Petitioner trusts being represented by their trustees have filed this writ petition with the following prayers:
"i) call for the records leading to Exts.P2 series and Exts.P4 series orders of the 2nd and 1st respondents and quash the same by the issuance of a writ of certiorari or such other writ, order or direction;
ii) issue a writ of mandamus or such other writ, order or direction, directing the 2nd respondent to re-compute the income tax liability of the petitioners by applying the normal rate of tax applicable to Association of Persons for the assessment year 1997-98 in lieu of the maximum marginal rate of tax applicable under Section 164(1) of the Act and by deleting the levy of interest under Section 243 B of the Income Tax Act.
iii) direct the respondents not to initiate any coercive action against the petitioners for demand and recovery of the differential tax for the assessment year 1997-98 based on Exts.P4 series orders of the 1st respondent.
iv) grant a stay of all proceedings for demand and recovery of the differential tax amounts for the assessment year 1997-98 based on Exts.P4 series orders of the 1st respondent, pending disposal of the writ petition;"
2. The specific case of the petitioners is that the respondents erred in adopting the maximum marginal rate of 40% for the assessment of the petitioners during the assessment year 1997-98. Section 164 of the Income Tax Act deals with discretionary trust and the treatment of the trustees of such a W.P.(C).No.38174 Of 2003 2 trust as representative assessee. Proviso (iv) to Sub-section (1) of Section 164 of the Income Tax Act carves out an exception from the rigor of Section 164 in cases were the income of the Trust is received by a trustee on behalf of, inter-alia, fund created bonafide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession. The learned counsel for the petitioners submits that as the trust in question was an exception to Section 164, the maximum marginal rate could not be applied to the income of the Trust. The learned counsel for the petitioners in respect of Ext.P8, order submits that while disposing of a batch of I.T.As by the Income Tax Appellate Tribunal, Cochin Bench filed by the petitioners, the Tribunal allowed all the appeals and held as follows:
"11. Therefore, the only issue to be considered in the present case is whether the benefit is given to the employee alone or also to anybody else. The assessing officer as well as the CIT (Appeals) have decided against the assessee for the reason that the benefits are extended to the dependents and relatives of the employees also. Now, the question to be considered is whether the benefits extended to the members of the family of the employees in fact amounted to benefits given to the employees alone or not. In all welfare measures, whether under Government or in Public Sector, benefits extended to the employees means benefits extended to their family members also. For example, Government employees are covered by Medical Benefits Schemes. The schemes are extended not only to the W.P.(C).No.38174 Of 2003 3 particular employee-individual alone; the immediate dependent relatives of the employee are also entitled for the benefit of such medical benefit schemes. In the case of educational benefits scheme, it is obvious that the benefits are in fact meant for the education of the wards of the employees. Educational allowance is not usually given for the employees to pursue educational course. Such allowances are meant for the children of employees. The expenses relating to higher education of the employees are usually claimed by the employers as normal business expenditure. Therefore, in actual life and practice, the immediate dependent family members of an employee cannot be disassociated from the employee. There is no case that the fruits of employment is enjoyed by the concerned employee individual himself alone. The salary and emoluments enjoyed by an employee is used by the employee not only for feeding himself, but also the dependent members of his family. Likewise, the benefits given to the employees are in fact extension of the emoluments of the employment. We cannot say that the employee alone need to be taken care of medically, and his wife and children should not be taken care. We cannot say that the employee alone should be fed and clothed and his dependent family members should not be taken care of in similar manner. Benefits to employees mean benefits to employees as well as their dependent family members.
13. Therefore, I hold that the assessee-Trust is entitled for the exemption available under proviso (iv) to sub-section (1) of Section
164. The lower authorities have therefore erred in levying tax at the maximum marginal rate. The assessee-trust is liable to be taxed in the status of AOP at the respective normal slab rate. The assessee succeeds in its appeals."
In that view of the matter, I asked the learned counsel for the income tax department whether the department has preferred any appeal against Ext.P8 order. On instructions, he submits that no appeal has been preferred. Since the Tribunal has granted relief holding that the petitioners are entitled to benefit mentioned in Proviso (iv) to Sub-section (1) of Section 164 of the Income Tax Act, I set aside the impugned orders, W.P.(C).No.38174 Of 2003 4 Ext.P4 series of orders and remit the matter to the assessing authority to re-calculate the income tax liability of the petitioners and also to extent the benefit as provided by the Tribunal to the petitioners and the re-computation shall be completed within three months from the date of receipt of a copy of this judgment.
B.P.RAY, JUDGE su/-