Mumbai Tribunal: Amounts in foreign bank account of Trust cannot be taxed as income of trustee

 Mumbai Tribunal deleted the addition in respect of the amounts of the trust’s foreign bank account in the hands of the trustee, on the ground that the trustee was not the beneficial owner of the trust assets

The assessee was acting as a trustee of an India-based trust. Pursuant to a search conducted by the Income-tax Department at his premises, details of certain overseas bank accounts maintained in the name of the trust were unearthed. Based on information received from foreign tax authorities, the Assessing Officer made an addition in the hands of the assessee by treating the peak balance in the overseas bank account as his income. Aggrieved, the assessee preferred an appeal before the CIT(Appeals), which was decided in favour of the Revenue. The assessee thereafter carried the matter in appeal before the Tribunal.

Before the Tribunal, the assessee, relying on various documents including the trust deed and overseas bank records, contended that he was not a beneficiary of the trust and had acted only in a fiduciary capacity as a trustee. He also furnished details of the beneficiaries, all of whom were non-residents. The Revenue, on the other hand, argued that the assessee was actively managing the day-to-day affairs of the trust, including opening and operating bank accounts, transferring funds and issuing operational instructions, and that the trust’s administrative address reflected in the bank records was the assessee’s office address. Upon consideration of the facts, the Tribunal ruled in favour of the assessee by placing reliance on the decision in the case of the assessee for an earlier year on identical facts, holding that the assessee was not the beneficial owner of the bank account and that the funds were not received by him.

This decision reaffirms the fundamental principle that trustees are associated with a trust solely in a fiduciary capacity and do not hold beneficial ownership over the trust assets. It also underscores the importance of carefully drafting trust documentation to clearly delineate the roles and responsibilities of the trustee and the entitlements of the beneficiaries.