1965 (4) TMI 13 - SC - Income Tax

Whether the provisions of section 41 of the Income-tax Act, 1922 can be said to apply to the assessees in this case ? Held that - In terms of section 41 of the Act the nattamaigars are the managers of the properties on behalf of others and are entitled to receive the income therefrom on behalf of them. With the result, the income which they hold on behalf of the kasupangudars can be assessed only in their hands in the manner prescribed thereunder. The High Court has rightly answered the question referred to it in the affirmative and in favour of the assessee that the managing trustee qua the surplus income managed the property and derived the income on behalf of the kasupangudars and that the assessment should be made on the said managing trustee to the extent of the interest of each of the kasupangudars in the income received by him . Appeal dismissed.

Summary

Issues:
1. Interpretation of section 41 of the Income-tax Act, 1922 regarding the assessment of surplus income in the hands of a managing trustee.
2. Determination of whether the managing trustee administered the trust properties on behalf of the beneficiaries for the purpose of tax assessment.

Analysis:
The case involved a Durgha in Nagore, Madras State, administered by nattamaigars under a scheme settled by the Madras High Court. The Income-tax Officer assessed the surplus income as an association of persons for the assessment years 1953-54 and 1954-55. The High Court considered whether section 41 of the Income-tax Act applied to the managing trustee's assessment. The High Court held that the managing trustee managed the property on behalf of the kasupangudars, leading to the assessment in the hands of the managing trustee to the extent of each kasupangudar's interest.

The crux of the issue lay in the interpretation of section 41 of the Act, which pertains to the assessment of income received by certain individuals on behalf of others. The contention raised was whether the managing trustee received the income on behalf of the beneficiaries or in his own right. The court emphasized that the doctrine of vesting was not crucial, as the key aspect was that the income was received for the benefit of others, irrespective of legal ownership.

Furthermore, the court referred to previous judgments highlighting that managers of religious endowments are not trustees in the traditional sense but act on behalf of the beneficiaries. The nattamaigars were deemed to manage the properties for the benefit of the Durgha and kasupangudars, holding the income on their behalf. The scheme did not vest the properties in the nattamaigars, and the managing trustee's appointment was considered to be under the court's order.

Ultimately, the court affirmed the High Court's decision, stating that the managing trustee held the income on behalf of the kasupangudars and should be assessed accordingly. The appeals were dismissed, with costs awarded to the respondent.