The Tax Publishers2020 TaxPub(DT) 2322 (Del-Trib)

INCOME TAX ACT 1961

Section 10(34)

Where assessee filed its return in status of an AOP by claiming exemption under section 10(34) and AO alleged that trust was invalid, as it was not a separate legal entity guided by its deed of formation, considering fact that there is no bar in the Indian Trust Act, 1882 stating that settler of a trust cannot be beneficiary of that trust, therefore, trust was not invalid, revenue did not show any bar in the trust act where the settlor cannot be beneficiary of that trust. Assessee also submitted identical structures in case of Mahartana Companies, which were not found be violating Trust Act. Therefore, there was no infirmity in the Escorts Limited being the settlor and sole beneficiary of the trust.

Exemption under section 10(34) - Validity of formation of assessee-trust - Settler was the sole beneficiary of trust -

Assessee (EBWT) was a private trust and settler (EL) was sole beneficiary and trustees were appointed . One ECEL was wholly owned subsidiary of settler (EL). Pursuant to a scheme of arrangement and amalgamation under sections 391-394 of Companies Act, 1956, three companies (ECEL, Escotrac and EFILL) were merged into EL. Scheme was approved by High Court and assessee was allotted equity shares of EL as consideration of merger of ECEL with EL. Investments/shares held by EFILL and Escotrac were transferred through their respective Trusts to assessee for the sole benefit of settler (EL). Assessee filed its return in status of an Association of Persons [AOP] declaring nil income by claiming dividend as exempt under section 10(34). AO alleged that Trust was created in violation of the provisions of the Indian Trusts Act, 1882 and was therefore not a separate legal entity guided by its deed of formation because settler was the sole beneficiary of trust.Held: Undoubtedly, trust was belonging to EL. It was the settler and it was the beneficiary. It did not mean that it was the trustee also. AO did not bring any evidence to show that EL was trustee of the assessee. Therefore, allegation of AO that settler was also the trustee, was devoid of any merit and was based on mere conjectures and surmises. Further sole beneficiary and settler of trust was EL and it was major reason why AO was refusing to recognize above trust. Gujarat High court answered it in Bhavana Nalikant Nanavati, and where the settlor was also the sole beneficiary, it was held to be a valid trust. Revenue did not show any bar in the trust Act where settler cannot be beneficiary of that trust. Therefore, there was no infirmity in EL being settler and sole beneficiary of the trust.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17

INCOME TAX ACT, 1961

Section 160 Section 10(34)

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