1. These are three appeals by three identical trust-assessees, relating to their income-tax assessments for the year 1978-79, argued by the same counsel and the same departmental representative. With the consent of the parties the appeals relating to all the three assessees are disposed of by this common consolidated order, as the facts and circumstances from which the dispute arises are identical.
2. The common ground of facts on which the dispute arises are that the assessee-trust in each case is a discretionary trust as shares of the beneficiaries, there being more than one beneficiary, are not determinate or known. During the relevant previous year, the trustees in each case were also more than one. We have been furnished with copies of the trust deed in each case.
3. The assessee claimed in the assessment for the year 1978-79 appropriate relief under Section 80L of the Income-tax Act, 1961 ('the Act'), in regard to its income derived by way of dividend and interest.
The ITO rejected the assessee's claim for deduction under Section 80L on the ground that the assessee having regard to its status is not eligible for such deduction and his action has been upheld by the AAC.Aggrieved by his order, the assessee in each case is in further appeal before the Tribunal.
4. The dispute in this case turns entirely on the construction of the provisions of Section 80L and the determination of the status of the assessee, as no other facts or figures are disputed. Before we refer to the submissions of the parties and consider them, we may as well refer to the provisions of Section 80L which states that where the gross total income of an assessee, being (a) an individual, or (b) a Hindu undivided family, or (c) an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, includes any income by way of certain items stated in Sub-clauses (i) to (ix), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction as specified therein. It is also not in dispute between the parties that the assessee would otherwise be entitled to the deduction in accordance with Section 80L as the income derived by the assessee falls in one or more categories specified in Sub-clauses (i) to (ix) of Sub-section (1) of Section 80L. The dispute is as to whether the assessee can be said to fall in any of the categories mentioned in Clauses (a), (b) and (c) of Sub-section (1) of Section 80L. The department appears to have made the assessment in the status of association of persons, but the stand of the department is that it is not an association of persons as contemplated by Clause (c), according to which an association of persons to fall within that clause must consist only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu. The assessee not being an association of persons of that description, it is held by the department that it is not eligible for the deduction under section SOL.
5. The learned counsel for the assessees in support of the appeals contended before us in the first place that the status in the present case should be determined as 'individual' and as Section 80L deduction is admissible to an individual, the assessee is entitled to the claim for deduction. He submitted that it is also a most important question as to whether the expression 'association of persons' in Section 80L, Clause (c), refers to only an association of persons consisting only of husband and wife governed by the system of community of property, etc., as contended by the department, because it is also possible to contend that the words 'consisting only of husband and wife governed by the system of community of property', etc., govern only the expression 'a body of individuals' and not 'an association of persons'. But he did not pursue this line of argument further as he conceded that there are orders of the Tribunal holding that the expression 'association of persons' mentioned in Clause (c) must be of the type consisting of husband and wife governed by the system of community of property, etc.
He merely stated that, he, however, does not wish to give up the assessee's stand in this connection that the qualifying words 'consisting only of husband and wife, etc' only govern 'body of individuals' and not an association of persons. It is argued that the determination of status should be with reference to the beneficiaries and the beneficiaries in the present case cannot be regarded as an association of persons according to the test laid down by the Supreme Court and consequently the beneficiaries should be regarded as one unit and the assessment be made in the status of an individual, with the result that the relief contemplated by Section 80L is available to the assessee. Reliance was also placed on behalf of the assessee on the order of the Tribunal, Bench 'D', Madras dated 30-6-1980 [IT Appeal Nos. 790 and 791 (Mad.) of 1979] in the case of Venu Suresh Sanjay Trust and other similar trusts.
6. The learned departmental representative supported the rejection of the assessee's claim for deduction under Section 80L contending that the real status that should be held to be applicable and should have been adopted in this case is the status of 'body of individuals' although the ITO has stated the status in the assessment order as association of persons because it is pointed out that the rate of 65 per cent has been adopted and not the rate applicable to an association of persons. If the correct status in the assessee's case is 'body of individuals' as contended by him, the departmental representative further contended that as a consequence it must follow that the assessee being a body of individuals and not of the description contained in Section 80L, Clause (c) is not eligible for deduction under that section.
7. We have carefully considered the rival contentions of the parties and the provisions of Section 80L as well as Section 164 of the Act. It is not necessary for us to go into the question as to whether the words 'consisting only of husband and wife governed by the system of community of property in force' in the territories stated in Clause (c) would or would not govern the expression 'an association of persons' also, as we are not called upon to decide the issue in view of the fact that the assessees' counsel practically conceded that there are decisions against this claim and his submission in this respect is that he does not wish to give up the contention. It is nobody's case that the assessee's status falls either under Clause (b) of Section 80L which refers to a HUF or under Clause (c) as representing body of individuals consisting only of husband and wife governed by the system of community of property, etc., as stated therein. The sole question, therefore, that arises for consideration in the dispute between the parties is as to whether the status of the assessee has to be determined as an individual or not. It was pointed out by the learned departmental representative in the course of the hearing that the order of the Tribunal relied on by the assessee had been distinguished by the AAC and the distinction made by him is that whereas in the case considered by the Tribunal in IT Appeal Nos. 790 and 791 (Mad.) of 1979 and other similar cases there was only one trustee, in the case of the present assessees there were three trustees during the relevant previous year. The Tribunal in the said order upheld the assessee's claim for relief under Section 80L on the ground that there being only one trustee, the status has to be determined as an individual.
8. For the purpose of determining the issue, it is necessary to consider in the first place the nature of an assessment in the case of a trust. The Supreme Court in CWT v. Trustees of H.E.H. Nizam's Family [1977] 108 ITR 555 was considering such a question. The case of course arose under the provisions of the Wealth-tax Act and the sections that came to be considered are Sections 3, 21(1) and 21(4) of that Act. It was noticed in that decision that Section 21(1) of the Wealth-tax Act is analogous to Section 41(1) of the Indian Income-tax Act, 1922 and the only difference was whereas Section 21(1) of the Wealth-tax Act deals with assets, Section 41(1) of the Indian Income-tax Act, 1922, deals with income and, therefor, decisions under Section 41(1) of the Indian Income-tax Act, 1922, are relevant for considering the provisions of Section 21(1) of the Wealth-tax Act. The nature of assessment on a trust under the current Act contained in Section 164 are substantially the same as that governed by Section 41(1) of the Indian Income-tax Act, 1922 and, therefore, the observations of the Supreme Court in this case are quite relevant for determining the issue before us. The first principle stated in regard to an assessment on a trustee is that the assessment should be made in accordance with the provisions of Section 21(1) of the Wealth-tax Act (section 161 or 164 of the Act in the present case). The second point brought out is that the assessment which is contemplated to be made is an assessment in a representative capacity as it is really the beneficiaries who are sought to be assessed in respect of their interest in the trust properties through the trustee. Referring to the provisions of the Act in regard to a liability of the trustee to tax where there is a single beneficiary or where there are more beneficiaries than one, but individual shares of the beneficiaries in the properties are determinate and known as identical to the liability to; wealth-tax if the beneficiaries were to be assessed direct and the liability in a case where the beneficiaries are more than one and their shares are indeterminate or unknown it is observed that what is taxed is the interest of the beneficiary and in the case where the beneficiaries are more than one and the shares are not determinate or known the beneficial interest is treated as if it belongs to one individual beneficiary and the assessment is made on the trustee in the same manner and to the same extent as it would be on such a fictional beneficiary (sic). It is further observed in this decision at page 595 that one of the necessary consequences that flow from the proposition laid down in the provision that the trustee is assessable in the like manner and to the same extent as the beneficiary, is that the assessment of the trust would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee. This is a vital aspect so far as the present case is concerned because in determining the status in the present case we have to have regard only to the beneficiary and not the trustee as seems to have been considered by the departmental authorities in this case and also by the Tribunal in the order of the Madras Bench 'D', relied on by the assessee. It follows, therefore, that it is immaterial whether there is a single trustee or more than one trustee in considering the question of determination of the status which has to be determined solely with reference to the beneficiary or beneficiaries.
In the Supreme Court decision there is a reference to the fictional beneficiary introduced in sectiorf 21(1) of the Wealth-tax Act itself, where it is provided that the assessment may be made Ton the trustee as if the beneficiaries for whose benefit the trust properties are held were an individual in a case where the shares of the beneficiaries were not determinate or known. In the Act, however, the concept of fictional beneficiary introduced in Section 164(1) is somewhat different. It provides that the tax governed by the provisions of that section shall be charged : (i) as jf the relevant income or part of relevant income were the total income of an association of persons, or (ii) at the rate of 65 per cent, whichever course would be more beneficial to the revenue. It was the submission of the learned counsel for the assessee that the fictional status declared in Clause (i) as an association of persons is only for the purpose of determining the amount of tax payable and not for the purpose of determining the status making the assessment, which must be governed otherwise than by reference to this provision. According to him, the only status that can be attributed in the present case where the shares of the beneficiaries are not determinate or known is that of 'individual'. This submission of the learned counsel for the assessee is not, however, directly supported by the decision of the Supreme Court in the case of Trustees of H.E.H.Nizam's (supra), because the purport of the decision is that the assessment under Section 21(1) of the Wealth-tax Act, which corresponds to Section 164 of the Act is really an assessment in the hands of the trustee of the interest of the beneficiary or beneficiaries and one of the consequences of the assessment under that section is that the status should be with reference not to the trustee or trustees, but with reference to the beneficiary or beneficiaries, that in the case of a trust where there are more beneficiaries than one and their shares are not determinate or known the status has to be determined with reference to the fictional beneficiary introduced in the section, namely, the individual, under the provisions of the Wealth-tax Act is considered in the decision (sic). It would, therefore, appear that in the present case if a notional beneficiary can be said to be indicated under Section 164(1) then obviously the status has to be determined with reference to the status of such notional beneficiary. Going through the provisions of Section 164(1) it is seen that a notional beneficiary is indicated only in regard to cases covered under Clause (i) which reads "as if the relevant income or part of the relevant income were the total income of an association of persons,...". Clause (ii) which provides for determination of tax at 65 per cent does not indicate any notional status, but it is obvious that it cannot take in the status under Clause (i) because the two clauses are obviously indicated as alter-native and in the very nature, having regard to the language employed, are mutually exclusive, i.e., the revenue is required to adopt only that mode of assessment as between Clause (i) and Clause (ii) which is more beneficial to the revenue. It, therefore, follows that if the assessment is made with reference to Clause (i) as an association of persons then obviously the assessment is not made with reference to Clause (ii) as that would be less beneficial to the revenue. Similarly, if the tax is levied at the rate of 65 per cent, it follows that the assessment is not made on the relevant income of the trust as if it was income of an association of persons. In other words, when the tax is levied at the rate of 65 per cent under Clause (ii) then the status adopted in the assessment is not obviously that of an association of persons. The question that still remains to be considered, therefore, is as to the status of the assessee when the assessment is sought to be made, as in the present case, determining the rate of tax at 65 per cent. Since in such a case there is no indication of a fictional beneficiary for adoption of the status with reference to such beneficiary, we have to go by the general law otherwise applicable for determining the status. In the present case, when there are more beneficiaries than one and when their shares are not determinate or known, the only two remaining status that has to be adopted are, namely, the status of individual or the status of body of individuals? The status of association of persons is ruled out not only by the implication of Section 164(1), Clauses (i) and (ii), by adoption of the rate of tax at 65 per cent by the department, but also because the beneficiaries cannot be said to form an association of persons judged by the tests laid down in a number of decisions of the Supreme Court starting with CIT v. Indira Balkrishna [1960] 39 ITR 546 because it cannot be said that the beneficiaries have joined together in a common purpose or common action the object of which is to produce income, profits or gains. As regards the status of body of individuals also, according to the decision of the Madras High Court in CIT v.Deghamwala Estates [1980] 121 ITR 684 the mere collection of individuals without a common tie or common aim cannot be taken to be a body of individuals falling within Section 2(31) of the Act. It is observed in this case that Section 47(2) of the Act appears to give a clue to the interpretation of the body of individuals when it contemplates that the body of individuals whether incorporated or not must be capable of ridding properties as an entity and of distributing them at the time when it dissolves. A common purpose, a common tie, actual or potential capacity to hold properties or disposable income, it was observed, would be a minimum requirement of a body of individuals. In the present case, these attributes cannot be said to be fulfilled with reference to the beneficiaries under the three trusts.
Except that they are beneficiaries under a common fund of the trust, they have no other capacity or potentiality to hold or dissolve the fund. We must, therefore, hold that the status in the assessment cannot be that of body of individuals. It is held in a number of decisions of the Supreme Court that the word 'individual' has not been defined in the Act and there is authority for the proposition that the word 'individual' does not mean only a human being, but is wide enough to include a group of persons forming a unit. It has been held that the word 'individual' includes a corporation created by statute, e.g., a university, a Bar Council or the trustee of a baronetcy trust. (See the decisions in CIT v. Sodra Devi [1957] 31 ITR 615, Sri Sri Sridhar Jiew v. ITO [1967] 63 ITR 192, etc.) We, therefore, hold that the correct status of the three assessees in this case in respect of whom undisputedly tax has been levied at the rate of 65 per cent by virtue of Clause (ii) of Section 164(1) is 'individual'. Since an assessee with the status of 'individual' is entitled to a relief under Section 80L, it must follow that each of the three assessees in the present case is entitled to the relief according to Section 80L. We must make it clear that we have not expressed any opinion of finding in a case where the revenue has adopted the status of 'an association of persons" by reference to Clause (i) of Section 164(1) under the option available to it (sic), because as we have already pointed out, in the present case, the revenue has adopted the alternative flat rate of 65 per cent.
It is possible that even in the case of the same assessee the revenue may find it necessary in some of the years to adopt the rate provided by the option in Clause (i), in which case different considerations may arise and possibly the revenue's stand may be vindicated having regard to the concession made by the learned counsel that the association of persons contemplated by the provisions of Section 80L(3) is one made up of husband and wife governed by the community of interest as stated therein. Our finding, therefore, must be held to be confined to the assessment for the year under appeal before us.
9. In the result, the claim of each of the assessees is accepted and the revenue authorities are directed to grant appropriate relief under Section 80L. The appeals are allowed.