Thanikkachalam, J.
1. At the instance of the Revenue, the Tribunal referred the following common question for the asst. yrs. 1974-75 and 1975-76 for opinion of this Court under s. 256(1) of the IT Act, 1961 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to deduction under s. 80L, even while agreeing with the view taken by the Department that the income computed in the assessee's case will be liable to tax under s. 164(1) treating such income as the total income of an AOP ?'
2. Six reference applications were filed by the CIT, Madurai, seeking to raise two questions said to be questions of law arising out of the common order of the Tribunal in ITA Nos. 790, 791 and 795 to 798 (Mad) of 1979, dt. 30th June, 1980, in the case of three trusts, viz., Venu Suresh Sanjay Trust, Venu Suresh Ramya Trust Madurai, and Ramesh Mahesh Radha Trust, Madurai, for the asst. yrs. 1974-75 and 1975-76. Even though two questions were sought to be raised, the Tribunal referred only one question which would be comprehensive enough to satisfy both the questions.
3. The assessee is a public trust of which Shri T. S. Krishna was the trustee. It is common ground that it is a discretionary trust in view of the fact that the shares of the beneficiaries are not ascertainable. Though the trusts are different trusts, this fact is common. The issue that arose for consideration was, whether the assessee would be eligible for relief under s. 80L of the IT Act, 1961 (hereinafter referred to as 'the Act'). The ITO was of the view that the assessee's status should be an AOP because there is more than one beneficiary whose share in the trust is not definite. Since the assessee admittedly is not an AOP envisaged under s. 80L(1)(c) and is not an individual or an HUF, the assessee is not eligible for the relief. The ITO relied on s. 164(1) which specifically stipulated that where the shares of the beneficiaries are not definite, the tax has to be charged 'as if the relevant income or part of relevant income were the total income of an AOP or at the rate of sixty-five per cent., whichever course would be more beneficial to the Revenue'.
3A. On appeal, however, the AAC accepted the assessee's contention and granted relief under s. 80L of the Act. On further appeal, the Tribunal in a common order found that s. 164 of the Act is not an independent section and does not determine that status of the assessee, but merely imposes a liability at the same rate of tax as an AOP. The Tribunal was of the view that the reading of ss. 160, 161 and 162 reveals that the assessee is a representative-assessee and that such representative-assessee has to be an individual or an artificial juridical person, who is also equated with an individual. The trustee acts for each individual beneficiary and is responsible for the tax liability of such an individual. The assessment is, therefore, to be made on the trustee as an individual in his representative capacity. The fact that in these cases, the beneficiaries are groups of individuals does not mean that the liability of the assessee is as an AOP. Finally, the Tribunal held that the assessee is entitled to the benefit under s. 80L of the Act while determining the total income. Accordingly, the orders passed by the AAC were confirmed.
4. Learned standing counsel appearing for the Department submitted that the assessee was an AOP and, therefore, it was not entitled to deduction under s. 80L, which according to leaned counsel is admissible only in the case of individuals, HUFs and AoPs or BOI 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. Learned standing counsel further submitted that the assessee was neither an individual nor an a HUF, nor an AOP or BOI of the type referred to above. According to learned counsel, the AOP referred to in s. 80L was the one which consisted 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 and not to any other AOP. It was further submitted that since the assessee was assessed in the status of an AOP other than the AOP referred to in s. 80L and was also not governed by the terms 'individuals' or 'HUF' it was not entitled to deduction under s. 80L. When the provisions of s. 164 made applicable, in the case of the assessee, the assessment should be made in the status of an AOP and there is no scope for other consequences.
5. On the other hand, learned counsel for the assessee submitted that the AOP referred to in s. 80L was not the one governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, but was only an AOP. According to learned counsel, a plain reading of s. 80L(1)(c) will show that the AOP or a BOI referred to therein is one consisting only of the 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. It was further submitted that even though by virtue of the provisions contained in s. 164(1)(i) the income of a trust where the individual shares of the beneficiaries are not determinate has to be taxed as if it were the total income of an 'AOP' this would not imply that the status of the trust has to be taken as an AOP. According to learned counsel, the status of the trust is to be governed by the trustee dependent upon his status. In the present case, there is one trustee, i.e., T. S. Krishna, who is an individual. It was, therefore, urged that the status for the purpose of making the assessment has to be that of an individual and it is only by fiction of law created by virtue of the provisions contained in s. 164(1)(i) that tax has to be calculated as if the total income was the total income of an AOP. Viewed from this angle, the assessee claimed that since the trustee was an individual and assessment has to be made in the status of an individual, deduction under s. 80L is admissible and should have been so held by the ITO. Learned counsel for the assessee also contended that even though the status in the return of income filed was wrongly stated as an AOP, it did not preclude the assessee from claiming a correct status before the IT authorities. According to learned counsel, the assessee has to be treated as an individual for all purposes, i.e., for computing the income as well the status and not merely for the purpose of calculating the tax. It was further submitted that it is well-settled that the legal fictions are created only for some definite purpose and this must be limited to that purpose and should not be extended beyond that legitimate field.
6. The references relate to three assessees each for the asst. yrs. 1974-75 and 1975-76. A new trust was created by a deed of settlement dt. 19th March, 1973. The trust was intended to provide funds to be applied for certain beneficiaries mentioned in the trust deed. T. S. Krishna was appointed as a trustee. It is common ground that between both the parties the shares of beneficiaries are not determined and, therefore, tax has to be charged in view of the provisions contained in s. 164(1)(i), i.e., as the relevant income of the trust was the total income of an AOP. The income of the trust included income of dividends and interest. Deduction under s. 80L was claimed which has not been allowed by the ITO. According to the ITO, in view of the decision of the Gujarat High Court in the case of CIT vs . Smt. Kamalini Khatau : [1978]112ITR652(Guj) , the assessee is not entitled to get deduction under s. 80L. According to the ITO the assessee was neither an individual nor an HUF nor an AOP or BOI of the type referred to in s. 80L of the Act. The AOPs referred to in s. 80L was the one which consisted 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 and not to any other AOP.
7. According to the Department, the assessee was assessed in the status of an AOP other than the AOP referred to in s. 80L and was also not governed by the terms 'individuals' or an HUF, it was not entitled to deduction under s. 80L. But, according to the assessee, the status of the trust is to be governed by the trustee depending upon his status. Therefore, the status for the purpose of making the assessment has to be that of an individual and it is only by fiction of law created by virtue of the provisions contained in s. 164(1)(i) the tax has to be calculated as if the total income was the total income of an AOP. In the present case, it was the trustee who received and controlled the income and it was also contended that the trustee could not be treated as a representative-assessee. There was no dispute regarding the status of the assessee who was an individual. The assessee in the present case is not governed by the system of community of property in force in the Union Territories of Dadra and Nagar Haveli and Goa, Daman and Diu.
8. In G. Murugesan Bors. vs . CIT : [1973]88ITR432(SC) and CIT vs . Indira Balkrishna : [1960]39ITR546(SC) , the Supreme Court has held that for forming an AOP, the members of the association must join together for the purpose of deriving any income. An AOP can be formed only when two or more individuals voluntarily join together for a certain purpose and use of volition on the part of the members of the association is an essential ingredient and even a minor can join an AOP if his lawful guardian gives his consent. In the present case it was pointed out that there was no volition on the part of the beneficiaries who form an AOP or between the beneficiaries or the trustee. There is no volition on the part of the beneficiaries to come together for sharing the benefits from the trust or between the beneficiaries or the trustee. Therefore, according to the assessee, no association as such has come into being in this case. In the decision reported in the case of CIT vs . Deghamwala Estates : [1980]121ITR684(Mad) , reference was made with regard to the ingredients of an AOP while making a distinction between an AOP and BOI. Under the scheme of the IT Act, assessments have to be made on certain categories of persons either directly or in a representative capacity. Where assessments have been made in the representative capacity the assessees are known as representative-assessees. Representative-assessees have been defined in s. 160 of the Act. Liabilities of the representative-assessees are given in s. 161. Rights of the representative-assessee are given in s. 162. Sec. 164 deals with the case of a trust for the purpose of charging tax where the shares of the beneficiaries are unknown. A plain reading of ss. 160 to 162 would go to show that a representative-assessee has either to be an individual or an artificial juridical person, who is also equated with an individual. Under s. 160(1)(iv) it is the trustee, who is the representative-assessee. The trustee, therefore, has to be an individual or group of individuals. Sec. 161 provides that every representative-assessee, as regards the income in respect of which he is a representative-assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were the income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income. The rights of the representative-assessee discussed in s. 162 are similarly enforceable by the individual though in a representative capacity. The status of a representative-assessee has, therefore, to be determined depending upon the personality of the individual. This is further strengthened from the language of ss. 161 and 162 that, that liabilities and rights are enforceable against and by the individuals though in a representative capacity. Having determined the status under s. 161, sub-s. (1) of s. 161 provides that the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. Therefore, the tax shall be levied subject to the other provisions contained in this Chapter. Sec. 164(1) is subject to the provisions contained in s. 161(1). Sec. 164 clearly omits from its provisions s. 161 which further strengthens that s. 164(1) does not supersede s. 161 or s. 162. A reading of s. 164(1)(i) would go to show that it is by fiction of law that the income of the beneficiary is to be treated as income of an AOP for the purpose of charging tax. This legal sanction is available only for the purpose of charging the tax on the total income that is determined in the case of a trust.
9. In CIT vs . Kamalini Khatau : [1994]209ITR101(SC) , the Supreme Court while considering the provisions of ss. 4, 5, 160, 161, 164 and 166 of the Act in answering the question whether the Revenue has an option to assess and recover tax from either the trustees or the beneficiaries of a discretionary trust when the income thereof is distributed and received by the beneficiaries in the accounting year under consideration held as follows :
'Sec. 164 states that where any income in respect of which a trustee is liable as representative-assessee is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or part thereof is receivable are indeterminate or unknown, tax shall be charged as if such income were the total income of an AOP or where such income or part thereof is actually received by a beneficiary, then at the rate applicable to the total income of the beneficiary if such course benefits the Revenue. Put differently, s. 164 states that tax shall be levied upon the income of a discretionary trust as if it were the total income of an AOP, except that if it or part of it is actually received by a beneficiary it or that part of it become chargeable to tax at the rate applicable to the total income of the beneficiary if that course is beneficial to the Revenue. Sec. 164 does not create a charge on the income of a discretionary trust. The word 'charged' in the context in which it is used in s. 164 means only 'levied'. Sec. 164 does not make the trustee of a discretionary trust liable to assessment or the recovery of tax on the income of the trust. Sec. 164 harks back to s. 161 when it refers to 'persons.... liable as representative-assessees'. It is s. 161, therefore, which has to be read to make the trustee even of a discretionary trust liable to assessment and recovery of tax on income received by him as a trustee. Further, s. 161, as pointed out above, protects the representative-assessee by stating that assessment upon him shall be deemed to be only in his representative capacity, by mandating that tax can be levied upon and recovered from him only in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him and by stating that he may not be assessed under any other provisions of the Act. Sec. 164 does not give any of these protections, as, clearly, they must be given to all representative-assessees.
The liability of a trustee of a discretionary trust to be assessed to tax in respect of its income and to recovery thereof is created by s. 161 and it also states that he is not liable to such assessment under any other provisions of the Act. Sec. 164 sets out only how such tax shall be charged when the income is not distributed and when the income is distributed.'
In the abovesaid decision, the judgment of the Gujarat High Court reported in CIT vs. Kamalini Khatau (supra) was reversed.
10. In the case of CIT vs . Shri Krishna Bandar Trust : [1993]201ITR989(Cal) , the Calcutta High Court while considering the provisions of ss. 2(31) and 164 of the Act held that before the amendment in 1980, the provisions of the IT Act, 1961, created by a fiction whereby, in the case of a discretionary trust, the exigible tax was the tax payable by an AOP or at the rate of 65 per cent., whichever course would be more beneficial to the Revenue. The amendment effected by the Finance (No. 2) Act, 1980, has done away with the deeming provisions whereby a trust, under s. 164(1), could be assessed as though it were an AOP. Where, however, a case falls under sub-s. (2) of s. 164, the tax is chargeable as if the income to be charged were the income of an AOP. But the fiction of an AOP as contained in sub-s. (2) or, for that matter, sub-s. (3) of s. 164 relates only to a charitable or public religious trust but not to a discretionary private trust dealt with by sub-s. (1) of s. 164. Sec. 164(1) only lays down the rate of tax applicable to a discretionary trust. It is not concerned with the manner of computation of total income. In fact, this section comes into play only after the income has been computed in accordance with the other provisions of the IT Act, 1961. 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 of a discretionary trust can be taken to be as 'an association of persons' or as 'individual'. It is now well-settled that the word 'individual' does not necessarily and invariably always refer to a single natural person. A group of individuals may as well come in for treatment as an individual under the tax laws if the context so requires. The word 'association' means 'to join in any purpose' or 'to join in action'. Therefore, 'AOP' as used in s. 2(31)(v) of the IT Act, 1961, means an association in which two or more persons join in a common purpose or common action. The association must be one the object of which is to produce income, profits or gains. In the case of a discretionary trust, neither the trustees nor the beneficiaries can be considered as having come together with the common purpose of earning income. The beneficiaries have not set up the trust. The trustees derive their authority under the terms of the trust deed. Neither the trustees nor the beneficiaries come together for a common purpose. They are merely in receipt of income. The mere fact that the beneficiaries or the trustees, being representative-assessees, are more than one, cannot lead to the conclusion that they constitute 'an association of persons'. The trustees of a discretionary trust have to be assessed in the status of an 'individual' and, consequently, deduction under s. 80L of the IT Act, 1961, was allowable. [see pp. 994D, G, H, 992F, G, 993E, F, 992H, 993A, B, 995A - as can be seen from the head not e (of ITR)]
11. Similarly, in the case of CIT vs. Deepak Family Trust No. 1, while considering the provisions of s. 80L with reference to s. 164 of the Act, the Gujarat High Court held the contention that if the case of a representative-assessee is covered by s. 164, then cl. (iv) of s. 160(1) indicates that in such cases one has to proceed on the basis that the income receivable by the representative-assessee is the income of the assessee and not the beneficiary persons cannot be accepted because the fiction created for one purpose cannot be utilised for a different purpose. Sec. 164 does not provide how total income of the representative-assessee is to be computed. Therefore, obviously, the provisions relating to computation of income would be applicable even in a case where the representative-assessee has to be assessed under s. 164. Therefore, whether an assessee, including a representative-assessee, would be entitled to the benefit of deduction under s. 80L or not will have to be decided by reference to the provisions contained in that section. Sec. 80L provides for deductions in respect of interest in respect of certain securities, dividends, etc. These deductions are made available to an individual, or, an HUF, or an AOP or a BOI 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. A discretionary trust is obviously not an HUF nor an AOP contemplated by that section. Therefore, such a trust would become entitled to the deductions provided it can be regarded as an individual. The term 'individual' as used in the IT Act does not mean a single living human being but would include in its ambit, a BOI constituting a unit for the purposes of the Act. Even though the assessment of income is in the hands of the trust, it had to be made in the same manner and to the same extent as it would have been made in the hands of the beneficiaries. The representative-assessee in the case of a discretionary trust must be regarded as an individual and thus would be entitled to the benefit of deductions under s. 80L - CIT vs . Shri Krishna Bandar Trust : [1993]201ITR989(Cal) followed; WTO vs . C. K. Mammed Kayi : [1981]129ITR307(SC) , CIT vs . Sodra Devi : [1957]32ITR615(SC) and Lalchand Tikamdas Makhija vs . J. K. Juriyan, CIT : [1991]188ITR253(Bom) - relied on; CIT vs . Smt. Kamalini Khatau : [1978]112ITR652(Guj) - held no longer good law.'
12. Reliance was placed upon a decision of the Calcutta High Court in Smt. Santimoyee Bose vs . CIT : [1969]74ITR133(Cal) . According to the facts arising in that case a suit for maintenance filed by the assessee on behalf of herself and her minor sons and daughters against (her) husband, the Court directed payment of maintenance at certain rates and also arrears of maintenance. The assessee contended (that) under the decree the share of each plaintiff was specific and determinate and, therefore, the assessee should be assessed as an individual. On a reference, the Calcutta High Court held that 'on reading the decree as a whole, the maintenance was not given to any of the plaintiffs on the basis of any proportionate share, but, the plaintiffs were given jointly the right to receive certain sums of money, the shares of the individual plaintiffs were, therefore, indeterminate or unknown and under the proviso to s. 41 the assessee could be deemed to be an AOP even though they did not associate or enter on a joint venture and the assessment of the assessee as an AOP was right'.
13. But, according to the facts arising in the abovesaid decision, the question of assessing a discretionary trust does not arise. Further, there was no claim for deduction under s. 80L. Therefore, this decision would not be applicable to the facts of these cases.
14. Reliance was also placed upon a decision of the Madhya Pradesh High Court in the case of CIT vs . G. B. J. Seth & C. O. J. Seth : [1987]166ITR604(MP) . In the abovesaid decision, while answering the question whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee, who is an AOP, is entitled to deduction as per cl. (c) of sub-s. (1) of s. 80L of the Act, the Madhya Pradesh High Court held that 'the assessees were not entitled to deduction in respect of dividend income under s. 80L, where the assessees were the executors of the will of the deceased and were assessed in respect of the income of the estate of the deceased in the status of an AOP. According to the facts arising in the abovesaid decision, the status of the assessee is an AOP. It is in that status deduction was claimed under s. 80L of the Act. Therefore, the Madhya Pradesh High Court refused to grant such deduction. Hence, that decision is also distinguishable on facts. Our attention was also drawn to the decision of the Supreme Court in the case of CWT vs . Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust : [1977]108ITR555(SC) , wherein the Supreme Court held that 'even if the beneficiaries themselves were indeterminate or unknown, sub-s. (4) of s. 21 would apply and the assessees would be liable to be assessed in respect of the totality of the beneficial interest in the remainder as if it belonged to one single beneficiary. When the beneficiaries are indeterminate or unknown, obviously their shares would also be indeterminate and unknown.' In the abovesaid decision, the Supreme Court was not concerned with the deduction to be given under s. 80L of the Act.
15. Learned standing counsel submitted that the decision reported in CIT vs. Shri Krishna Bandar Trust (supra) was concerned with law as it stood after the amendment was introduced by the Finance (No. 2) Act, 1980, which has done away with the deeming provisions whereby a trust under s. 164(1) of the Act could be assessed as though it were an AOP. The fiction of the AOP as contained in sub-s. (2) or, for that matter, sub-s. (3) of s. 164 relates only to a charitable or public religious trust, but not to a discretionary private trust dealt with by sub-s. (1) of s. 164. Accordingly to learned standing counsel, the benefit of the Finance (No. 2) Act, 1980, would be available only from 1980-81 onwards and for the earlier assessment years, this amendment would not be helpful. We are not saying that the fiction created under s. 164(1)(i) of the Act will not be applicable to the facts of this case. According to us, the said fiction will be applicable only at the time of levying the tax after the income was determined in accordance with the other provisions of the Act.
16. The determination of total income depends on the various provisions of the IT Act which takes into consideration the deductions to be provided under s. 80L of the Act as well. The charge of tax comes into play after the income has been determined in the manner stated above. In the present case, the trustee is an individual. His status, therefore, has to be adopted as that of an individual and from his individual income the assessee is entitled to deduction under s. 80L of the Act. On the income so computed, the tax has to be charged in view of the provisions contained in s. 164(1) treating such income as it was the income of an AOP or at the rate of 65 per cent., whichever was more beneficial to the Revenue. Therefore, the assessee is entitled to deduction under s. 80L of the Act. In view of the foregoing discussions, we consider that the Tribunal was correct in granting relief under s. 80L of the Act. Accordingly, we answer the question referred to us in the assessment years under consideration in the affirmative and against the Department. There will be no order as to costs.