The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT), ruled that Income of beneficiaries of assessee-trust cannot be treated as income in the hands of the assessee-trust, providing relief to taxpaye r on cash deposits, while dismissing the deduction claim under section 143(1) for the Assessment Years 2017-18 and 2019-20.
The assessee, Aquagel Promoter Group Shareholders Trust, filed its return of income for the assessment years 2017-18 and 2019-20 declaring nil income. The returns filed by the assessee were processed under section 143(1) of the Income Tax Act, 1961 by the Centralized Processing Centre (CPC), Bangalore.
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The assessee, an Association of Persons (Trust), was created under a trust deed dated 24th December 2012, with the purpose of transferring shares of M/s Aquagel Chemicals Pvt. Ltd. to Hindustan Unilever Ltd. through an escrow mechanism. The trust, which has 38 members with defined shares, declared a total receipt of Rs. 3.63 crore for the relevant year, to be distributed among its beneficiaries.
However, a dispute arose with one group of beneficiaries, consisting of five members, who did not receive their share of the income, nor did they declare it in their respective returns. The Centralized Processing Centre (CPC), Bangalore, subsequently included the disputed income in the trust’s hands, resulting in a tax demand of Rs. 1.56 crore under Section 143(1).
The assessee appealed against the CPC’s decision to the Commissioner of Income Tax (Appeals) CIT(A), who upheld the disallowance. The trust then filed an appeal with the ITAT, arguing that the income should not be taxed in the trust’s hands, citing a similar ruling from the ITAT in the trust’s favor for the Assessment Year 2013-14.
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Two member Bench comprised of T R Senthil Kumar(Judicial Member) and Annapurna Gupta (Accountant Member), considering the facts and the earlier decision, ruled in favor of the assessee, holding that the income in question could not be taxed in the hands of the trust.
The Tribunal emphasized that such disallowance could not be made under Section 143(1) proceedings. Consequently, the tax addition made by the CPC was deleted.
The same ruling was applied to the appeal for AY 2019-20, where the facts and issues were identical. Both appeals filed by the assessee were thus allowed, with the Tribunal quashing the disallowance and ruling in favor of the trust.
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