Buckeye Trust Vs PCIT-2 (ITAT Bangalore)
The appeal before the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, concerned the validity of a revisionary order passed under section 263 of the Income Tax Act, 1961 for Assessment Year 2018-19 . The assessee, a private discretionary trust created on 23.01.2018 under the Indian Trusts Act, 1882, received assets amounting to ₹669,27,63,437 from the settlor on 31.03.2018. The assets were in the form of interest in partnership firms and investments in unlisted shares and were reflected under “Trust Fund” and “Investments” in the financial statements.
The trust filed its return declaring nil income. The case was selected for complete scrutiny on issues including investments/advances/loans, expenses relating to exempt income, and share capital/other capital. The Assessing Officer (AO) completed the assessment under section 143(3) read with sections 143(3A) and 143(3B) on 07.04.2021 without making any modification to the returned income.
The Principal Commissioner of Income Tax (PCIT), upon examining the records, observed that the trust had received ₹669,27,63,437 and claimed exemption under section 56(2)(x) on the basis that the trust was created solely for the benefit of relatives of the individual settlor. However, clause 1.6 of the trust deed defined beneficiaries to include the settlor, spouse, children, remoter issue, and “such other objects or persons as are added under clause 6.” Clause 6 empowered the trustee to add any person or class of persons (whether or not in existence or ascertained) or charity as beneficiaries.
