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TMI Blog1989 (1) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with the provisions of section 161(1) of the Income-tax Act, 1961. Since each of the beneficiaries was being separately assessed in respect of his share in the income of the trust, trustees had pleaded that they were not liable to be assessed in respect of the said income. The Income-tax Officer in his assessment order had accepted this position. He determined the business income at Rs. 75,777 and observed that the above income of the trust was assessed in the hands of the beneficiaries and as such the income to be assessed in the hands of the trust was nil. He allocated the above income amongst three beneficiaries the three beneficiaries were assessed in respect of his share in the said income. 4. Subsequently the Commissioner of Income-tax, Kolhapur, commenced proceedings under section 263 of the Income-tax Act, 1961. A notice was issued to the assessee-trust to show cause why the trustees of the assessee trust should not be assessed in the status of, association of persons on the ground that they represented three beneficiaries who constituted an AOP. The assessee submitted that the beneficiaries of the trust did not constitute an AOP within the meaning of that expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot considered in those decisions and as such he did not agree with the view expressed in said decisions. He set aside the assessment and directed the ITO to assess the trust as an AOP on the full income of the trust and to raise demand at the rate applicable to the AOP against that order the assessee has come in appeal before us. 6. The facts in other appeals are identical. In each case there is a specific trust. The beneficiaries are known and their shares are determinate. In all the cases except the case of Dhanlaxmi Trust, all the beneficiaries are minors. In the case of Dhanlaxmi Trust there are six beneficiaries of whom four are minors and two are majors. In all these cases the trustees have been empowered to carry on the business by the settlor by direction in the trust deed. The beneficiaries have been separately assessed in respect of the share of income from the trust. In all the cases the Income-tax Officer had assessed the trustees in accordance with the provisions of section 161(1) of the Act. The Income-tax Officer had not brought the income of the trust directly to tax because the beneficiaries had been assessed in respect of the share received by them in the trust. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed in large number of decisions does not require any re-consideration. We proceed to state our reasons. 8. In some of the decisions under the Income-tax Act, 1922 distinction had been made in the matter of levy of tax, between income arising to a representative assessee under the head " business or profession ", on the one hand, and income arising under the head other than " business or profession ", such as, house property, interest on security, dividend etc, on the other. In respect of non-business income the court held that the tax should be levied on the representative in the same manner and to the same extent as it would have been leviable if the assessment had been made direct in the hands of the beneficiaries. In the case of business income, however, in some cases there were observations to the effect that there were two modes of assessing the representative assessee namely (i) levying the tax " in the same manner and to the same extent " as with reference to non-business income or (ii) ignoring the provisions relating to Chapter V of the 1922 Act (corresponding to Chapter XV of the 1961 Act) relating to special liability cases and to tax the business income in the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable under the head " special liability " provisions of Chapter XV which drew no distinction between the income arising from " business or profession " and income arising from property, interest, dividend etc. The recommendation of the Law Commission in its 12th Report, pages 425 and 426 was as follows : " Persons liable as representative assessee, especially the trustees, guardian or manager (i.e. the assessee governed by existing sections 40 and 41) at present, liable to be charged directly under section 3 also. In any case, the absence of a specific provision lends support to the opinion expressed by some commentators that the Act leaves an option with the Department to assessee the trustee, etc. either under section 3 or under section 40 or 41. Since the assessment under section 3 might be more onerous than under section 40 or 41, it seems desirable to make it clear that it is obligatory on the Department to apply the provisions of sections 40 and 41 in cases where they are applicable, leaving the general liability under section 3 to be applied only in cases which are outside sec. 40 and 41. The draft sub-clause under discussion is intended to achieve this object. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has an entity for assessment under section 2(31) of the Act 1961 which are not used in any technical sense but are required to be construed in their plain and ordinary meaning. Those words indicate that there is a combination of persons formed for the promotion of joint enterprise. In other words there are co-adventures who are branded together in common action. They would be assessable as AOP when they do not in law constitute a partnership. Generally speaking there can not be " AOP " in business unless the members of the group have joined together of their volition of free will. However, if the test governing the AOP is satisfied, the circumstance that the AOP emerges as a result of an order of the Court appointing a receiver would be immaterial. Where the income does not result from any joint venture or joint act, assessment in the status of AOP would not be justified. Reviewing the entire, case law on the subject, the Supreme Court has held in Indira Balkrishna's case which was followed in G. Murugesan Bros. case that in order to constitute an ' AOP ' persons must have joint for a common purpose or common action. The object of the association must be to produce income. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent of beneficiaries given to the trustees for carrying on the business should be inferred in the circumstances of the present case. 11. We shall now refer to the decision of the Supreme Court in the case of N.V. Shanmugham Co. on which strong reliance has been placed by the learned Commissioner of Income-tax and also by the learned departmental representative before us. This decision has been duly considered in the two decisions of the Tribunal in Trustees of Anandani Family Trust's case and Trustees of Anilkumar Trust's case. However a submission has been made on behalf of the department to consider this decision afresh. We proceed to do so. 12. The facts in this case were that one of the partners of the firm had filed a suit in Civil Court for dissolution of the partnership firm with effect from 31-8-1956 and taking accounts. On 21-9-1956 the Court appointed three receivers, two of whom were partners and the third was an advocate. The business had stopped prior to the appointment of the three receivers. The Court directed the receivers to re-open business and conduct snuff business subject to the terms, inter alia, that the receivers would carry on the business normally, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court. Consequently the principle applied in said decision would not be applicable to the facts of the present case. 15. We find that the important principle that emerges from the decision of the Supreme Court in the case of N.V. Shanmugham Co. is that the mere fact that there are joint representative assessees e.g. co-trustees or co-receivers, will not make them assessable as an " AOP ". According to this decision representative assessees take their status from the beneficiaries they represent and it is wholly immaterial whether there is one representative assessee or there are two or more of them representing the same beneficial interest or interests. For instance, according to this decision co-trustees would be assessable in the status of " individual " where they represent beneficiaries who are assessable seprately in the status of " individual " ; and, likewise, they would be assessable in the status of " AOP " where they represent beneficiaries who constitute an " AOP ". Consequently the crucial question which would arise in the such case would be as to what was the status of the beneficiaries. In the present case as already stated the status of the beneficiaries wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinguishing facts of the decision of the Supreme Court in the case of N.V. Shanmugham Co. in which the income had been received by the receivers on behalf of partners who were joint owners of the business and who formed A.O.P. We have pointed out that in the peculiar facts of that case the receivers did not and could not have represented the individual interest of the authorised owners of the business. They represented the joint interest of the owners. In the present case, in view of the provisions of trust deed, the trustees represent the individual interest of each beneficiary. The beneficiaries do not have common interest. Each beneficiary has specific interest in the income of the trust and there is no " AOP " as far as beneficiaries are concerned. 19. For reasons given above we are of the opinion that the decisions of the Tribunal in the case of Trustees of Anandani Family Trust and Trustees of Anilkumar Trust do not require re-consideration. We respectfully follow those decisions. We particularly rely on the decision of the Bombay High Court referred to in this order and also the decision of the Supreme Court discussed in this order and hold that in these cases the truste ..... X X X X Extracts X X X X X X X X Extracts X X X X
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