was made by N.V.BALASUBRAMANIAN,J.) The Income Tax Appellate Tribunal has stated a case under Section 25 6(2) of the Income Tax Act, 1961 and referred the following question of law inrelation to the assessment of the assessee for the assessment year 1985-86 atthe instance of the Revenue. "1. Whether on the facts and in the circumstances of the case the Tribunal isright in law in holding that the assessee's share of income of the privatefamily trust cannot be taken into account for rate purposes under Section86(v) of the Income-Tax Act?" 2.The assessee is an individual and the assessment year involved is1985-86 for which the relevant previous year ended on 31.3.1985. Theassessee, inter-alia, received a sum of Rs.30,013/- being his share of income of a trust called 'Bajaj Family Trust'. The assessee is one of thebeneficiaries of the said Trust. It is admitted by the learned Senior Counselfor the Revenue that the entire income of the trust including a sum of Rs.30,013/- was assessed in the hands of the representative assessee, namely, thetrustee. The assessing officer for the assessment of the assessee-individualhas included the amount received by the assessee, as one of the beneficiaries,from the trusts for rate purposes under Section 86 of the Income-tax Act. Onappeal preferred by the assessee before the Commissioner(Appeals), theCommissioner (Appeals)upheld the action of the Income Tax Officer in includinga sum of Rs.30,013/- for rate purposes. The assessee preferred further appealbefore the Income Tax Appellate Tribunal, Madras Bench. The Income-TaxAppellate Tribunal held that the assessee's share of income of the trustcannot be included for rate purposes on the ground that the assessee has notreceived the share income as a member of association of persons and hence, theincome received by the assessee cannot be taken into account for rate purposes and allowed the appeal preferred by the assessee. The Revenue is challengingthe order of the Tribunal, sought for a reference and the Tribunal has stateda case and referred the question of law stated earlier. 3.Heard Mrs. Pushya Sitaraman, learned Senior Standing Counsel(Income Tax) and Mr.V.Ramachandran, learned Senior Counsel for the assessee. and allowed the appeal preferred by the assessee. The Revenue is challengingthe order of the Tribunal, sought for a reference and the Tribunal has stateda case and referred the question of law stated earlier. 3.Heard Mrs. Pushya Sitaraman, learned Senior Standing Counsel(Income Tax) and Mr.V.Ramachandran, learned Senior Counsel for the assessee. 4. The question lies in a very narrow campus and it is not necessaryto go into the large question raised by the learned Senior Standing Counselthat the share income received by the assessee is his income and is liable tobe included under Section 5 of the Act. The question is whether the shareincome received by the beneficiary is liable to be included for determiningthe rate purposes in the individual assessment of the beneficiary. There isno dispute that the trustees were assessed in terms of the provisions underSection 161 (1A) of the Act read with 164 of the Act and the tax was levied atthe maximum marginal rate. Section 86 of the Income Tax Act lies underChapter VII and that Chapter deals with the procedure for assessment of shareof a member of an association of persons or body of individuals in the incomeof the association or body. During the relevant assessment year in question,there is no doubt that if the assessee was a member of association of personsor body of individuals, his share shall be taken into account for ratepurposes. Under the proviso to subclause (v) of Section 86 where theassociation or body of individuals is chargeable to tax at the maximummarginal rate on its total income, the share of a member shall not be includedin his total income. It is stated that the representative assessee was notassessed in the status of association of persons and consequently, theassessee was not a member of association of persons and not received the shareincome as a member of association of persons. Therefore, sub-clause (v) ofSection 86 of the Income Tax Act is not applicable and has no application tothe facts of the case. 5.More over, under the proviso to Section 86(i)(v) of the Act, if theassociation of persons was charged to tax at the maximum marginal rate, thenalso, the share income of the member of association of persons shall not beincluded in his total income even for rate purposes. On the facts of the case the entire income of Trust was charged to tax at the maximum marginal rateunder Sections of 161 (1A) and 164 of the Act making it inapplicable Section86 (1)(v) of the Act. 6.Therefore, viewed the matter from any angle, the assessee not beinga member of association of persons or on the ground that the representativeassessee was already assessed at the maximum marginal rate, the share ofbenefit received by the assessee from the trust is not liable to be includedeven for rate purposes under Section 86 of the Act. 7.Though, the learned Senior Standing Counsel (Income Tax) referred toSection 5 of the Act and submitted that under Section 5 the share of benefitreceived by the assessee is liable to be included as the income of theassessee it is not necessary to consider that aspect. Section 86(i)(v)clearlyexcludes the same even for rate purposes. Further Section 5 is also subjectto other provisions of the Act, including Sections 66 and 86 of the Act. 8.Therefore, we do not find any reason to interfere with the order ofthe Income Tax Appellate Tribunal holding that the share of the benefitreceived by the assessee from the trust is not liable to be taken into accountfor rate purposes. 9.Consequently, the question of law referred to us is answered in theaffirmative, in favour of the assessee and against the Revenue. However, inthese circumstances, there will be no order as to costs.(N.V.B.J.) (K.R.P.J.)19.11.2002 Index: YesInternet: Yessal To 1.The Assistant RegistrarIncome-Tax Appellate TribunalRajaji BhavanBesant NagarChennai 600 090 (Five copies with records) 2.The SecretaryCentral Board of Direct TaxesNew Delhi (Three copies) 3.The Commissioner of Income-taxTamilnadu-IV, Madras 4.The Commissioner of Income-Tax(Appeals IX)Madras 34 �