The Tax Publishers2020 TaxPub(DT) 5498 (Mad-HC) : (2021) 430 ITR 0356


Sections 56(1) & 56(2)(vii)

Where assessee, a private discretionery trust, received corpus donation from six other group companies for the benefit of trustees who were identified as beneficiaries and thus, assessee was a representative assessee liable to be taxed as individual under section 56(1) under head 'Income from other sources', and not under section 56(2)(vii) read with section 2(24)(xv).

Income from other sources - Trust - Corpus contributions received by a private discretionary trust - Taxability under section 56(2)(vii) alleging that the trust is an 'individual'

Assessee, a private discretionary trust, was formed for the benefit of certain senior long standing retired employees of the Shriram Group of Industries, Chennai. They were in receipt of Rs. 25 crores as corpus contribution from 6 other group companies of the Shriram Group. It was the case of the revenue that this receipt of corpus was nothing but a conduit on behalf of the beneficiaries thus was to be assessed as income from other sources under section 56(2)(vii) read with section 2(24)(xv) alleging that the assessee-trust should be read as an 'individual' to the contextual reading as a representative assessee. Since the beneficiaries or their shares were indeterminate they should be assessed as an Association of Persons (AOP). Assessee's further plea was since section 56(2)(vii) in its further reading in third proviso which mentions certain gifts from 'relatives', etc., being in the exclusion zone of the said section, the only reading which is possible is to tax under section 56(2)(vii). One needs to be an 'individual' natural person. This did not meet the eye of the Commissioner (Appeals) who upheld the views of the AO and upheld the taxability of the alleged corpus contribution of Rs. 25 crores under section 56(2)(vii). On further appeal, the ITAT reversed the views of the AO and Commissioner (Appeals) holding that the assessee was to be read as an AOP and thus cannot be read as a representative assessee and section 56(2)(vii) also cannot be fastened on them since they were not a natural person. On further appeal by the revenue. Held: The corpus contribution of Rs. 25 crores was held to be taxable under section 56(2)(vii) as a representative assessee in the hands of the assessee as it was supposedly received on behalf of its unnamed beneficiaries thereby such a playing around the 'law' needs to be struck down. They are to be read as an individual to the extent of this provision to enable them to fall in the scope of section 56(2)(vii). The ITAT gave a wrong reading of the Trust as an AOP. The trust cannot be assessed as an AOP as neither was there a common intent to pursue a venture nor did the trustees or beneficiaries come together for a specific purpose. The plea of the assessee that the subsequent insertion of section 56(2)(x) with effect from 1-4-2017 to cover all persons under the scope of section 56(2) for amounts received without adequate consideration would also not advance their grounds.

Applied:C.R. Nagappa v. CIT (1969) 73 ITR 626 (SC) on the point that in a representative assessment, the assessment be made as if it was on the actual recipient; Jogendra Nath Naskar v. CIT (1969) 74 ITR 33 (SC) : 1969 TaxPub(DT) 0177 (SC); N.V. Shanmugam & Co. v. CIT (1971) 81 ITR 310 (SC) : 1971 TaxPub(DT) 0143 (SC) and WTO v. C.K. Mammed Kayi (1981) 129 ITR 307 (SC) : 1981 TaxPub(DT) 0933 (SC).


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