Smt. Alpana Kirloskar, New Delhi v. ACIT, New Delhi

ITA 2670/DEL/2013 | 2009-2010
Pronouncement Date: 28-04-2014

Appeal Details

RSA Number 267020114 RSA 2013
Assessee PAN AARPK0165B
Bench Delhi
Appeal Number ITA 2670/DEL/2013
Duration Of Justice 11 month(s) 25 day(s)
Appellant Smt. Alpana Kirloskar, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 28-04-2014
Appeal Filed By Assessee
Bench Allotted A
Tribunal Order Date 28-04-2014
Date Of Final Hearing 05-02-2014
Next Hearing Date 05-02-2014
Assessment Year 2009-2010
Appeal Filed On 03-05-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI: JUDICIAL MEMBER AND SHRI J.S. REDDY : ACCOUNTANT MEMBER ITA NO. 2670/DEL/2013 ASSTT. YR: 2009-10 SMT. ALPANA KIRLOSKAR VS. ACIT CIRCLE 31(1) 26 FEROZSHAH ROAD NEW DELHI. NEW DELHI-110001. PAN: AARPK 0165 B ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI H. MITTAR CA RESPONDENT BY : MS. Y. KAKKAR SR. DR DATE OF HEARING: 05-02-2014 DATE OF ORDER: 28 TH APRIL 2014. O R D E R PER R.P. TOLANI J.M: : THIS IS ASSESSEES APPEAL AGAINST THE ORDER DATED 28-02-2013 PASSED BY THE LD. CIT(A)-XXVI NEW DELHI IN APPEAL NO. 412/20 11-12 PERTAINING TO A.Y. 2009-10. ASSESSEE HAS CHALLENGED THE LEVY OF INCOME TAX AGAIN ON BENEFICIAL SHARE RECEIVED FROM A PRIVATE DISCRETIONARY FAIR VALUE TRUST WHICH IS ALREADY ASSESSED BY DEPARTMENT AT MAXIMUM MARGINAL RATE U/S 164. 2. VARIOUS REPETITIVE ISSUES ARE RAISED THE CONTRO VERSY CAN BE ADDRESSED BY ONE OF THE GROUND RAISED WHICH IS AS FOLLOWS: (1) THE LEARNED AO HAVING MADE THE ADDITION OF RS. 99 50 000/- U/S 56(2)(VI) HOLDING THE SAME AS GIFT WITHOUT CONSIDERATION RECEIVED BY THE APPELLANT FROM THE TR UST AND NOT BY EXERCISING HIS OPTION TO ASSESS THE APPELLANT AS BENEFICIARY U/S 166 OR OTHERWISE IN RESPECT OF SHARE OF INCOME RECEIVED BY THE APPELLANT AS A BENEFICIAL OWNER UNDER THE TRUST INSTEAD OF ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 2 ASSESSING THE SAME IN THE HANDS OF THE TRUSTEES AS A REPRESENTATIVE ASSESSEE U/S 161 THE ACTION OF THE LEARNED COMMISSIONER (APPEALS) IN HOLDING THAT THE AO HAD ASSESSED THE INCOME NOT U/S 56(2)(VI) BUT AS NORMAL INCOME U /S 166 OR OTHERWISE AND IN CONFIRMING THE ADDITION ON THE GRO UND THAT SECTION 56(2) HAD BEEN INADVERTENTLY MENTIONED BY T HE AO IS ENTIRELY WRONG ON FACTS AND IN LAW AND THE ADDITION MADE U/S 56(2)(VI) SHOULD HAVE BEEN DELETED. 3. BRIEF FACTS ARE: THE ASSESSEE IS ONE OF THE BENE FICIARIES OF A PRIVATE DISCRETIONARY TRUST KNOWN AS FAIR VALUE TRUST ( FVT) WHICH HAS BEEN SETTLED WAY BACK ON 11-12-20000. THE TRUSTS INCOME IS FROM DIVIDENDS WHICH ARE EXEMPT IN THIS YEAR UNDER SEC 10(34 ). AS THE NOMENCLATURE OF THE TRUST SUGGESTS THE SHARES OF THE BENEFICIARIES ARE INDETERMINATE AND TRUST INCOME IS DISTRIBUTED AMONG THE RESPECTIVE BENEFICI ARIES AT THE END OF THE YEAR AS PER THE DISCRETION OF TRUSTEES. THE SAID FV T SUBMITTED ITS RETURN OF INCOME AT PUNE OFFERING THE EXEMPT DIVIDEND INCOME . AS ALREADY MENTIONED THE PRIVATE DISCRETIONARY TRUST INCOME IS ASSESSED AT MAXIMUM MARGINAL RATE U/S 164 IN THE HANDS OF THE TRUSTEES AS PROVIDED BY SEC. 164 VIDE ASSESSMENT ORDER FOR IMPUGNED AY DATED 23-03-2011. 3.1. IN THIS YEAR THE ASSESSEE RECEIVED HER BENEFIC IAL SHARE OUT OF SAID DIVIDEND INCOME OF THE TRUST AMOUNTING OF RS. 1 CR ORES AND CLAIMED IT AS EXEMPT U/S 10(34) HAVING BEEN ALREADY TAXED IN THE HANDS OF THE TRUSTEES U/S 164. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD . AO HOWEVER ISSUED SHOW CAUSE NOTICE TO EXPLAIN HOW THIS INCOME WAS C LAIMED AS EXEMPT. ASSESSEE VIDE ITS REPLY DATED 2-12-2011 SUBMITTED A S UNDER: 'BRIEF NOTE ON THE TAXABILITY OF RS. 1 CRORE RECEIVED FROM FAIRVALUE TRUST ALONG WITH THE COPY OF TRUST DEED AND SPECIFIC PROVISION UNDER WHICH THIS INCOME HAS BEEN TREATED AS EXEMPT IN THE HANDS OF THE RECIPIENT IS DESIRED. A DETAILED NOTE ON DISTRIBUTION OF RS. 1 CRORE RECEIVED DURING THE YEAR FROM FAIR VALUE TRUST HAS ALREADY BEEN SUB MITTED IN ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 3 MY LETTER DATED 15.11.2011. YOUR GOOD SELF HAS WRON GLY INTERPRETED THAT DISTRIBUTION IS AN INCOME OF BENEF ICIARY WHEREAS DISTRIBUTION IS OUT OF TRUST FUND. INCOME O F TRUST HAS ALREADY BEEN OFFERED FOR TAX PER PROVISIONS OF INCO ME TAX ACT 1961 IN RESPECT OF INCOME OF PRIVATE DISCRETIONARY TRUST WHERE SHARE OF BENEFICIARIES ARE INDETERMINATE AND NOT SP ECIFIED IN TRUST INSTRUMENT. COPY OF TRUST DEED DATED 11.12.20 00 IS ENCLOSED WHICH SHOWS THAT AS PER CLAUSE L.2(III) MY SELF BEING WIFE OF SH. KIRLOSKAR IS A BENEFICIARY AND MY SHARE IS NOT DEFINED IN THE TRUST INSTRUMENT. AS PER PROVISIONS OF SECTION 164(1) TRUSTEES AS 'REPRESENTATIVE ASSESSEE' U/S 160(1)(IV) OF FAIRVALUE TRUST HAS S UBMITTED ITS RETURN OF INCOME SHOWING TAXABLE INCOME OF TRUST AN D PAID TAX AT MAXIMUM MARGINAL RATE OF TAX. COPY OF RETURN OF INCOME OF FAIRVALUE TRUST HAS ALREADY BEEN SUBMITTED ALONG WI TH MY LETTER DATED 15.11.2011. AS EXPLAINED ABOVE MY SHA RE IN INCOME FROM FAIRVALUE TRUST AS A BENEFICIARY HAS AL READY BEEN TAXED AS PER PROVISIONS OF INCOME TAX ACT 1961. DISTRIBUTION OF SURPLUS FUND OF RS. 1 CRORE IS NOT AN INCOME HENCE IT IS NOT TAXABLE. 3.2. AO HOWEVER WAS OF THE VIEW THAT 164 INTERPRE TATION PROVIDED THAT IT IS ONLY WHEN NO INCOME IS DISTRIBUTED AMONGST THE B ENEFICIARIES BY A PRIVATE DISCRETIONARY TRUST THEN THE TRUST INCOME IS TAXABL E IN THE HANDS OF THE TRUST AS A SEPARATE TAXABLE ENTITY. HOWEVER WHEN THE SURPL US IS DISTRIBUTED BY SUCH TRUST THE RECEIPT IN THE HANDS OF BENEFICIARY WILL BE TAXABLE AS IT BECOMES INCOME FROM OTHER SOURCES IN THE HANDS OF THE BEN EFICIARY. THEREFORE IT WAS HELD TO BE IN THE NATURE OF INCOME FROM OTHER SOURCES IN THE HANDS OF THE ASSESSEE IN TERMS OF SEC. 56(2)(VI). FURTHER S INCE THE TRUST DOES NOT FALL WITHIN THE MEANING OF THE TERM RELATIVE AS PROVID ED IN THE EXPLANATION THERETO THE SAME WAS TAXED AS TAXABLE GIFT AFTER G IVING A STATUTORY DEDUCTION OF RS. 50 000/-. THUS THE RESULTANT BENEFICIAL SHA RE AMOUNTING TO RS. 99 50 000/- WAS ADDED AND TAXED IN THE HANDS OF TH E ASSESSEE. WHILE DOING SO LD. AO RELIED ON VARIOUS JUDGMENTS MENTIONED IN HIS ORDER. ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 4 3.3. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL BEF ORE THE CIT(A) RAISING MAINLY FOLLOWING CONTENTIONS: (I) THE FVT WAS A DISCRETIONARY TRUST IN AS MUCH T HE SHARE OF INDIVIDUAL BENEFICIARIES ON WHOSE BEHALF AND FOR WH OSE BENEFIT THE INCOME WAS RECEIVABLE WERE INDETERMINATE AND U/S 164(1) THE TAX WAS ALREADY CHARGED TO TAX BY DEPARTMENT AT THE MAX IMUM MARGINAL RATE IN THE HANDS OF THE TRUSTEES AS REPRESENTING T HE BENEFICIARIES. THUS THE OPTION OF TAXING THE TRUST INCOME IN THE HANDS OF TRUSTEES STANDS ALREADY EXERCISED BY THE DEPARTMENT. (II) APART FROM EXERCISING THE OPTION OF DIRECTLY T AXING THE INCOME IN THE HANDS OF FVT IN THE CASE OF ANOTHER BENEFICIAR Y OF THE SAME TRUST SHRI ATUL KIRLOSKAR THE BENEFICIAL SHARE FROM THE S AME TRUST HAS BEEN EXEMPTED BY ACCEPTING ASSESSES CLAIM THAT THE INCOM E HAS BEEN TAXED IN THE HANDS OF THE TRUST. THIS IS DEMONSTRATED BY THE RETURN COMPUTATION AND ASSESSMENT ORDER IN ATUL KIRLOSKAR S CASE U/S 143(3) DATED 1-12-2011. BOTH THE ASSESSMENT ORDERS I.E. TR UST AND SHRI ATUL KIRLOSKAR ARE PASSED BEFORE ASSESSEES ORDER. THE ACTION OF ASSESSING TRUST AND BENEFICIARIES INCOME SHOULD BE UNIFORMLY AND CORRECTLY EXERCISED FOR ALL THE BENEFICIARIES IN A UNIFORM MA NNER AND NOT AT THE WHIM AND FANCY OF DEFERENT OFFICERS ASSESSING THEM. (III) THE INCOME DISTRIBUTED BY THE TRUST WAS THE I NCOME RECEIVED BY THE TRUSTEES FOR AND ON BEHALF AND FOR THE BENEFIT OF BENEFICIARIES AND THE TRUSTEES WERE ASSESSABLE ONLY AS 'REPRESENTATIV E ASSESSEES' ON BEHALF OF THE BENEFICIARIES IN RESPECT SUCH INCOME. SUCH RECEIPT COULD NOT BY ANY STRETCH OF IMAGINATION BE REGARDED AS GI FT IN THE HANDS OF BENEFICIARY. THE SHARE FROM A FIDUCIARY ARRANGEMENT IS RECEIVED BY THE BENEFICIARIES BY VIRTUE OF THE HIS/HER RIGHTS A S ENSHRINED IN THE TRUST ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 5 DEED ALONG WITH PROVISIONS OF INDIAN TRUST ACT AND THAT IT WAS NOT A GRATUITOUS RECEIPT. (IV) THE SUM OF RS.1 CRORES RECEIVED BY THE BENEFIC IARY (APPELLANT) WAS OUT OF THE TRUSTS CURRENT YEAR'S TOTAL INCOME I .E. RS.20.84 CRORES WHICH WAS RECEIVED BY WAY OF DIVIDEND INCOME WHIC H IS EXEMPT U/S 10(34) OF THE INCOME-TAX ACT. (V) THAT THE AMOUNT RECEIVED BEING NOT A GIFT THE ADDITION OF THIS AMOUNT AS AN ALLEGED GIFT U/S 56 OF THE INCOME-TAX ACT WAS TOTALLY ILLEGAL BASELESS ERRONEOUS AND UNSUSTAINABLE. (VI) WITHOUT PREJUDICE EVEN IF IT IS HELD TO BE TA XABLE INCOME THEN ALSO FOR ANY REASON THE IMPUGNED ADDITION EVEN OTH ERWISE IS WHOLLY ILLEGAL AND TOTALLY UNWARRANTED IN LAW AND ON FACTS . THE INCOME BEING RECEIVED UNDER THE TRUST FOR AND ON BEHALF OF AND F OR THE BENEFIT OF THE BENEFICIARIES COULD BE ASSESSED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 161 TO 166 OF THE INCOME-TAX ACT. AN INCOME WHICH IS EXEMPT IN THE HANDS OF TRUST ON DISTRIBUTION ITS SHARE CANNOT BE HELD AS TAXABLE IN THE HANDS OF BENEFICIARY AS IT IS PAR T OF THE EXEMPT INCOME. (VII) U/S 166 OF THE INCOME-TAX ACT THE REVENUE HAS AN OPTION TO ASSESS THE INCOME EITHER IN THE HANDS OF THE TRUSTE ES AS REPRESENTATIVE ASSESSEES OR DIRECTLY IN THE HANDS OF THE BENEFICIARY. THE TRUST EES HAS BEEN ALREADY ASSESSED PRIOR TO BENEFICIARIES ASSESS MENT AS EVIDENCED BY THE AFOREMENTIONED ORDER OF THE TRUST THERE IS NO PROVISION IN THE ACT TO REVIEW THE OPTION BY BENEFICIARYS AO BESID ES THERE IS NO LOSS TO THE REVENUE WHETHER THE INCOME WAS ASSESSED IN T HE HANDS OF THE TRUSTEES AS REPRESENTATIVE ASSESSEES OR IN THE HAND S OF THE INDIVIDUAL ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 6 BENEFICIARIES AS IN BOTH CASES SAME PROVISIONS ABOU T MAXIMUM MARGINAL RATE AND EXEMPTION U/S 10(34) ARE APPLICAB LE . THE REVENUE IN ALL THE EARLIER ASSESSMENT YEARS HAS ADOPTED TH IS COURSE OF ACTION AND EXERCISED THE OPTION OF ASSESSING THE ENTIRE TR UST INCOME IN THE HANDS OF TRUSTEES AND ALLOWING CLAIM OF EXEMPTION O F DIVIDEND INCOME AND DIRECT ASSESSMENT HAS BEEN MADE ON THE BENEFICI ARIES. THE EXERCISE OF OPTION HAS BEEN ALREADY EXERCISED BY DE PARTMENT WHICH CANNOT BE REVIEWED UNDER ANY PROVISION OF THE ACT. IN THE GARB OF INTERPRETATION OF SEC 164 AND 166 WHICH IS CONTRARY TO CBDT CIRCULARS AND SETTLED LEGAL POSITION AO HAS TAKEN A SOMERSAUL T AND ADDED THE INCOME ONCE AGAIN IN THE HANDS OF ASSESSEE. THIS HA S RESULTED IN DOUBLE ASSESSMENT OF THE SAME VERY INCOME WHICH IS WHOLLY ILLEGAL UNSUSTAINABLE AND UNWARRANTED AND ALSO CONTRARY TO THE BOARD'S CIRCULAR NO. 157 (F.NO.228/8/73-IT(A-II) DATED 26.1 2.1974 SPECIFICALLY PROVIDED FOR THIS SITUATION. (VIII) WITHOUT PREJUDICE AND EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT THE INCOME WAS DIRECTLY TAXABLE IN THE HANDS O F THE BENEFICIARY [APPELLANT] THE LEARNED A.O. FAILED TO APPRECIATE THAT THE INCOME DISTRIBUTED AMONGST THE BENEFICIARIES COMPRISED OF EXEMPT DIVIDEND INCOME OF RS.20.84 CRORES. THIS INCOME WOULD BE WH OLLY EXEMPT U/S 10(34) IN THE HANDS OF BENEFICIARIES ALSO. EVEN IF THE FANTASTIC INTERPRETATION OF AO IS CONSIDERED IN ANY EVENT THE DEDUCTION U/S 10(34) IN RESPECT OF EXEMPT DIVIDEND INCOME CANNOT BE DENIED. (IX) THE VARIOUS DECISIONS REFERRED TO BY THE LEARN ED A.O. WERE MOSTLY RENDERED BEFORE THE AMENDMENT OF SECTION 164 (1) BY THE FINANCE ACT 1980 WHICH PROVIDED THAT INSTEAD OF TA X BEING CHARGED IN THE SLAB RATE APPLICABLE TO ASSOCIATION OF PERSONS THE RATE CHARGEABLE WAS PRESCRIBED AS MAXIMUM MARGINAL RATE WHICH WAS M OST BENEFICIAL ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 7 TO THE REVENUE. THE ISSUE THEREFORE HAS TO BE REA D AND UNDERSTOOD IN THE LIGHT OF THE AMENDMENT. (X) IN ALL THE PAST YEARS INCOME OF THE FAIR VALUE TRUST HAS BEEN CONSISTENTLY ASSESSED DIRECTLY IN THE HANDS OF TRUS TEES AND THE SHARE OF INCOME AS AND WHEN RECEIVED BY THE BENEFICIARIES IN CLUDING THE APPELLANT HAS NOT BEEN ASSESSED AS EXEMPT IN THEIR HANDS SINCE THE SETTING UP OF THE TRUST. (XI) DURING THE ASSESSMENT PROCEEDINGS FOR ASSESSME NT YEAR 2006- 07 THIS VERY ISSUE WAS RAISED BY THE LEARNED A.O. AND AFTER CONSIDERING THE ASSESSEE EXPLANATION ABOUT THE SHAR E BEING EXEMPT IN VIEW OF ABOVE SUBMISSIONS THE ASSESSMENT WAS COMPLE TED U/S 143(3} BY TREATING THE BENEFICIAL SHARE INCOME FROM DIVI DENDS EARNED BY TRUST AMOUNTING TO RS.4 CRORES RECEIVED ON DISTRIBU TION BY ASSESSEE AS EXEMPT. THIS ORDER IS PLACED ON RECORD. THUS APART FROM THE MERITS ASSESSES CASE IS COVERED BY PRINCIPLES OF RULE OF CONSISTENCY ENSHRINED BY THE COURTS WHICH HAS BEEN VIOLATED BY THE LEARNED A.O. DESPITE THERE BEING ABSOLUTELY NO DIFFERENCE IN FAC TS AND CIRCUMSTANCES OF THE CASE. ON THIS SCORE ALSO THE OBSERVATIONS/FI NDINGS OF THE LEARNED A.O. ARE LIABLE TO BE SET-ASIDE. (XII) THE LEARNED A.O. HAS ILLEGALLY ASSESSED THIS AMOUNT UNDER THE HEAD 'OTHER SOURCES' UNDER SECTION 56(2)(VI} HOLDIN G THAT THE BENEFICIAL RECEIPT FROM TRUST AS A GIFT. BY ANY S TRETCH OF IMAGINATION THE BENEFICIAL SHARE CANNOT BE TREATED AS A GIFT BY THE TRUST TO THE APPELLANT. THIS AMOUNT WAS RECEIVED BY THE APPELLAN T BY VIRTUE OF HER LEGAL RIGHT AS A BENEFICIARY NAMED IN THE TRUST DEE D. IT IS THIS VERY INCOME WHICH HAS BEEN ASSESSED TO TAX IN THE HANDS OF THE TRUSTEES AS REPRESENTATIVE ASSESSEE AT MAXIMUM MARGINAL RATE OF TAX. THERE IS NOT ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 8 A SINGLE CASE LAW OR AN AUTHORITY TO SUPPORT THE VI EW THAT THE INCOME RECEIVED BY BENEFICIARY FROM A TRUST CONSTITUTED A GIFT. (XIII) WITHOUT PREJUDICE EVEN IF THE STAND OF THE LEARNED A.O. IS ACCEPTED THAT THE BENEFICIARIES COULD BE DIRECTLY A SSESSED IS ACCEPTED THE DISPUTE STILL REMAINS ONLY OF ACADEMIC INTEREST . AS PERUSAL OF STATEMENT OF ACCOUNTS OF THE FAIR VALUE TRUST WOULD SHOW THE TRUST HAD DERIVED ONLY DIVIDEND INCOME WHICH WAS EXEMPT F ROM TAX U/S 10(34) WHICH HAS BEEN DISTRIBUTED AMONG BENEFICIARI ES. EVEN FOR THE SAKE OF ARGUMENT IF THIS INCOME IS AGAIN DIRECTLY SOUGHT TO BE ASSESSED IN THE HANDS OF THE BENEFICIARIES THE SAME IS STIL L COVERED BY EXEMPTION U/S 10(34). THE INCOME WHETHER ASSESSED IN THE HANDS OF THE TRUST OR BENEFICIARIES RETAIN THE SAME CHARACT ER AS ASSESSABLE IN THE HANDS OF THE TRUST. WHILE DIRECTLY ASSESSING THE BE NEFICIARIES IN RESPECT OF THE INCOME RECEIVED BY THEM ON DISTRIBUTION THE AMOUNT OF DIVIDEND INCLUDED THEREIN IS ELIGIBLE FOR DEDUCTION /EXEMPTION IN THE SAME MANNER AS WOULD HAVE BEEN DONE HAD THE TRUSTEE S BEEN ASSESSED IN RESPECT OF SUCH AMOUNT. IN THIS CONNECTION RELI ANCE IS PLACED UPON THE DECISION OF HON'BLE GUJRAT HIGH COURT IN CIT VS . (1) DR. ANAND SARABHAI (2) EXECUTORS AND TRUSTEES OF DR. VIKRAM SARABHAI REPORTED IN (1998) 231 ITR 529 WHICH IS ON ALL THE FOURS WIT H THE CASE OF THE APPELLANT. THEREFORE EVEN IF THE INCOME IS TO BE T AXED IN THE HANDS OF THE APPELLANT THE SAME WOULD BE NIL IN VIEW OF THE EXEMPTION U/S 10(34) OF DIVIDEND INCOME. THE APPELLANT'S CLAIM IS THAT EVEN IF THE INCLUSION OF RS. L CRORE IN THE HANDS OF THE APPELL ANT FOR ANY REASON IS UPHELD THE EXEMPTION OF RS. L CRORES REPRESENTING THE EXEMPTION OF DIVIDEND INCOME MAY KINDLY BE ALLOWED LEAVING THE T AXABLE AMOUNT OF RS. L CRORE AT NIL. (XIV) IT IS WELL SETTLED THAT THERE CANNOT BE DOUBL E ASSESSMENT OF THE SAME INCOME. INCOME HAVING BEEN TAXED AND TAX HAVIN G BEEN PAID IN ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 9 THE HANDS OF THE TRUST AT MAXIMUM MARGINAL RATE THE SAME INCOME COULD NOT AGAIN BE BROUGHT TO TAX IN THE HANDS OF T HE APPELLANT. DOUBLE ASSESSMENT IS BARRED BY LAW. CIRCULAR NO.157 DATED 26.12.1974 REPRODUCED IN (1975) 98 ITR STATUTE 41 WAS RELIED ON. 3.4. BESIDES ABOVE SUBMISSIONS BEFORE LD. CIT(A) ASSESSEE FILED ADDITIONAL EVIDENCE WHICH WAS DULY ADMITTED BY HIM AND A REMAND REPORT WAS CALLED FROM AO. THE ASSESSING OFFICER SUBMITTE D REMAND REPORT DATED 5-10-2012 REITERATING HER STAND. ASSESSEE MADE FOLL OWING SUBMISSIONS BEFORE LD. CIT(A). 3.5. AFTER CONSIDERING THE MATERIAL AVAILABLE ON RE CORD LD. CIT(A) DID NOT AGREE WITH TREATING THE BENEFICIAL INCOME AS GIFT B UT CONFIRMED THE ADDITION BY HOLDING: (1) LAW CREATED A FICTION THAT IF THE INCOME OF THE TRU ST IS NOT DISTRIBUTED THEN IT CAN BE TAXED IN THE HANDS OF TH E BENEFICIARIES. THERE WAS NO IMPEDIMENT IN TAXING THE BENEFICIARY O F A DISCRETIONARY TRUST IN THIS SITUATION WHEN THE INCO ME IS RECEIVED BY BENEFICIARY. (2) THE LAW PROVIDED A PROTECTION TO REVENUE BY CREATI NG A FICTION THAT THE TAX WOULD BE LEVIED UPON AND RECOVERED FROM RI GHT PERSON IN RIGHT MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON AND RECOVERABLE FROM THE PERSON REPRESENTED BY TRUS TEES. (3) RELYING ON THE JUDGMENTS IN THE CASES OF CIT VS. KA MALINI KHATAU (1994) 209 ITR 101 (SC); AND CIT VS. DR. ANAND SARA BHAI TRUST (1998) 231 ITR 524 (SC) IT WAS HELD THAT THESE JUD GMENTS SUPPORTED THE ABOVE INTERPRETATION. (4) IT WAS A SETTLED LAW THAT REVENUE HAD A CLEAR OPTIO N TO ASSESS AND RECOVER TAX EITHER FROM TRUSTEES OR FROM THE BENEFI CIARIES OF A DISCRETIONARY TRUST IN RESPECT OF INCOME WHICH HAS BEEN DISTRIBUTED AND RECEIVED BY THE BENEFICIARIES. AO'S ORDER WAS T HUS UPHELD BY ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 10 HOLDING THAT ASSESSING OFFICER HAD INVOKED RIGHT SE CTIONS WHILE TAXING THE BENEFICIAL SHARES IN ASSESSEES HANDS. (5) THUS AO'S APPLICATION OF SEC. 56(2) WAS HELD TO BE INADVERTENT AND NOT TENABLE. AO'S ORDER WAS UPHELD QUA THE APPLICAB ILITY OF SEC. 164 AS INTERPRETED BY HIM AND THE REFERENCE TO SEC. 56(2) WAS HELD TO BE INAPPLICABLE. 3.6. AGGRIEVED ASSESSEE IS BEFORE US. 4. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUES T HAT IT HAS NOT BEEN DISPUTED BY DEPARTMENT THAT THE FVT HAS BEEN ASSESS ED TO TAX AT PUNE PRIOR TO THE ASSESSMENT OF THE ASSESSEE. THIS CLEARLY IND ICATES THAT THE DEPARTMENT HAS ALREADY EXERCISED THE OPTION U/S 164 OF ASSESSI NG THE TRUST INCOME IN THE HANDS OF THE TRUST/ TRUSTEES AT THE MAXIMUM MARGINA L RATE AS PROVIDED U/S 164. ONCE THAT OPTION IS EXERCISED BY REVENUE THEN IN THE CASE OF ALL THE BENEFICIARIES ITS CONSEQUENCE WILL APPLY AS A NATUR AL COROLLARY. THERE IS ABSOLUTELY NO SUBSTANCE IN THE STAND OF THE LOWER A UTHORITIES THAT EVEN THOUGH THE ENTIRE INCOME OF THE TRUST HAS BEEN ASSESSED IN THE HANDS OF THE TRUSTEES AT MAXIMUM MARGINAL RATE STILL THE OPTION OF SEC. 1 64 REMAINS OPEN WITH THE DEPARTMENT TO AGAIN ASSESS THE BENEFICIAL SHARE AT THE WILL AND DESIRE OF THE AO IN CASE OF EACH BENEFICIARY RESPECTIVELY. THE STAND IS SELF CONTRADICTORY ILLEGAL AND AGAINST THE CIRCULATED STAND OF THE CBD T. 4.1. THUS FVT HAVING ALREADY BEEN ASSESSED AT THE MAXIMUM MARGINAL RATE AND THE CONSEQUENT ASSESSMENT IN THE HANDS OF SHRI ATUL KIRLOSKAR TREATING THE BENEFICIAL SHARE FROM SAME TRUST AS EX EMPT THE STATUTORY OPTION OF TAXING U/S 164 STANDS FORECLOSED QUA THE ASSESSE E. TO DEMONSTRATE HIS POINT OUR ATTENTION WAS INVITED TO P.B. FROM THE A SSESSMENT ORDERS ARE PASSED AS UNDER: (I) FAIR VALUE TRUST U/S 143(1) BY ACIT PUNE DATED 23-3-2011. ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 11 (II) ANOTHER BENEFICIARY SHRI ATUL KIRLOSKAR ASSES SED BY ACIT CIRCLE 9 PUNE U/S 143(3) VIDE ORDER DATED 1-12-201 1 FOR THE SAME YEAR. BY THIS ORDER THE BENEFICIAL SHARE OF RS. 4 CRORES RECEIVED FROM FVT HAS BEEN ACCEPTED TO BE EXEMPT. (III) ASSESSMENT IN ASSESSEES ON 29-12-2011. 4.2. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT IF THE DEPARTMENTS ASSESSMENTS ACTION IS HOLISTICALLY TAKEN IT DEMONS TRATES A TOTALLY ABSURD AND HARSH APPROACH ADOPTED IN THE CASE OF THE ASSESSEE. IN THE FVT TRUST CASE THE ENTIRE TRUST INCOME IS ASSESSED AS PER LAW I.E. U/S 164. THE OPTION PROVIDED BY SEC. 164 IS THUS CLEARLY EXERCISED BY DEPARTMENT IN THIS MANNER. SECTION 164 DOES NOT PROVIDE THAT OPTION ONCE EXERCISED CA N BE REVIEWED OR REOPTED BY ANY OFFICER ASSESSING RESPECTIVE BENEFICIARIES. BESIDES THE OPTION CANNOT BE CHANGED FROM ONE BENEFICIARY TO OTHER BENEFICIAR Y. ON THIS ACCOUNT ITSELF THE ACTION OF THE DEPARTMENT DESERVES TO BE QUASHED . 4.3. LD. COUNSEL FURTHER SUBMITTED THAT THE ACTION IS CONTRARY TO THE BOARDS CIRCULARS AND SETTLED CASE LAW ON THE SUBJE CT. RELIANCE IS PLACED ON THE RATIO OF DECISION IN THE CASE OF CIT VS. GARGIB EN TRUST (1981( 130 ITR 479 (BOM) FOR THE PROPOSITION THAT MODE OF ASSESSME NT PROVIDED U/S 161 TO 166 OF THE I.T. ACT 1961 IS ALTERNATIVE TO EACH OT HER AND ONCE THE ITO BRINGS TO TAX AN INCOME IN THE HANDS OF THE EITHER TRUSTEE S OR THE BENEFICIARIES THE SAME CANNOT BE BROUGHT TO TAX IN THE HANDS OF OTHER PERSON. 4.4. IT IS PLEADED THAT AO AND CIT(A) BOTH HAVE WR ONGLY APPLIED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KA MALINI KHATAU (SUPRA) IT RATHER HELPS THE ASSESSEE S CASE IN AS MUCH AS IT ALSO LAYS DOWN THAT SUCH INCOME CAN BE EITHER ASSESSED IN THE HANDS OF TRUST OR BENEFICIARY IT DOES NOT AUTHORIZE TAX FROM BOTH. IT IS CLEAR FROM FOLLOWING OBSERVATION: WE HOLD ACCORDINGLY THAT THE REVENUE HAD THE OPTIO N TO ASSESS AND RECOVER TAX FROM EITHER OF THE TRUSTEES OR THE BENEFICIARIES OF A DISCRETIONARY TRUST IN RESPECT OF SUCH INCOME THEREOF AS HAS BEEN DISTRIBUTED AND RECEIVED BY THE BENEFICIARIES . ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 12 4.5. FURTHER RELIANCE IS PLACED ON: (I) JYOTINDERA SINHJI VS. S.L. TRIPATHI & OTHERS (1993) 201 ITR 611 (SC) HOLDING THAT REVENUE HAS OPTION TO TAX INCOME IN THE HANDS OF EITHER THE BENEFICIARIES OR TRUSTEES. DOUB LE TAXATION OF INCOME IN THE HANDS OF TRUST AND BENEFICIARY IS NOT PERMISSIBLE. (II) NAGAPPA (CR) VS. CIT (1969) 73 ITR 626 HOLDING THA T THERE CANNOT BE ASSESSMENT OF THE SAME INCOME ONCE IN THE HANDS OF THE REPRESENTATIVE ASSESSEE AND AGAIN IN THE HANDS OF BENEFICIARY. 4.6. IT IS ALTERNATIVELY SUBMITTED THAT ASSUMING FO R THE SAKE OF ARGUMENT THAT THE ASSESSMENT WAS MADE U/S 166 THE INCOME RE CEIVED ON DISTRIBUTION BY THE TRUST INCLUDED DIVIDEND INCOME EXEMPT U/S 10 (34) OF THE I.T. ACT. THE BENEFICIAL INCOME TO ASSESSEE BEING PART OF DIVIDE ND INCOME ONLY SAME WAS ENTITLED TO THE EXEMPTION U/S 10(34) WHICH HAS NOT BEEN ALLOWED BY LOWER AUTHORITIES DESPITE EXPRESS PROVISIONS. 4.7. SECTION 4 OF THE INCOME-TAX ACT IS CHARGEABLE SECTION AND PROVIDES THAT INCOME TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT THE PRESCRIBED RATES IN RESPECT OF TOTAL INCOME OF THE PREVIOUS YE AR OF EVERY PERSON. SECTION 5 DEFINES THE SCOPE OF TOTAL INCOME AND HOW THE INC OME HAS TO BE ARRIVED AT IN THE CASE OF THE RESIDENTS AND NON RESIDENTS ETC. SECTION 10 OF THE ACT PROVIDES THAT IN COMPUTING THE TOTAL INCOME OF THE PREVIOUS YEAR OF ANY PERSON ANY INCOME FALLING WITHIN CLAUSES LAID DOWN THEREIN SHALL NOT BE INCLUDED. DIVIDEND INCOME IS EXEMPT U/S 10(34). THU S WHAT IS CHARGEABLE TO TAX IS THE TOTAL INCOME WHICH EXCLUDES EXEMPT INCOM E. IN SUPPORT RELIANCE HAS BEEN PLACED ON FOLLOWING JUDGMENTS FOR RESPECTI VE PROPOSITIONS:- (I) JYOTINDERA SINHJI VS. S.L. TRIPATHI & OTHERS (1993) 201 ITR 611 (SC): ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 13 THE ITO MAY THEREFORE ASSESS THE PERSON REPRESENT ED IN RESPECT OF THE INCOME OF THE TRUST PROPERTY AND THE APPROPRIAT E PROVISIONS OF INCOME-TAX ACT RELATING TO COMPUTATION OF TOTAL INC OME AND THE MANNER IN WHICH THE INCOME IS TO BE COMPUTED WILL A PPLY TO THAT ASSESSMENT. APART FROM THE RATE OF TAX THE QUANTUM OF IT CAN O NLY BE THE SAME AS IN THE CASE OF BENEFICIARY. THUS IN THE ASSESSME NT OF THE TRUSTEES SHOULD BE GIVEN ALL EXEMPTIONS ABATEMENTS DEDUCTI ONS AND RELIEF THAT THE BENEFICIARY WOULD HAVE BEEN ENTITLED TO HA D HE BEEN DIRECTLY ASSESSED. (II) CIT VS. SAURIN S. JHAVERI (2002) 257 ITR 160. SPECIAL DEDUCTION U/S 80C IS AVAILABLE WHILE COMPUT ING THE BENEFICIARY SHARE OF INCOME FROM THE TRUST. (III) CIT VS. BHARTI DEVI SARABHAI (1998) 231 ITR 531 (GU J) THE AMOUNT OF DIVIDEND INCOME RECEIVED BY THE TRUST EE WHICH WAS ALLOWABLE FOR DEDUCTION U/S 80K WHEN PASSED ON TO THE BENEFICIARY WOULD NONETHELESS BE ELIGIBLE TO THE SAME DEDUCTION . (IV) CIT VS. DR. ANAND SARABHAI (1998) 231 ITR 529 (GUJ) THE DEDUCTIBILITY U/S 80K OF THE AMOUNT OF DIVIDEND OR ITS PART WHICH IS ATTRIBUTABLE TO THE PROFITS AND GAINS WHIC H THE COMPANY IS ENTITLED TO DEDUCTION U/S 80J WOULD REMAIN THE SAME WHEN COMPUTED EITHER IN THE HANDS OF THE TRUSTEES OR IN THE HANDS OF THE BENEFICIARY. SUCH DIVIDEND INCOME PASSED ON BY THE TRUSTEES TO THE BENEFICIARIES WILL STILL REMAIN A DIVIDEND INCOME I N THE HANDS OF THE BENEFICIARIES IF THE DEPARTMENT OPTS TO DIRECTLY AS SESS THE BENEFICIARIES. PROVISIONS OF SECTION 165 INDICATE T HAT WHEN PART ONLY OF THE INCOME OF THE TRUST IS CHARGEABLE UNDER THE ACT THE BENEFICIARYS SHARE OF INCOME SHOULD BE TAKEN TO BE DERIVED ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 14 PROPORTIONATELY FROM THE CHARGEABLE AND NON CHARGEA BLE PORTIONS OF THE TRUST INCOME AND SHOULD BE ASSESSED ACCORDIN GLY. 5. LD. DR ON THE OTHER HAND RELIED ON THE ORDER O F CIT(A) AND FURTHER RELIED UPON THE RATIO OF DECISIONS IN THE CASES OF MOTI TRUST VS. CIT 236 ITR 37(SC); AND CIT VS. DR. ANAND SARABHAI TRUST 231 IT R 524 (SC). 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT THAT THE FVT WAS ALREADY ASSESS ED BY THE DEPARTMENT AT PUNE AT THE MAXIMUM MARGINAL RATE HAS NOT BEEN DENI ED BY THE LD. DR. SIMILARLY THE ASSESSMENT IN THE CASE OF ANOTHER BE NEFICIARY OF THE SAME TRUST SHRI ATUL KIRLOSKAR HAVING BEEN FINALIZED U/S 143(3 ) ON 1-12-2011 I.E. PRIOR TO THE ASSESSEES ASSESSMENT DATED 29-12-2011 ALSO HAS NOT BEEN DISPUTED. IN HIS CASE THE BENEFICIAL SHARE FROM THE SAME TRUST HAS BEEN ALLOWED TO BE EXEMPT BEING ALREADY ASSESSED IN THE HANDS OF THE T RUST. 6.1. IN THESE CIRCUMSTANCES IN OUR CONSIDERED VIE W IT CLEARLY EMERGES THAT THE DEPARTMENT HAS ALREADY EXERCISED THE OPTION TO TAX THE TRUST INCOME DIRECTLY IN THE HANDS OF TRUSTEES IN TERMS OF SECTI ONS 161 TO 166. THE FACT THAT IN THE CASE OF ANOTHER BENEFICIARY OF THE SA ME TRUST FOR THE SAME YEAR I.E. SHRI ATUL KIRLOSKAR HIS BENEFICIAL INCOME FROM TRUST HAS BEEN HELD TO BE EXEMPT AS NOT INCLUDIBLE HAVING BEEN TAXED IN THE H ANDS OF TRUST. BOTH THESE ASSESSMENTS STAND TESTIMONY TO THE FACT THAT OPTION HAS NOT ONLY BEEN EXERCISED BY THE DEPARTMENT BUT IT HAS BEEN ALSO IM PLEMENTED IN THE CASE OF OTHER BENEFICIARY. IN VIEW OF THESE UNDISPUTED FACT S ON RECORD WE SEE NO JUSTIFICATION IN ASSESSING THE AMOUNT OF BENEFICIAL SHARE FROM TRUST AT RS. 99 50 000/- IN THE HANDS OF THE ASSESSEE AGAIN FOR FOLLOWING REASONS: (I) THE ASSESSEES STAND IS CORRECT THAT AS PER THE SCHEME OF ASSESSMENT OF PRIVATE DISCRETIONARY TRUST DEPARTMEN T HAS TO OPT WHETHER TO ASSESSES THE INCOME IN THE HANDS OF TRUS T OR BENEFICIARIES. THE OPTION IS CLEARLY EXERCISED FIRST IN THE HANDS OF TRUST AS DEMONSTRATED BY ITS ASSESSMENT ORDER. THIS IS RECON FIRMED BY THE ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 15 ASSESSMENT OF SHRI ATUL KIRLOSKAR. THEREAFTER DEPAR TMENT CANNOT TAKE A COURSE TO REVIEW REOPT OR REWRITE WHAT HAS BEEN STATUTORILY EXERCISED AND CHANGE ITS STAND FROM BENEFICIARY TO BENEFICIAR Y. (II) IN ANY CASE IT HAS NOT BEEN DISPUTED THAT ENTI RE TRUST INCOME IS FROM DIVIDENDS EXEMPT U/S 10(34) AND WHAT COMES IN THE HANDS AS BENEFICIAL SHARE RETAINS THE SAME COLOUR AND IS ALS O EXEMPT U/S 10(34). OUR VIEW IS FORTIFIED BY HONBLE SUPREME COURT JUDG MENT IN THE CASE OF JYOTINDERA SINHJI AND OTHER CASE LAWS CITED BY ASSESSEE (SUPRA). THEREFORE ALTERNATIVELY ALSO THE BENEFICIAL SHARE BEING PART OF EXEMPT DIVIDEND INCOME SAME IS EXEMPT FROM TAX AND IS TO BE EXCLUDED WHILE COMPUTING THE ASSESSEE. (III) THE ACTION TAKEN BY THE DEPARTMENT IS CONTRAR Y TO THE SETTLED SCHEME AND INTERPRETATION OF SECTIONS 161 TO 164 AN D CBDT CIRCULAR. THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF KAMALINI KHATAU (SUPRA) DOES NOT SUPPORT THE PROPOSITION AS APPLIED BY THE REVENUE AUTHORITIES. IN OUR CONSIDERED VIEW THESE UNDISPUTE D FACTS SUPPORT THE CASE OF THE ASSESSEE. (IV) THE RULE OF CONSISTENCY FAVORS THE ASSESSEE F ACTS CIRCUMSTANCES AND LEGAL POSITION REMAINING SAME AND DEPARTMENT HA VING ALREADY ACCEPTED THIS POSITION IN ASSESSES OWN CASE FOR AY 2006-07 U/S143(3) WE SEE NO REASON TO BREAK THE RULE OF CONSISTENCY I N THIS CASE. OUR VIEWS ARE SUPPORTED BY HONBLE SUPREME COURT IN THE CASE OF RADHSOAMI SATSANG 6.2. IN VIEW OF THE FOREGOING ON MERITS AND ON AL TERNATE SUBMISSIONS ASSESSEE DESERVES TO SUCCEED. WE THEREFORE HOLD T HAT THE DEPARTMENT HAVING ALREADY EXERCISED THE OPTION TO TAX THE INCOME DIRE CTLY IN THE HANDS OF THE TRUST THERE IS NO PROVISION TO REVIEW THE OPTION T AKEN IN THE CASE OF TRUST AND ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 16 AGAIN TO CHANGE THE OPTION FROM ONE BENEFICIARY TO ANOTHER THE IMPUGNED INCOME IS THEREFORE HELD TO BE EXEMPT IN THE HANDS OF THE ASSESSEE. 7. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28-04-2014. SD/- SD/- ( J.S. REDDY ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28-04-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 2670/DEL/2013 SMT. ALPANA KIRLOSKAR 17