Written Submissions
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “F”, NEW DELHI
To,
The Hon’ble Members,
Income Tax Appellate Tribunal,
Delhi Bench – “B”,
New Delhi.
May it Please Your Honor,
In the matter of:
ITA No. 2021/Del/2023
Assessment Year: 2014–15
Appellant: Deputy Commissioner of Income Tax,
Circle-12(2), New Delhi
Respondent: Harmony Family Trust, New Delhi
Subject
Written Submissions in support of the Order of the Commissioner of Income Tax (Appeals) allowing exemption under Section 54F of the Income Tax Act, 1961 in respect of long-term capital gains arising to a Private Trust with identified beneficiaries
(i) Name of the assesses ------------ and address---------------.
(ii) PAN----------------.
(iii) Ayr-----------------.
(iv) DIN of the order appealed------------------.
(v) Appeal No. --------------.
Reference
Show Cause notice dated ………. DIN--------------------.
1. Issues Raised in this Appeal by the Revenue:
(i) That the learned CIT(A) erred in law and on facts in holding that the assessee–trust, being a private trust constituted for identified beneficiaries, is entitled to exemption under Section 54F of the Act.
(ii) That the learned CIT(A) erred in not appreciating that Section 54F, by its plain wording, extends exemption only to individuals and Hindu Undivided Families (HUFs), and not to trusts or Association of Persons (AOPs).
(iii) That the order of the CIT(A) is erroneous in ignoring the nature of the assessee as an AOP, which in Revenue’s view disentitles it from the benefits of Section 54F.
2. Facts of the Case:
(i) The assessee, Harmony Family Trust (“the Trust”), was created by a duly registered trust deed dated 15th May 2007. It is a private specific trust with five identified beneficiaries, all belonging to one family. The trust is not a charitable trust; it is set up solely for management of family assets and distribution of income among specified beneficiaries.
(ii) During the Financial Year 2013–14 (relevant to AY 2014–15), the Trust, through collaboration with a developer, sold certain residential flats constructed on land that had been originally settled into the trust corpus. The sale consideration received by the Trust amounted to ₹9.25 crores.
(iii) Out of the above, after indexing, the Trust computed long-term capital gains of ₹5.85 crores.
(iv) Within the prescribed time, the Trust purchased a residential house property at Gurgaon for a total consideration of ₹6.20 crores. The investment exceeded the capital gains earned.
(v) Accordingly, the Trust claimed exemption under Section 54F of the Act in respect of the entire long-term capital gains.
(vi) The return of income was filed electronically in Form ITR-5, which is the prescribed return for firms, AOPs, BOIs, and trusts. Schedule CG therein clearly provides for deduction under Sections 54/54F, etc. The return was accepted as valid.
(vii) The Assessing Officer (“AO”), however, rejected the claim for exemption under Section 54F on the reasoning that the section applies only to individuals and HUFs. He assessed the entire sum of ₹5.85 crores as taxable capital gains.
(viii) The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals) [“CIT(A)”].
3. Reasons of Decision by the AO:
(i) The AO observed that Section 54F uses the expression “where in the case of an assessee being an individual or Hindu undivided family…”. According to him, the provision is strictly confined to those categories and cannot be extended to a trust.
(ii) He further held that since the Trust is assessable in the status of an AOP, exemption is not available.
(iii) He made an addition of ₹5.85 crores to the total income.
4. Reasons of Decision by the CIT(A):
(i) The learned CIT(A) carefully examined the trust deed, the return of income, and the judicial precedents cited.
(ii) He noted that the Trust is a private specific trust, where the shares of beneficiaries are determinate and known.
(iii) In terms of Section 161 of the Act, a representative assessee (the trustee) is assessable in the same manner and to the same extent as the beneficiaries. Therefore, the taxability and exemptions that would apply to beneficiaries individually must equally apply when income is assessed in the hands of the trustee.
(iv) The CIT(A) further noted that the beneficiaries, had they sold the property individually and invested in a residential house, would have been entitled to Section 54F relief. Hence, merely because the transaction was routed through the Trust cannot alter the substantive rights.
(v) Reliance was placed on several Tribunal and High Court rulings, including Mrs. Amy F. Cama v. CIT (Bom HC), CIT v. Shri Krishna Bandar Trust (Cal HC), and CIT v. Deepak Family Trust No. 1 (Guj HC), which all held that the benefit of exemptions under Sections 54/54F cannot be denied to a private trust with determinate beneficiaries.
(vi) On these findings, the disallowance was deleted.
5. Submissions on Facts:
(i) The Trust is not a charitable trust; it is a family trust with specified beneficiaries. The beneficiaries are not the public at large but five named individuals. The shares of income are expressly provided.
(ii) The Trust sold flats and invested the net capital gains into a residential house. The investment was bona fide, within the statutory time limits, and exceeds the capital gains earned.
(iii) There is no dispute about the quantum of capital gains or the investment. The only objection is technical – that the Trust is not an “individual” or “HUF”.
(iv) It is respectfully submitted that this objection ignores the legal fiction in Section 161, which mandates that the trustee is assessed in the same manner and to the same extent as the beneficiaries.
(v) Had the trust not existed, the sale would have been undertaken by the beneficiaries individually. Each of them would then be entitled to claim Section 54F relief. The Trust cannot be placed in a worse position merely because property was held through the trust vehicle.
6. Submissions on Law:
(i) Section 54F is a beneficial provision intended to promote reinvestment of capital gains into residential housing. It must be interpreted liberally, in line with its object.
(ii) Representative assessee principle (Section 161): The trustee is not taxed in his own right; he is taxed as a representative of the beneficiaries. Therefore, all exemptions, deductions, and reliefs that beneficiaries are entitled to must be extended to the trustee as well.
(iii) Nature of Private Trusts: A private trust with determinate beneficiaries is not the same as a charitable trust (which is assessed as an AOP due to indeterminate beneficiaries). In a private trust, beneficiaries are identifiable, and their entitlements are fixed. Therefore, assessment is on a pass-through basis.
(iv) Return Form ITR-5: The CBDT itself, through ITR-5, provides for computation of capital gains and claim of exemptions under Section 54/54F for firms/AOPs/BOIs/trusts. This clearly shows legislative intent that such entities are not barred from availing the benefit.
(v) Doctrine of Consistency: Several coordinate benches of this Tribunal, as well as High Courts, have consistently held that private trusts are entitled to Section 54/54F relief. Revenue has accepted those decisions; it cannot now take a contrary stand without change in law.
7. Case Laws in Support (with brief notes):
(i) Mrs. Amy F. Cama v. CIT [1999] 237 ITR 82 (BOM.) –A trust with sole beneficiary is entitled to claim exemption under Section 54.
The assessee, Mrs. Tehmina, was the sole trustee and also the life-interest beneficiary of a testamentary trust created by her late husband. She resided with her children in a house called “Aden Hall.” In 1961, she sold this house for about Rs. 7 lakhs and purchased a new flat using part of the sale proceeds. She claimed exemption under Section 54 of the Income-tax Act, arguing that the capital gain should be exempt since the sale proceeds were used to buy another residential property. The Income-tax Officer, AAC, and Tribunal denied the claim, stating that the trust was the owner, not the beneficiaries, and the trust itself was not “residing” in the property. The Bombay High Court held that beneficiaries are the real owners, and the trustee merely holds the property on their behalf under Sections 160–166. Hence, the trustee, as a representative assessee under Section 161, must be assessed in the same manner as the beneficiaries. Since Mrs. Tehmina and her children were residing in the old house and continued to reside in the new flat, all conditions of Section 54 were fulfilled. The Court ruled that the assessee’s claim for deduction of the purchase price of the new flat from capital gains was legal and proper, and the benefit of Section 54 was allowed.
(ii) CIT v. Shri Krishna Bandar Trust [1993] 201 ITR 989 (CAL.) – Private trust entitled to benefit of exemption; trustee represents beneficiaries.
The assessee, a discretionary private trust, was assessed as an “association of persons” (AOP) and denied Section 80L. The High Court held that neither trustees nor beneficiaries had joined for a common income-earning purpose; beneficiaries had not set up the trust and trustees acted under the deed. Mere plurality does not make an AOP (Indira Balkrishna). “Individual” in tax law can include a group/unit (Sodra Devi; Jogendra Nath Naskar). After Finance (No. 2) Act, 1980, Section 164(1) applies the maximum marginal rate to discretionary trusts and removed the earlier AOP deeming; the AOP fiction in Section 164(2)/(3) is confined to charitable/public religious trusts, not private discretionary trusts. Therefore, trustees of private trusts are assessable as “individual” and may claim exemptions available to that status, including Section 80L. Held: in favour of the assessee.
(iii) CIT v. Deepak Family Trust No. 1 [1994] 72 Taxman 406 (Gujarat) – Exemptions cannot be denied to trusts with determinate beneficiaries.
The assessee, a discretionary private trust, claimed deduction under Section 80L on dividend/interest income. The ITO denied it, asserting Section 80L applied only to “individuals/HUFs,” and treated the trust as an AOP. The AAC allowed the claim, and the Tribunal affirmed, holding that trustees are assessed in representative capacity under Sections 161–162 and take the status of the persons represented; consequently, exemptions/deductions available to beneficiaries cannot be denied to trustees. The Gujarat High Court, aligning with CIT v. Shri Krishna Bandar Trust (Cal) 201 ITR 989 and the Supreme Court’s jurisprudence on “individual” (e.g., Sodra Devi, Shanmugham), held that trustees of a private discretionary trust are assessable as an “individual,” not an AOP, particularly after the Finance (No. 2) Act, 1980 removed the earlier AOP deeming in Section 164(1). Result: deductions under Section 80L are allowable. Principle: where beneficiaries’ interests guide assessment, exemptions available to them cannot be withheld merely by assessing through the trustee.
(iv) Niti Trust v. CIT [1997] 90 Taxman 169 (Gujarat) – Trust assessed as representative assessee eligible for reliefs available to beneficiaries.
A private discretionary trust (all beneficiaries being individuals) returned long-term capital gains for AY 1993-94 in the status of an “individual.” The Assessing Officer taxed the gains at 20% under section 112(1)(a)(ii). The Commissioner issued section 263 notices, asserting the trust was an AOP and should be taxed at 30% under section 112(1)(c). The Gujarat High Court quashed the notices. It held that determining the assessee’s status is a prerequisite to assessment; trustees of a discretionary private trust are to be assessed as an individual, not an AOP—following CIT v. Deepak Family Trust No. 1 (Guj) and CIT v. Shri Krishna Bandar Trust (Cal). As representative assessees (ss. 160–164), trustees are taxed “in like manner and to the same extent” as beneficiaries; therefore, all consequential reliefs and rate benefits available to beneficiaries (here, 20% LTCG rate under section 112(1)(a)) apply to the trustee’s assessment. No prejudice to Revenue arose; section 263 action lacked jurisdiction.
(v) ACIT v. Merilina Foundation [2025] 178 taxmann.com 355 (Delhi - Trib.) – Where assessee was a private trust set up for some identified persons, it was not a charitable trust and, thus, exemption under Section 54F could not be denied to assessee.
The assessee, a private discretionary trust set up for identified beneficiaries, earned long-term capital gains from sale of flats (via collaboration on land it had purchased) and invested the gains in a residential house, claiming exemption under Section 54F. The Assessing Officer denied the claim, arguing Section 54F applies only to an individual or HUF and not to a trust/AOP. The CIT(A) allowed the claim. On Revenue’s appeal, the ITAT upheld the relief, holding that a private trust for specified persons is not a charitable trust (which is treated as an AOP because beneficiaries are the public at large). As a representative assessee under Section 161, the trustee is taxed “in like manner and to the same extent” as the beneficiaries; thus, benefits available to the beneficiaries (here, Section 54F) cannot be denied merely due to the trust’s form. Following Bal Gopal Trust (ITAT Mumbai), Mrs. Amy F. Cama (Bom HC), Niti Trust (Guj HC). Appeal dismissed.
(vi) CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC) – Nature of AOP explained; mere trusteeship is not AOP.
The Supreme Court laid down the classic test for an “association of persons” (AOP): persons must join in a common purpose or common action, and—since the term appears in a charging provision—the object must be to produce income, profits or gains. Three co-widows inherited their husband’s estate. Though they did not partition and jointly received certain incomes, there was no finding of any joint enterprise to earn income; key items like dividends stood in their separate names and required no collective management. For immovable property, their shares were definite (one-third each) and section 9(3) of the 1922 Act applied, defeating AOP treatment. The Court rejected the view that a mere common source of income or joint receipt suffices. Volition and concerted profit-seeking activity are essential. By parity of reasoning, mere trusteeship or representative holding—without a unifying intention to carry on income-producing operations—does not constitute an AOP. Assessment as AOP was therefore invalid; Revenue’s appeals failed.
(vii) CIT v. Kamalini Khatau [1994] 74 TAXMAN 392 (SC) – Representative assessee principle elaborated.
The Supreme Court clarified the interplay of sections 160–166. A trustee— including of a discretionary trust—is a representative assessee by virtue of section 160; liability to assessment and recovery flows from section 161, which deems assessment to be in a representative capacity and limits levy/recovery to the like manner and same extent as on the beneficiary. Section 164 is not a self-contained code and does not create the charge; it only prescribes how tax is to be levied (e.g., AOP rate where shares are indeterminate; beneficiary’s rate if distribution occurs and benefits Revenue). Section 166 is merely clarificatory: it does not itself confer charging power but confirms that Chapter XV does not bar direct assessment of the person for whose benefit income is receivable—where otherwise permissible. Applying sections 4–5, when discretionary trust income is distributed and received within the year, the Revenue has an option to assess either the trustees or the beneficiaries on such income.
(viii) CIT v. Marsons Beneficiary Trust [1990] 52 Taxman 454 (Bombay) – Trust income assessable in hands of beneficiaries through trustee.
The Bombay High Court held that where a trust deed mandates distribution of income—including business income—to specified beneficiaries in determinate shares, assessment must follow section 161(1) (pre-1-4-1985). The trustee is a representative assessee: trust income is to be apportioned as if distributed to each beneficiary; tax is computed separately at each beneficiary’s applicable rate, and the trustee’s liability equals the sum of those individual computations. Tax cannot be levied on the trustee as a single unit, nor can beneficiaries be treated as an AOP/BOI, since they neither combined for a common purpose nor authorized the business; the trustees’ power flows from the settlor, not the beneficiaries (applying Indira Balkrishna on AOP). Section 164 is inapplicable because shares are determinate; section 166 permits the Revenue, at its option, to assess beneficiaries directly. The Court relied on Balwantrai Jethalal Vaidya and Nizam’s Family (Remainder Wealth) Trust to affirm this representative-assessment principle.
(ix) CIT v. Jayantilal Amratlal [1968] 67 ITR 1 (SC) – Exemptions available in hands of trustee if beneficiaries are eligible.
The Supreme Court held that a charitable trust’s income could not be taxed in the settlor’s hands under the “revocable transfer” rule unless the deed lawfully let him “reassume power” over trust income/assets. Mere powers to direct application within the trust objects, to nominate charitable purposes, or to influence investments (still constrained by the Bombay Public Trusts Act and trust law) do not amount to reassumption. Since the deed did not permit the settlor to take assets/income outside the trust, the first proviso to section 16(1)(c) (1922 Act) was inapplicable. Consequently, the trust’s income was assessable in the trustees’ hands, not the settlor’s; and the trustees were entitled to the same benefits/refunds (e.g., dividend gross-up reliefs) that would flow if assessed in the hands of the beneficiaries. The ruling reinforces that representative assessment carries with it the benefits/exemptions available to the persons represented, provided the trust is not revocable in substance.
(x) Pirojsha Godrej Foundation v. ADIT [2011] 44 SOT 24 (Mum.) (URO) –Even if there was violation of Section 11(5) read with section 13(1)(d), assessee would merely lose exemption under section 10(23C) in respect of its income, but that would not disturb its eligibility to claim exemption under section 11.
The assessee, a registered charitable trust (s.12A) also notified under s.10(23C)(iv), faced reopening u/s 147 because the AO claimed a ₹1.02 crore investment violated s.11(5) r/w s.13(1)(d) and was therefore taxable. The Tribunal held this premise was legally flawed. Even if there is a breach of s.11(5) read with s.13(1)(d), the consequence is at most loss of the s.10(23C) exemption; it does not convert the invested amount itself into taxable income, nor does it per se disqualify a registered trust from claiming s.11 exemption. Indeed, the AO’s own reassessment allowed s.11 and computed income at only ₹9.23 lakh—contradicting his recorded “escapement” of ₹1.02 crore. Reopening thus lacked the mandatory “reasons to believe” with a live link to escapement (Kelvinator; Hindustan Lever; Prashant S. Joshi; GKN Driveshafts). Since the reasons showed non-application of mind and misapprehension of law, the ITAT quashed the reassessment.
(xi) CBDT Circular No. 13/2019 – Emphasizes liberal construction of beneficial provisions like Section 54F.
8. Prayer: In light of the facts, law, and precedents discussed above, it is most respectfully prayed that this Hon’ble Tribunal may be pleased to:
(i) Uphold the well-reasoned order of the learned CIT(A) allowing exemption under Section 54F to the assessee trust;
(ii) Dismiss the Revenue’s appeal in its entirety; and
(iii) Pass such other orders as may be deemed just and proper in the facts and circumstances of the case.
Respectfully submitted,
For the Respondent–Assessee
Harmony Family Trust
Through Counsel
Sd/-
(Authorized Representative)
Place: New Delhi
Date: //2025
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