Commissioner of Income Tax vs Mecca Trust

N.V. Balasubramanian, J.—The income tax Appellate Tribunal has stated a case u/s 256(1) of the income tax Act, 1961 and referred the

following common question of law for the assessment years 1987-88 and 1988-89 :

Whether on the facts and in the circumstances of the case the ITAT was correct in law in holding that the status of the assessee cannot be adopted

as that of the Association of persons?

The issue that arises in the tax case reference is one regarding the status of the assessee to be adopted for the purpose of the assessment of the

trustees. The Assistant Commissioner of income tax, the Assessing Officer assessed the Trust treating it as an Association of Persons but the

Commissioner of income tax (Appeals), on appeal, held that the Trust is not liable to be assessed in the status of an Association of persons, which

was confirmed by the income tax Appellate Tribunal. It is against this order, the present reference has been made.

We are of the view that it is not necessary to go into the other aspects of the matter which were decided by the Commissioner of income tax

(Appeals). The Commissioner of income tax (Appeals) held that the trust is a private specific trust and the shares of the beneficiaries are known

and certain. We hold that the beneficiaries of the trust in these circumstances cannot be regarded as an Association of persons, as they have not

joined together to earn income. They are entitled to receive the income in fixed proportion by virtue of the deed of trust. In other words, they have

not associated themselves to earn income from the trust property to regard them as an Association of persons. The Bombay High Court in CIT v.

Marsons Beneficiary Trust [1990] 188 ITR 224 /[1990] 52 Taxman 454 in similar circumstances has held that where the assessee is a private trust

and the shares of the beneficiaries are known and certain, the beneficiaries are not an Association of persons. We are in respectful agreement with

the view expressed in the said decision and accordingly we do not find any infirmity in the order of the income tax Appellate Tribunal. We answer

the question of law referred to us in the affirmative, in favour of the assessee and against the Revenue. However, there will be no order as to costs.