Madras HC answers whether voluntary contributions by private discretionary trust are taxable income

In the case of Commissioner of Income Tax v. Shriram Ownership Trust, the Court also emphasised that when the assessee does not challenge a tribunal ruling in appeal, he is not entitled to call on the High Court to frame additional questions of law by invoking Section 260A(4) of the Income Tax Act.

They stated that they have no hesitation to hold that the respondent-assessee was rightly assessed as an “individual” by the Assessing Officer, as affirmed by the CIT, which was erroneously reversed by the Tribunal.

An important excerpt of the judgement is as follows: “The Assessee Trust is a representative assessee as it represents the beneficiaries who are identified individuals and therefore to be assessed as an ‘individual’ only. Consequently, the contribution of Rs. 25 crores is to be assessed as income under Section 56(1) under the head ‘income from other sources’.”

In this regard, the bench comprising Justices T. S. Sivagnanam and V. Bhavani reasoned that Section 161(1) of the Act states that every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received in favour of him beneficially. The representative assessee shall be liable to assessment in his own name in respect of that income.

The HC ruled that a private discretionary trust, being a representative assessee of identified beneficiaries, is liable to be treated as an individual for the purpose of taxation.

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