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Issues involved: The judgment involves the determination of tax payable by trustees on undisbursed capital gains added to the trust corpus, specifically in relation to the normal trust income payable to the beneficiary and separately charged to tax in her hands.
Details of the judgment: The case involved three separate trusts with identical terms, namely the Gargi Trust, Rohini Trust, and Hemnalini Trust, all dated October 19, 1953. The trustees were assessed for the assessment year 1966-67. The trusts did not permit the capital gains to be disbursed to the beneficiary but to be added to the trust corpus. The Income Tax Officer (ITO) determined the tax payable by the trustees on the capital gains by considering the total income of the trustees, which included the normal income already taxed in the hands of the beneficiaries. The Appellate Tribunal upheld the ITO's orders, stating that trustees were liable to be assessed only in respect of capital gains, not other income allocated to identifiable beneficiaries. The Tribunal directed that the capital gains should be taxed as the only income of the trustees. The revenue contended that the income passed on to the beneficiary should be considered part of the trustees' total income. However, the assessees argued that once the income is taxed in the hands of the beneficiary, it cannot be considered as the income of the trustees. The court referred to relevant sections of the Income Tax Act, including sections 160, 161, 164, and 166. It noted that the Act allows for direct assessment on the beneficiary if the income is receivable on their behalf. The court emphasized that once the income is taxed in the hands of either the trustee or the beneficiary, it cannot be taxed in the hands of the other. Referring to previous court decisions, the court concluded that income excluded from chargeability to tax in the hands of the trustees cannot be considered part of their total income for tax rate determination. In conclusion, the court answered the question in favor of the assessee, stating that the income already taxed in the hands of the beneficiary should not be included in the total income of the trustees for tax rate determination. The revenue was directed to pay the costs of the reference.
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