1959 (12) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the trust deed dated February 5, 1944.
2. Assessment of income from house properties under section 9 of the Indian Income-tax Act.
3. Applicability of section 41 of the Indian Income-tax Act.
4. Whether the assessment should be made in a single sum or separate sums.
5. Responsibility of trustees in the submission of returns.

Issue-wise Detailed Analysis:

1. Validity of the Trust Deed:
The trust deed dated February 5, 1944, conveyed house properties to Birendra and his mother, Sudhamukhi, as trustees. The several beneficiaries included Birendra, his brothers, his mother, and his father. The Income-tax Officer initially rejected the trust deed as invalid, but the Appellate Tribunal later held it to be valid. The High Court confirmed the validity of the trust deed, stating, "As the trust deed dated the 5th February, 1944, is a valid and operative instrument, the ownership of the three properties is vested in Birendra and Sudhamukhi as trustees."

2. Assessment of Income from House Properties:
The primary issue was whether the income from the house properties should be assessed entirely in the hands of Birendra or divided among the beneficiaries. The Income-tax Officer assessed the entire income in Birendra's hands, but the Appellate Tribunal held that only one-sixth of the income should be assessed in his hands, with the balance assessed in the hands of the trustees. The High Court concluded, "The trustees hold the trust property as owners for the benefit of the beneficiaries and upon the trusts declared by the trust deed."

3. Applicability of Section 41:
The High Court examined whether section 41 of the Indian Income-tax Act applied to the income received by the trustees. Section 41 deals with the taxation of income received by trustees on behalf of beneficiaries. The Court stated, "Section 41 applies to income which a trustee is entitled to receive on behalf of any person." The Court rejected the contention that section 41 could not apply to trustees, clarifying that trustees receive income in their representative capacity.

4. Single Sum vs. Separate Sums:
The Court analyzed whether the assessment should be made in a single sum or separate sums. The Appellate Tribunal had upheld a single assessment, but the High Court disagreed, stating, "The assessment upon the assessee, Birendra, in his capacity as trustee must be made in accordance with the substantive part of section 41(1) in separate sums and not in a single sum." The Court emphasized that the income should be assessed in separate sums corresponding to the beneficiaries' shares.

5. Responsibility of Trustees in Submission of Returns:
The issue of whether both trustees should have submitted the returns was raised. The High Court noted, "The assessee had not made any returns of income as a trustee and that the other trustee, Sudhamukhi, had not joined in the returns submitted by the assessee." However, the Court did not allow this contention to affect the outcome, as it was not part of the question referred to them.

Conclusion:
The High Court concluded that the assessment of the entire income in a single sum upon Birendra was incorrect. The income should be assessed in separate sums in accordance with section 41(1). The Court answered the question in the negative, indicating that the assessment was not rightly made in a single sum upon the assessee. The assessee was awarded costs for Reference No. 45 of 1954, with no order as to costs for Reference No. 106 of 1954.