The Commissioner of Income Tax vs Shri P.N. Bajaj

N.V. Balasubramanian, J.—The Income Tax Appellate Tribunal has stated a case u/s 256(2) of the Income Tax Act, 1961 and referred the

following question of law in relation to the assessment of the assessee for the assessment year 1985-86 at the instance of the Revenue.

Whether on the facts and in the circumstances of the case the Tribunal is right in law in holding that the assessee''s share of income of the

private family trust cannot be taken into account for rate purposes u/s 86(v) of the Income Tax Act?

The assessee is an individual and the assessment year involved is 1985-86 for which the relevant previous year ended on 31.3.1985. The

assessee, 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 the

beneficiaries of the said Trust. It is admitted by the learned Senior Counsel for 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, the trustee. The assessing officer for the assessment of the assessee-

individual has included the amount received by the assessee, as one of the beneficiaries, from the trusts for rate purposes u/s 86 of the Income Tax

Act. On appeal preferred by the assessee before the Commissioner(Appeals), the Commissioner (Appeals)upheld the action of the Income Tax

Officer in including a sum of Rs.30,013/- for rate purposes. The assessee preferred further appeal before the Income Tax Appellate Tribunal,

Madras Bench. The Income Tax Appellate Tribunal held that the assessee''s share of income of the trust cannot be included for rate purposes on

the ground that the assessee has not received the share income as a member of association of persons and hence, the income received by the

assessee cannot be taken into account for rate purposes and allowed the appeal preferred by the assessee. The Revenue is challenging the order of

the Tribunal, sought for a reference and the Tribunal has stated a case and referred the question of law stated earlier.

Heard Mrs. Pushya Sitaraman, learned Senior Standing Counsel(Income Tax) and Mr. V. Ramachandran, learned Senior Counsel for the

assessee.

The question lies in a very narrow campus and it is not necessary to go into the large question raised by the learned Senior Standing Counsel

that the share income received by the assessee is his income and is liable to be included u/s 5 of the Act. The question is whether the share income

received by the beneficiary is liable to be included for determining the rate purposes in the individual assessment of the beneficiary. There is no

dispute that the trustees were assessed in terms of the provisions u/s 161(1A) of the Act read with 164 of the Act and the tax was levied at the

maximum marginal rate. Section 86 of the Income Tax Act lies under Chapter VII and that Chapter deals with the procedure for assessment of

share of a member of an association of persons or body of individuals in the income of 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 persons or body of individuals, his share shall be taken into

account for rate purposes. Under the proviso to sub-clause (v) of Section 86 where the association or body of individuals is chargeable to tax at

the maximum marginal rate on its total income, the share of a member shall not be included in his total income. It is stated that the representative

assessee was not assessed in the status of association of persons and consequently, the assessee was not a member of association of persons and

not received the share income as a member of association of persons. Therefore, sub-clause (v) of Section 86 of the Income Tax Act is not

applicable and has no application to the facts of the case.

More over, under the proviso to Section 86(i)(v) of the Act, if the association of persons was charged to tax at the maximum marginal rate, then

also, the share income of the member of association of persons shall not be included 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 rate under Sections of 161(1A) and 164 of the Act making it

inapplicable Section 86(1)(v) of the Act.

Therefore, viewed the matter from any angle, the assessee not being a member of association of persons or on the ground that the representative

assessee was already assessed at the maximum marginal rate, the share of benefit received by the assessee from the trust is not liable to be

included even for rate purposes u/s 86 of the Act.

Though, the learned Senior Standing Counsel (Income Tax) referred to Section 5 of the Act and submitted that u/s 5 the share of benefit

received by the assessee is liable to be included as the income of the assessee it is not necessary to consider that aspect. Section 86(i)(v) clearly

excludes the same even for rate purposes. Further Section 5 is also subject to other provisions of the Act, including Sections 66 and 86 of the Act.

Therefore, we do not find any reason to interfere with the order of the Income Tax Appellate Tribunal holding that the share of the benefit

received by the assessee from the trust is not liable to be taken into account for rate purposes.

Consequently, the question of law referred to us is answered in the affirmative, in favour of the assessee and against the Revenue. However, in

these circumstances, there will be no order as to costs.