1998 (4) TMI 8 - HC - Income Tax

Summary

Issues:
1. Assessment of income from a business run by trustees.
2. Whether income should be assessed in the status of an association of persons or individually for beneficiaries.

Analysis:

Issue 1: Assessment of income from a business run by trustees

The case involved a trust deed executed by the karta of a business, vesting the business in himself and his wife as trustees for the benefit of minor coparceners. The Income-tax Officer initially assessed the income as that of an association of persons due to the creation of the trust. However, the Appellate Assistant Commissioner and the Tribunal held that the income should be assessed in the status of individual trustees in respect of the share of each beneficiary. This decision was based on the principle established in previous case law and the specific circumstances of the trust deed.

Issue 2: Assessment status - Association of Persons or Individual

The key question raised was whether the income from the business run by the trustees should be assessed in the status of an association of persons or individually for each beneficiary. The Tribunal referred this question to the High Court for opinion. The High Court noted a previous Division Bench decision that reversed the Tribunal's order, emphasizing the assessment should be made in the status of an association of persons only, following the Supreme Court decision in the case of Meera and Co. v. CIT. The Supreme Court's ruling highlighted that when individuals jointly engage in a business venture to produce income, the income should be assessed as that of a "body of individuals." Furthermore, it clarified that the provisions of sections 160, 161, and 166 of the Income-tax Act enable the levy of tax on such joint ventures as a collective entity, rather than separately on individual beneficiaries.

In conclusion, the High Court held that the Tribunal was not justified in assessing the income from the business of the trustees individually, and it should be assessed in the status of an association of persons. The judgment aligned with the legal principles established by the Supreme Court regarding joint business ventures and the assessment of income for tax purposes.