Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that while imposing tax under s. 164(3)(b) of the IT Act on the assessee-trust, the rate of 65per cent was to be calculated without allowing the basic exemption of Rs. 5,000 as laid down in the Finance Act ?

Counsel Appeared

Amiya Narayan Mukherjee, for the Petitioner : Ajit K. Sengupta with P. Mazumdar, for the Revenue

SABYASACHI MUKHARJI, J.:

The assessee is a trust and the ITO while making the assessment for the year 1974-75 held that the shares of the beneficiaries were indeterminate. He took the status as association of persons but held that the basic exemption of Rs. 5,000 as available to the association of persons under the Finance Act was not applicable to the assessee’s case. The ITO determined the income at Rs. 6,500. When the matter went up in appeal before the. AAC he did not accept the assessee’s contention regarding the allowance of basic exemption of Rs. 5,000. He allowed deduction of Rs. 3,000 under s. 80L of the IT. Act, 1961. Thereupon, the matter went up before the Tribunal. It was submitted on behalf of the assessee that the provisions of s. 164 of the IT Act were not applicable to the total income of the trust and it was submitted further that on the basis of the trust deed the shares of the beneficiaries should be held to be determinate. It was also contended that even if the provisions of s. 164 applied to any part of the trust income, the rate of 65per cent as laid down in s. 164 could be applied only after allowing the basic exemption of Rs. 5,000. After considering the trust deed and the other facts of the case the Tribunal came to the conclusion that the trust deed had not been properly considered by the authorities below and it had not been found out as to which part of the income of the trust was hit by the provisions of s. 164. The Tribunal, therefore, sent back the matter to the ITO for determination of the question. Regarding the manner in which the tax was to be levied, the Tribunal observed as follows? ” As regards the question of allowance of basic exemption, we are of the view that there is no force in the submission made by the assessee. The rate of 65per cent is laid down in the IT Act itself and this will have precedence over the rate which might be specified in the Finance Act. There is no question of applying a particular rate specified in the Act itself after allowance of any basic exemption which has not been provided in the Act itself. The status given by the ITO as association of persons has no relevance for this purpose. Under the old Act also the maximum rate was held to be applicable to all the income assessable under the proviso to s. 41 and no basic exemption was to be allowed. The ITO is, therefore, directed to compute tax on the above basis after ascertaining the fact regarding the part of income to which s. 164 would apply.”

2. Upon an application being made by the assessee under s. 256(1) of the IT Act, 1961, the following question of law has been referred to this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that while imposing tax under s. 164(3)(b) of the IT Act on the assessee-trust, the rate of 65per cent was to be calculated without allowing the basic exemption of Rs. 5,000 as laid down in the Finance Act ?”

3. In view of the language used in s. 164(3)(b), read in the background of s. 164 as also the provisions of the Finance Act, 1973, which was relevant for the year, and sub-s. (3) of s. 2 of the said Act, which is, inter alia, as follows, in our opinion, the Tribunal arrived at the correct conclusion : “Sec. 2(3). In cases to which Chapter XII or s. 164 of the IT Act, 1961 (XLIII of 1961) (hereinafter referred to as the IT Act) applies, the tax chargeable shall be determined as provided in that Chapter or that section, and with reference to the rates imposed by sub-s. (1) or the rates as specified in that Chapter or sectin, as the case may be.”

This view we are taking is in consonance with the ratio of the decision of this Court in the case of CIT vs. Trustees to the Trust Estate of Tarun Kumar Roy (1974) 94 ITR 361 (Cal). We do not find anything in the decision of this Court in the case of Official Trustee vs. CIT (1954) 26 ITR 410 (Cal), to the contrary. It appears to us that s. 139(4A) of the I. T. Act, 1961, to which our attention was drawn, will not be appliable to this case as that applies to receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes. It may incidentally be mentioned that, in view of the language of the trust deed here, it cannot be said that it is wholly for religious or charitable purpose.

4. In that view of the matter, we are of the opinion that the Tribunal arrived at the correct conclusion and the question must be answered in the affirmative and in favour of the Revenue. In the facts and circumstances of the case, each party to pay and bear its own costs.

SUHAS CHANDRA SEN J.:

I agree.

[Citation : 142 ITR 149]