Trust is entitled to deduction u/s 54F by fiction of section 161 despite that AOP is not individual or HUF – ITAT

Trust is entitled to deduction u/s 54F by fiction of section 161. Deduction can not be denied on the ground that AOP is not a individual or HUF – ITAT

Trust is entitled to deduction u/s 54F

ABCAUS Case Law Citation:
ABCAUS 1236 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the CIT(A) in confirming the denial of deduction u/s 54F of the Income Tax Act, 1961 (‘the Act’) on the ground that the status of the assessee was Association of Persons (AOP) and the deduction u/s 54F is applicable only to ‘Individual’ or ‘HUF’.

The Issue:
Whether the assessee trust, which was for the sole benefit of an individual, will be entitled to deduction u/s 54F or not, when its status was that of Association of Person (AOP).

Assessment Year : 2012-13
Date/Month of Pronouncement: May, 2017

Important Case Laws Cited relied upon:
Mrs. Amy F. Cama vs. CIT
Raghunath Dass Sethi Vs. CIT
Niti Trust And Ors. vs. CIT
CIT vs. Deepak Family Trust
CIT vs. Shri Krishna Bandar

Brief Facts of the Case:
The assessee was a private non discretionary Trust in which husband and wife were the trustees of the said trust and their daughter was the sole beneficiary of the said trust. The said trust has sold 1000 unquoted equity shares for which part consideration was received by way of a flat. Adding to the value of the flat the charges towards stamp duty and registration charges, the assessee the assessee had claimed exemption u/s 54F.

The Assessing Officer (‘the AO’) held that deduction u/s 54F is allowable only to individual or HUF and not to any other person. It was held by the AO that since the assessee was a specific trust, it was not eligible for deduction u/s 54F and disallowed the same. The AO further held that the possession of the flat was not taken within 3 years from the date of transfer and therefore the appellant was not eligible for deduction u/s 54F.

Upon assessee’s appeal CIT(A) confirmed the action of the AO as regard holding that assessee being a AOP could not be granted benefit of section 54F. It was held that being AOP assessee could not be entitled to deduction u/s 54. As regards the issue regarding disallowance of deduction of u/s 54F on other aspect as held against the assessee by the AO,  those grounds were not adjudicated in view of the decision on the first issue.

Contentions of the appellant assessee:
It was submitted that the issue was squarely covered in favour of the assessee by the decision of Hon’ble jurisdictional High Court . It was further submitted that decision by other High Courts also support the assessee’s case. The assessee also placed reliance upon CBDT direction dated 01.08.2012

Contention of the Respondent Revenue:
It was submitted that cases relied upon by the assessee were not applicable. It was submitted that these case laws were with reference to the applicability of section 161 of the Act whereas the issue in appeal was regarding special provisions relating to Section 54F of the Act. It was submitted that it is clearly prescribed in the Act that Section 54F exemption will be applicable to individual or HUF. Assessee being AOP is not entitled to the said exemption.

As regards the CBDT circular referred by the assessee, it was submitted that firstly CBDT circulars are not binding on ITAT and secondly the said circular is mere direction of accepting of returns and the same could not be treated as direction to make assessment in a particular manner.

Observations made by the Tribunal:
It was observed that the Bombay High Court had elaborately considered the same issue while dealing with assessee trust’s claim for deduction for purchase price of the flat from capital gain as per Section 54 of the Act. The Hon’ble Bombay High Court had held that the assessee trust was entitled for the same.

It was observed that the Hon’ble Court had held that Section 161 of the Act makes a representative assessee subject to the same duties, responsibilities and liabilities as if the income was received by him beneficially. The fiction is created as it was never the object or intention of the Act to charge tax upon persons other than the beneficial owner of the income. Whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him under section 161.

The ITAT observed that the decision of Hon’ble High Court squarely applied on the present case, which was concerned with the issue of exemption/deduction u/s 54F. Although, section 54 is applicable to individuals and HUF. However Hon’ble High court had expounded that on per the mandate of Section 161, the Act doesn’t intend to charge tax upon persons other than the beneficial owner of the income. Whatever benefits the beneficiary will get in a particular assessment must be made available to the trustee while assessing him u/s 161.

It was observed that in the instant case also the issue was benefit of investment made in purchase of flat for deduction u/s 54F of the Act by the trustees and the sole beneficiary of the trust is an individual. Hence the ratio emanating from the above jurisdictional High court decision is squarely applicable on the facts of the case.

The Tribunal observed that Hon’ble Gujarat High court had similarly granted benefit of assessment of a trust in the capacity of a individual. Similar views were expressed by the Hon’ble Calcutta High Court.

The Tribunal opined that based on case laws relied it was amply clear that by virtue of Section 161 of the Act, the representative assessee was subject to the same duties, responsibilities and liabilities as if the income was received by him beneficiary, and whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him u/s. 161. It is only by virtue of u/s 161 that the trust has been assessed for the income that is for benefit of sole beneficiary.

Held:
It was held that the assessee was principally entitled to deduction u/s 54F and it could not be said that since it was a AOP and not a individual or HUF the said exemption/deduction should be denied.

Regarding merits of claim of deduction u/s 54F, the issue was remanded to the file of the CIT(A) for adjudication.

Trust is entitled to deduction u/s 54F

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