INCOME TAX ACT, 1961

Section 143(3) Section 61 to 63 Section 164(1)

Assessment - Status - Trust or AOP -

Assessee did not offer any income to tax in its own hands and instead offered the income in the hands of the beneficiary of the trust. The assessee was a revocable trust with name of the beneficiary, i.e., IL & FS Financial Services Ltd. as Class P beneficiary and it was the sole beneficiary having 100% share. The trust had obtained registration from SEBI as Venture Capital Fund. The total contribution received from IL & FS being the sole contributor was Rs. 96,68,88,357 and out of these funds, investments were made in shares of two unlisted companies amounting to Rs. 96,68,88,357. Assessee pleaded before the AO that the provisions of sections 61 to 63 are applicable to the facts of the case. IL & FS being the sole contributor was entitled to the income and had offered the income for assessment years 2009-10 and 2010-11 and taxed in their hands. Accordingly, it was pleaded that no income could be taxed in the hands of the assessee trust. It was specifically pleaded that the provisions of section 164(1) are not applicable to the facts of the case. The assessee submitted that the three constituents of the assessee trust were as under:-(a) Settlor-Infrastructure Leasing and Financial Services Ltd., (b) Trustee-IL & FS Trust Co. Ltd., (c) Beneficiary-IL & FS Financial Services Ltd. AO disregarded the aforesaid facts and proceeded to treat the status of the assessee as AOP and passed an order accordingly on 18-3-2013 under section 143(3) despite the fact that the entire income had already been taxed in the hands of the beneficiary and the same had been assessed as such under section 143(3). CIT(A) addressed each and every item independently and allowed the appeal of the assessee. Held: Settler, trustee and beneficiary were three separate and distinct entities. Hence, the assessee should be assessed in the capacity of trust only. One also found that the settler i.e. Infrastructure Leasing and Financial Services Ltd. and beneficiary, i.e., IL & FS Financial Services Ltd. were two separate and distinct entities in the present case. The observations of taxability of trust and income being offered to tax in the hands of the beneficiary were all inter-dependent based on the outcome of the status of the assessee which Tribunal had already held to be taxed only in the status of trust and not as AOP.