The Bombay High Court has upheld disallowance of interest paid to beneficiaries, and ruled that the appellant trust was an association of persons under Section 40(b) of the Income Tax Act, 1961.
The bench of Chief Justice Alok Aradhe and Justice M. S. Karnik has observed that declaration by assessee is not a mistake which has been erroneously made, as no attempt has been made to rectify the aforesaid mistake. It is also pertinent to note that the assessee, while filing the return, had described itself as an Association of Persons for which neither any attempt has been made to correct the so called mistake nor any explanation has been offered for making such a mistake.
During the material time Mehta Jaising Combine was constituted as a Private Specific Trust which was settled by Ms. Indira B. Jaising. Six trustees were entrusted to execute the object of the Trust for the benefit of 32 beneficiaries, which included minor beneficiaries, whose legal guardians were not the trustees. The assessee has been filing the return of income regularly in the status of an Association of Persons. The assessee, for the Assessment Year 1995-1996, filed the income as an Association of Persons and declared the income of the assessee as “Nil”, as the current year’s income was set off against the forwarded losses.
The Assessing Officer by applying the test laid down by the Supreme Court judgment in CIT v. INDIRA BALKRISHNA, held that the beneficiaries have come together voluntarily by pooling their monies in the trust with clear knowledge that the funds shall be utilized by the trust for the business of the project undertaken by them. The Assessing Officer further held that the trust, through the trustees, is assessable as an Association of Persons under Section 161 of the Income Tax Act.
The assessee preferred an Appeal. The Commissioner of Income Tax (Appeal) dismissed the Appeal preferred by the assessee. Thereupon the assessee filed an Appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal, by an order has dismissed the Appeal preferred by the assessee.
The assessee contended that the expression “individual” includes a group of individuals and provisions of Section 161(1A) of the Act do not have the effect of changing the status of assessee, as it pertains to the rate of taxation. It is submitted that in the facts and circumstances of the case, the provisions of Section 164(1) are applicable, as in case of a discretionary trust where the shares of beneficiaries are indeterminate or unknown.
The department contended that the order passed by the Income Tax Officer has been upheld in Appeal by the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal. The findings recorded by the Authorities by no stretch of imagination can be termed as perverse. It is, therefore, contended that no case for interference, with finding of fact which is based on meticulous appreciation is called for, in the Appeal under Section 268 of the Income Tax Act.
The court held that the order passed by the Assessing Officer as well as the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal is based on meticulous appreciation of evidence. The finding of fact recorded therein by no stretch of imagination can be said to be perverse.
Case Details
Case Title: Mehta Jaising Combine Versus Income Tax Officer Ward
Case No.: Income Tax Appeal (It) No. 364 Of 2003
Date: 3rd April, 2025
Counsel For Petitioner: Vipul B. Joshi
Counsel For Respondent: Mamta Omle
