ORDER
S. Bandyopadhyay, Accountant Member
1. The appeal has been filed by the assessee agains t the order of the CIT(A).
2. The assessment order in this connection contains the following discussions made by the ITO :
The following returns were filed :
(1) on 28-8-1984 declaring income of Rs. 34,000.
(2) on 31-3-1986 declaring income of Rs. 1,17,000.
(3) on 30-9-1986 declaring income of Rs. 1,18,310.
In the return of income filed on 28-8-1984, income from AOPs being 1/3 of 1/20th beneficial income from Chengamma Family Foundation, Banglore, amounting to Rs. 60,242 was not declared in the return filed on 31-3-1986. Again in the revised return dated 30-9-1986, beneficial income from three trusts were also revised. In response to notices issued, Sri. K.Y. Shreshty C.A., appeared and the case was discussed. The assessee filed a copy of the assessment order dated 28-3-1985 and 24-10-1986, in the case of M/s. Chengamma Family Foundation, Bangalore, completed by the ITO, Circle I, Bangalore, under C-146. In accordance to the order dated 24-10-1986, the assessee got Rs. 607 in respect of discretionary portion of 1% and specific portion of 99% amounting to Rs. 60,242 respectively. It is claimed that rebate under Section 86(v) is to be allowed on the beneficial interest income as the AOP/Private Trust of Chengamma Family Foundation was assessed. It is seen from the assessment order of M/s. Chengamma Family Foundation, that only Rs. 2,808 was taxed, as against the total income of Rs. 2,80,880. Therefore, the assessee’s claim that she is not liable to be taxed is not correct. Section 86(v) specifically states that income-tax shall not be payable by an assessee in respect of any portion of the amount which he/she is entitled to receive from the AOP, on which income-tax has already been paid by the AOP. In this case, the assessee received Rs. 607 & Rs. 60,242 being discretionary portion of the income and the specific portion of the AOP, M/s. Chengamma Family Foundation, respectively. The tax was paid by it on Rs. 1,820 only, which is 1 per cent of the total income, and not paid any tax on Rs. 1,80,752, which is 99 per cent portion of the total income. 1 therefore reject the assessee’s claim and hold that the income arising out of AOP is not entitled for any rebate under Section 86(v) in this case.
3. It would appear from the above discussions that the assessee is actually the beneficiary of the private-trust called “Chengamma Family Foundation” and that in respect of the discretionary portion of the income of the said trust alone, the trust has actually been assessed to income-tax, whereas the specific portion has been allotted to the beneficiaries individually and, therefore, the assessee has been subjected to tax separately in respect of such allotment of specific income of the trust. Had that been the case, the question here would have been a much simpler one and the assessee would have certainly been held to be liable to tax in respect of such allocated portion of the income of the trust.
4. Actually however, the facts are not so, as will be evident from the detailed discussions of the facts made by the CIT(Appeals) in his appellate order, being extracted below:
The appellant is an ‘individual’ deriving income from thirteen AOPs as a member. For the assessment year 1983-84, the appellant derived Rs. 60,853 as share from 13 AOPs. In all these Associations, she derives 1/3rd shares. These Associations in turn were beneficiaries of M/s. Chengamma Family Foundations which is a private specific trust. 99 per cent of the total income of the Associations of persons was shared equally among the members and the balance 1 per cent remains discretionary. Each of the thirteen Association of Persons received about Rs. 14,044 as share of beneficial interest from Chengamma Family Foundations. In terms of Section 167A(a), income-tax payable by each of the Associations of persons was computed as under :
Maximum marginal rate on the discretionary portion 1 per cent of Rs. 140.
Specific portion 99 per cent amounted to Rs. 13,904,
being less than maximum amount chargeable to tax. nil
Before the ITO, the appellant claimed rebate under Section 86(v). The ITO allowed rebate on the share of the appellant from AOP on which the income-tax was levied and paid, i.e., on, the discretionary portion of the income. Aggrieved by the action of the ITO, the appellant has come up with the present appeal.
2.1 The contentions of the appellant are that rebate under Section 86(v) is allowable in respect of the entire share income from 13 AOPs, since the AOPs paid tax on their income in accordance with Section 167A(2) and taxing of the appellant’s share income from AOPs was uncalled for.
2.2 It was also argued that Section 167A(2) has only prescribed the mode of taxation of. an AOP where any part of its income is indeterminate and it cannot be said that the appellant’s share from the AOP was not subjected to tax.
Now, it becomes evident that the assessee is actually a member of 13 different associations of persons, each of which is again, a beneficiary in the private trust M/s. Chengamma Family Foundations. It appears that the income derived by the aforesaid AOPs out of the income of the trust also stands divided into discretionary and specific portions in the same ratio in which the trust holds such income. The result of all these has become that the assessee has been subjected to income-tax in respect of her share income from each of the AOPs at the maximum marginal rate on the discretionary portion of the income of the AOP’s forming 1 per cent of its total income. The amount of tax has been shown by the CIT(Appeals) to be Rs. 92 only in respect of the share of discretionary portion of income from each AOP. So far as the specific portion of income of the AOPs is concerned, which constitutes 99 per cent of the total income of each AOP, such amount in each case is found to be less than minimum taxable level and hence, none of the AOPs has been subjected to tax in respect of its specific portion of income.
5. The ITO considered that the AOP (ITO mentioned only M/s. Chengamma Family Foundation) had not paid any tax on the specific portion of its income. He, therefore, rejected the claim of the assessee about the share income of the assessee out of such specific income being not taxable in accordance with the provisions of Section 86(v). The CIT(Appeals) upheld the action of the ITO He discussed the provisions of Section 86(v) and of Section 167A(2) as they existed at the relevant time. He stated that the fact that the income in respect of which the shares of the AOPs are known are again deemed to form their total income is only a creation of legal fiction. Hence, he held that in the case of the assessee, the income of the AOPs where shares of members were known was below the taxable limit and, hence, no rebate under Section 86(v) was allowable to the assessee in respect of such share of income.
6. The assessee has come up in further appeal before us against the above-mentioned decision of the CIT (Appeals). The learned Counsel for the assessee has vehemently argued that each of the AOPs under consideration must be considered to have been subjected to income-tax in respect of its entire income consisting of the discretionary portion on which tax has actually been levied and also the specific portion which is below the minimum taxable level. He contends that the total income of the AOP is thus to be taken into consideration as a whole and hence so far as the allocation of the said income in the hands of the assessee is concerned, the entire allocated income is to be considered as having suffered tax in the hands of the AOPs. He thus argues that the assessee should be entitled to the rebate under Section 86(v) in respect of the entire allocated portion even inclusive of the share income from the specific portion of income of the AOPs.
In support of this contention, he has given the example that where the entire income of the AOP is specific and determinate in nature, it is a fact that actual tax is paid only in respect of that portion of the income which is above the minimum taxable level. He argues that on that account, the total income of the AOP cannot be divided into two portions, viz., the amount of minimum taxable income and the portion of income above such level and the assessee cannot be denied the benefit of rebate under Section 86(v) on the allocated income out of the amount of minimum taxable level. He has drawn our attention to a second example also where almost the entire income of the AOP is liable to receive export rebate under Section 80HHC. He argues that whereas the AOP is entitled to the export rebate, the allocated share out of the export income in the hands of the member of the AOP cannot be subjected to full tax simply on the ground that the AOP did not actually suffer tax on the amount of export income.
7. It is required for us to examine the provisions of Section 167A and also 86(\’) in this connection. Sub-section (2) of Section 167A (as it existed at the relevant time) read as below :
Where the individual shares of the members of an association of persons (other than a company or co-operative society) in any part of the income of such association are indeterminate or unknown, the income-tax payable by the association shall be the aggregate of —
(i) the amount of income-tax calculated on the aforesaid part of the total income, at the maximum marginal rate; and
(ii) the amount of income-tax with which it would have been chargeable had the remaining part of the total income been its total income.
Section 86 again reads as follow :
Income-tax shall not be payable by an assessee in respect of the following–
(v) if the assessee is a member of an association of persons, or a body of individuals other than a Hindu undivided family, a company or a firm, any portion of the amount which he is entitled to receive from the association or body on which income-tax has already been paid by the association or body.
We agree with the views of the learned Counsel for the assessee in respect of the first example provided by him. We also feel that the total income of an AOP cannot be divided into the portion below the taxable limit and above that and it cannot be considered that the AOP suffers tax only in respect of the latter portion. However, the present case is somewhat different. Here, the total income belonging to the AOP has not been subjected to any single tax. On the other hand, the tax payable by the AOP has been stated to be consisting of two different portions. The first portion being the discretionary portion of the AOP is required to suffer tax at maximum marginal rate. In the instant case, that portion of the income of the assessee can be considered to have actually been subjected to tax. The second portion constituted by specific income of the AOP is to suffer tax in a different manner, viz., in the manner in which it would have suffered tax had this portion of the income been the total income of the AOP. During the course of the argument before us, the counsel for the assessee agreed that if the total income of an AOP be below the minimum taxable limit, then, the members thereof shall not be entitled to the benefit under Section 86(v) in respect of their respective allocated shares out of the income of the AOP. In the instant case, one portion of the income of the AOP’s under consideration has suffered tax and the lower authorities have duly allowed relief under Section 86(v) on that portion. The other portion of the income of the AOP has however, not suffered tax at all. On account of such portion of income of the AOP being below the minimum taxable level. Hence, we are not in a position to accept the view of the assessee that the entire allocated income in the hands of the assessee has already suffered tax in the hands of the AOP itself. We need not take much account of the other example cited by the learned Counsel for the assessee. In accordance with the provisions of Section 80HHC, the total income of the AOP itself will get reduced by the amount of export income and hence, the allocable portion out of export income shall not at all form any part of total income of the member of the AOP. The question of allowing any rebate under Section 86(v) would not, therefore, arise in that case. Finally therefore, we are of the opinion that on account of the fact that two separate portions of income are being allocated to the assessee’s share out of the total income of the AOP in the present case out of which one has actually suffered tax and the other has not, the lower authorities have been right in denying the rebate under Section 86(v) on the latter portion of income in the hands of the assessee. The action of the lower authorities is hence being upheld.
8. In the result, the appeal filed by the assessee is dismissed.