1. These 4 appeals for financial years 2001-02 to 2004-05 filed by the assessee against the consolidated order of Commissioner (Appeals) passed in Appeal Nos. 125 to 128/06-07, dated 18-10-2006 were heard together and are being disposed off through this single order as the facts and issue involved in the grounds of the appeals are identical except variation in the demands, i.e., of Rs. 1,82,349, Rs. 2,53,113, Rs. 1,95,457 and Rs. 2,52,054 raised during financial years 2001-02 to 2004-05 respectively, for the sake of convenience.
2. The identical grounds of appeal taken by the assessee in the instant appeals are stated as under: 1. That the learned Commissioner has erred in law and on facts in confirming the order made under Sections 201(1) and 201 (1A) read with Section 194A of the Income Tax Act, 1961, by the Income Tax Officer, Tax Deduction at Sources Ward 49(2), New Delhi.
2. That the learned Commissioner has erred in law and on facts in not accepting the proposition that as the status of the Trustees is that of the beneficiaries, the status of the Trust becomes "individual" and accordingly provisions of Section 194A are not attracted.
3. Briefly, the facts relating to the issues involved in the grounds of appeals are that the assessee is a PF Trust of Employees created after seeking exemption under Section 16 of EPF Act. Consequent to the recognition and exemption by PF Commissioner, the Trust was also recognized under the 4th Schedule of Income Tax Act by the Commissioner. Survey proceedings were Conducted in the premises of the assessee and it was seen that interest being credited in the account of ex-employees after cessation of employment part-took the character of interest and as such according to assessing officer the assessee was liable for deduction of tax at source under Section 194A of Income Tax Act, 1961.
4. The assessing officer further noticed that the Trust did not have any TAN number nor was it filing any Tax Deduction at Sources returns.
Hence, according to the assessing officer since the assessee-trust had not deducted tax at source, demands under Sections 201(1) and 201 (1A) for all the above financial years was raised against the assessee.
5. Aggrieved the assessee filed an appeal and submitted before the Commissioner (Appeals) that in the instant cases the department while holding the assessee-trust in default as per the provision of Sections 201(1) and 201(1A) read with Section 194A of Income Tax Act, 1961 has not determined the status of the assessee as per the provisions of Section 2(31) of Income Tax Act, 1961 which gives the definition of the word 'person'. Further, that since the assessee-trust was to be assessed as an individual, so, as per provisions of Section 194A the assessee as an individual cannot be held to be in default for non-deduction of tax at source and, therefore, the demands raised by the department under Sections 201(1) and 201(1A) are liable to be cancelled. In support of the contentions learned authorised representative for the assessee referred to various case laws, as detailed in the order of Commissioner (Appeals).
6. On considering the submissions of the assessee the Commissioner (Appeals) observed that the case law referred to by the learned authorised representative for the assessee in the case of M.L. Family Trust v. State of Gujarat and Income Tax Officer v.Arihant Trust (1995) 214 ITR 3062 (Mad) for the proposition that as the status of the Trustees was that of the beneficiaries, the status of the Trust becomes individual and so the provision of Section 194A were not attracted, were not applicable because the issue under consideration related to tax deducted at source whereas the decisions cited were rendered in the context of prosecution proceedings where an artificial veil was lifted to identify the individuals who had to be prosecuted and further because Section 2(31) of Income Tax Act, 1961 defines 'persons' where individuals and Association of Person etc., are distinctly and categorically mentioned as separate entities. Therefore, considering the decision of Income Tax Appellate Tribunal Delhi Bench dated 29-7-2005 in the case of ONGC v. ITO (2005) 4 SOT 333 (Del), the Commissioner (Appeals) upheld the orders of assessing officer while making following observation: I find that the facts of the instant case are pari materia with the facts of the case of ONGC, in which case Income Tax Appellate Tribunal Delhi has, vide order dated 29-7-2005 given a finding that the appellant fund was liable for deduction of tax at source under Section 194A of the Act in respect of the credits made to the accounts of members of the fund who ceased to be the employees of the trust. Accordingly they held that the assessee was in default under Sections 201(1)/201(1A) for the financial years under consideration. In view of the above, respectfully following the above decision, I am of the opinion that the assessing officer has rightly penalized the assessee for failure to deduct tax under Section 201(1) and consequent liability under Section 201(1A).
Apart from the above I am also of the opinion that if a member of the trust continues his membership after cessation of employment with the trust, any payment due from such a trust would part-take character of interest.
7. Before us learned authorised representative for the assessee first submitted that in case we go through the order of Commissioner (Appeals) it would be revealed that while upholding the order of assessing officer, wherein the assessee-trust was held in default under Section 194A of Income Tax Act, 1961 for non-deduction of tax at source from the interest being credit in the account of ex-employees and raised the impugned demands under Sections 201(1) and 201(1 A), the Commissioner (Appeals) simply placed reliance on the decision of Income Tax Appellate Tribunal, Delhi Bench in the case of ONGC (supra) Delhi observing that the facts of the instant cases of the assessee were pari materia to the facts of the case of ONGC (supra) decided by the Tribunal. Learned authorised representative for the assessee further contended that in the instant cases of the assessee-trust he has raised a legal issue before the Commissioner (Appeals) that without determining the status of the assessee-trust under the provisions of Income Tax Act, 1961 the assessee could not be held to be in default under Section 194A of Income Tax Act, 1961 for non-deduction of tax at source for crediting the interest in the accounts of its ex-employees.
He further contended that since without deciding the status of the assessee the assessing officer could not have held the assessee in default under Section 194A the demand also cannot be raised against the assessee as per Sections 201(1) and 201(1 A) of the Income Tax Act, 1961.
8. Further, since the issue of determination of status of the assessee was neither contested before the Tribunal in the case of ONGC (supra) nor the Tribunal adjudicated upon the issue of the status of assessee-trust in the case (supra) the Commissioner (Appeals) was not justified in following the order (supra) of the Tribunal without adjudicating the issue regarding the status of the assessee-trust before holding it in default under Section 194A of Income Tax Act, 1961. Learned authorised representative for the assessee further contended that since the various judicial authorities have held the status of such assessee-trusts as individuals the assessee was not required to deduct the tax at source as per provisions of Section 194A of the Income Tax Act, 1961 and no demand under Sections 201(1) and 201(1A) should have been raised against the assessee and hence the Commissioner (Appeals) was not justified in upholding the orders of assessing officer.
9. On the other hand the learned Departmental Representative for the revenue submitted that since the assessee-trust was a statutory Trust it was bound under Section 194A of Income Tax Act, 1961 to deduct tax at source as it was in the status of Association of Person which was covered under the definition of 'person' as provided under Section 2(37) of Income Tax Act, 1961. Further, since the assessee has not deducted tax at source under Section 194A it was in default and the tax authorities have rightly created a demand under Sections 201(1) and 201(1 A) of Income Tax Act, 1961. However, in support of the contentions the learned Departmental Representative has not been able to cite any case law.
10. We have considered the rival submissions of both the parties, perused the record and carefully gone through the order of the tax authorities below as well as the case law relied upon by the learned authorised representative for the assessee. In Section 2(31) the word "person" is defined as under: (v) an association of persons or a incorporated or not, body of individuals, whether (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.' Any person, not being an individual or a Hindu Undivided Family, who is responsible for paying to a resident any income by way of interest other than income (by way of interest on securities), shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.
12. On a conjoint reading of these sections it is clear that before holding the assessee in default under Section 194A we have to first determine and adjudicate upon the status of the assessee-trust as a "person" as given in Section 2(31) because as per Section 194A "Any person" who is an individual or a Hindu Undivided Family is not liable to deduct income-tax at source from the payment of interest. In the instant case from the orders of assessing officer as well as from the order of Commissioner (Appeals) we find that the tax authorities below have not determined the status of the assessee-trust before holding the assessee in default for non-deduction of tax at source as provided under Section 194A of Income Tax Act, 1961. Similarly, on examining the order of the Tribunal in the case of ONGC (supra) we find that neither this plea of determining the status of the assessee-trust as a 'person' under Section 2(31) was raised nor the same was determined by the Tribunal while disposing off that appeal (supra) by holding that the assessee was in default under Section 194A and, therefore, that decision (supra) of the Tribunal cannot be considered and applied in the instant cases when the specific legal issue regarding the determination of the status of the assessee-trust has been raised by the assessee before us as well as before the Commissioner (Appeals), more so, when the jurisdictional High Court of Delhi in the case of CIT v. SAE Head Office Monthly Paid Employees Welfare Trust (2004) 141 Taxman 364 while deciding the point regarding the computation of income of the assessee-trust held as under: Section 164 would come into play only after the income has been computed in accordance with other provisions of the Act. Since the determination of the status of an assessee is a part of the process of computation of income, it is necessary to look into the general principles for determining whether the status of the trustees can be taken to be as 'association of persons' or as 'individual'. Section 164(1) only lays down the rate of tax applicable to discretionary trust. It is not concerned with the manner of computation of the total income.
13. In this very decision their Lordships while determining the status of the assessee.-trust further held that - 'mere fact that the beneficiaries or the Trustees, being representative assessees, were more than one, could not lead to a conclusion that they constituted an association of persons'. Their Lordships further held that "assessee-trust" would be treated as individual. Similarly, in the case of Niti Trusty. CIT their Lordships held that "the assessing officer was required to determine the status of the assessee first and only after determining the status of the assessee the assessing officer shall proceed further with the assessment.
He cannot proceed ahead without determining the status of an assessee and that is not the scheme of the Act." 14. In this very decision their Lordships further held that the Trust was to be assessed as an individual for all purposes.
15. Similarly, Hon'ble Calcutta High Court in the case of CIT v. Shri Krishan Bandar Trust held that discretionary Trust is assessable as 'an individual' and not as 'Association of Persons'.
16. Hon'ble Gujarat High Court in the case of CIT v. Deepak Family Trust (1994) 72 Taxman 406 (Guj), held that the status of the Trustees of discretionary Trust have to be assessed in the status of 'individual' and not in the status of 'Association of Persons'.
17. Similarly, their Lordships of Gujarat High Court in the case of M.L. Family Trust (supra) held that beneficiaries were individuals hence the status of the Trustees would be that of the individuals and Section 194A of Income Tax Act, 1961 would not apply to them and there was no question of deduction of tax from the interest amount credited to the accounts of the payees or of paying the tax after deduction. The status of the trustees would be that of individuals. Section 194A of the Income Tax Act, 1961, would not apply to them and there was no question of deduction of tax from the interest amount credited to the account of payees or of paying the tax after deduction.
18. In the case of Arihant Trust (supra) it was held that the status of the trust remained unchanged and it had to be treated as the same individual under Section 194A of the Act also. As an individual was exempted under Section 194A, the department could not prosecute the trust and its trustees for failure to deduct tax at source.
19. In CIT v. T.S.R. Enterprises their Lordships while observing that under Section 161 of the Income Tax Act, 1961, the tax shall be levied upon and recovered from a trustee in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. In other words, income which comes to the share of a beneficiary has to be assessed as if it were the income of the beneficiary, and tax has to be levied accordingly.
Section 161(1) makes no distinction between the business income of a trust and any other income of a trust. Hence, all kinds of income of a trust have to be assessed under Section 161 and held that the Trustees cannot be assessed as an 'association of persons'. From the ratio of the decisions (supra) it is clear that the determination of the status of an assessee-trust as a person in accordance with Section 2(31) of Income Tax Act, 1961 is a prerequisite before coming to a conclusion whether the assessee has committed a default under Section 194A of the Income Tax Act, 1961. Further, from the ratio of the decisions (supra) it is clear that the status of the assessee-trust is that of an individual. As per relevant provision of Section 194A(1) any person in the status of an individual is not liable to deduct tax at source for paying to a resident any income by way of interest while crediting such income to the account of the payee. From the discussion hereinabove it is evident that the assessee-trust as an individual was not duty bound to deduct any income-tax at source as per provisions of Section 194A(1) and, therefore, the-assessee-trust cannot be held to be in default under Section 194A of the Income Tax Act, 1961. The demands raised under Section 201 and 201(1A) for financial years 2001-02 to 2004-05 by the assessing officer and sustained by Commissioner (Appeals) are, therefore, liable to be cancelled and the same are cancelled accordingly. Consequently, the orders of tax authorities below in making/sustaining the impugned demands under Section 201 and 201(1A) of Income Tax Act, 1961 read with Section 194Aof Income Tax Act, 1961 are set aside and the grounds of appeals taken by the assessee are allowed.
20. In the result the instant 4 appeals filed by the assessee are allowed.