S.H. Kapadia, J.
Being aggrieved by the decision of the department to re-open assessment vide impugned notice dated 28-3-2002 under section 148 of the Income Tax Act, this petition has been moved under article 226 of the Constitution. In this petition, we are concerned with alleged escapement of income for assessment year 1995-96.
Facts
2. M/s. L.R. Patel Family Trust was owning a flat bearing No. 14-B in Sterling Co-operative Housing Society Limited, Mumbai which was handed over to the beneficiaries when the trust was put to an end. This was on 14-4-1994. Subsequently, on 14-9-1994, the said flat was sold for Rs. 4.81 crores. Under the above circumstances, the assessing officer has purported to re-open the assessment by invoking section 45(4) of the Act. According to the assessing officer, on the dissolution of the trust, capital assets came to be distributed to the beneficiaries and, therefore, profits arising from the transfer of such capital assets by way of distribution was chargeable to tax as the income of the trust of the previous year in which the transfer took place i.e., during the assessment year in question, Accordingly, the notice has been issued under section 148 of the Income Tax Act on 28-3-2002. Being aggrieved, the petitioners have filed this petition.
Arguments
3. Mr. Mistry, learned counsel appearing on behalf of the petitioner submitted that the key issue involved in this petition is : whether section 45(4) is at all attracted. He contended that section 45(4) would apply only if profits arose from the transfer of a capital asset by way of distribution on the dissolution of a Firm or Association of Persons (hereinafter referred to as AOP) or Body of Individuals (hereinafter referred to as BOI). That, in this case, the assessing officer has sought to re-open the assessment on the ground that the trustees constituted association of persons as defined under section 2(31)(v). Mr. Mistry placed reliance on the judgment of the Bombay High Court in the case of CIT v. Marsons Beneficiary Trust : [1991]188ITR224(Bom) . He also relied upon the judgment of the Bombay High Court in the case of Director of Income Tax v. Shardaben Bhagubhai Mafatlal Public Charitable Trust (2001) 247 ITR 1 . He submitted that in the aforestated two judgments it has been held that the trustees were not assessable as association of persons. That, they were individuals and, therefore, the trustees did not fall under section 2(31)(v).
Mr. R.V. Desai, learned senior counsel appearing on behalf of the revenue, however, contended that under section 164(1) of the Act, where any income arises to the persons mentioned in section 160(1), then such persons were liable to be taxed as representative assessee. That, in the present case, the trustees fell within the definition of the expression 'Representative Assessee' as defined under section 160(1)(ii) under which a representative assessee included a trustee appointed under a trust. He, therefore, contended that in this case, the department was right in re-opening the assessment.
Findings
4. Firstly, on facts, it may be mentioned that the trust in the present case, is a fixed trust and not a discretionary Trust and, therefore, section 164(1), relied upon by the department, has no application. Secondly, in this case, section 164 has no application. That section only makes the trustees assessable, which is not the issue before the court. The only issue which arises for determination is : whether section 45(4) applies to the facts of this case. That section would apply only if the trustees constitute association of persons. Basically, in order to constitute an association of persons, persons must come together with the object of earning profits. In the case of Marsons Beneficiary Trust (supra), it has been held by the Bombay High Court that the trustees who are authorized to carry on business under the trust deed derive their authority from the settlor and not from the beneficiaries and. therefore, the trustees cannot be considered as association of persons or BOI. This judgment applies to the facts of our case. In the present case, therefore, the trustees cannot be assessed as association of persons and consequently, section 45(4) will have no application. Accordingly, we set aside the impugned notice.
Conclusion
5. Rule is made absolute in terms of prayer clauses (a) and (b). No order as to costs.