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TMI Blog1968 (9) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... In the proceeding for assessment for the year 1962-63, the 5th Income-tax Officer, City Circle II, Bangalore, included in the total income of Nagappa the income arising from the trust properties and used for the immediate benefit of the beneficiaries, but not the income directed to be accumulated. The Commissioner, in exercise of the power under section 263 of the Income-tax Act, 1961, directed that the income for the deferred benefit of the minor beneficiaries be also included in the total income of Nagappa. In appeal against that order to the Income-tax Appellate Tribunal, Nagappa contended that the income from trust properties was liable to be assessed under section 161(1) only in the hands of the trustees, and not in the hands of the settlor. The Tribunal rejected that contention. At the instance of Nagappa, the Tribunal referred two questions for the opinion of the High Court of Mysore : " (1) Whether having regard to the provisions of sub-section (2) of section 161, section 64(v) of the Income-tax Act was applicable to the assessee's case for computing the assessee's income for the assessment year 1962-63 ? (2) Whether the assessments on the minor beneficiaries for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability of a representative assessee. It provides : " (1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income ; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. (2) Where any person is, in respect of any income, assessable under this Chapter in the capacity of a representative assessee, he shall not, in respect of that income, be assessed under any other provision of this Act. " It is implicit in the terms of sub-section (1) that the Income-tax Officer may assess a representative assessee as regards income in respect of which he is a representative assessee, but he is not bound to do so. He may assess eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd by Chapter V income of other persons in certain conditions is liable to be included in the assessee's total income. Section 64, which falls in Chapter V, provides : " In computing the total income of any individual, there shall be included all such income as arises directly or indirectly-- (i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner ; (ii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm in which such individual is a partner ; (iii) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart ; (iv) subject to the provisions of clause (i) of section 27, to a minor child, not being a married daughter of such individual from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration ; and (v) to any person or association of persons from assets transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... civil court in a suit were carrying on the business on behalf of two minors . " . . . it was open to the department to have assessed the income of the guardians under section 10 on the basis that the particular business was carried on by the guardians in their own right, and the taxing department could have taken up the stand that they had no concern with what the guardians did with the profits after they had paid the tax on the income from the business ; or it was open to the department to proceed against the guardians under section 41 and to tax in their hands only that income which they had received on behalf of the minors. " It was apparently assumed that it was open to the Income-tax Officer either to assess and tax the guardians as if they were owners of the business and of the income accruing therefrom, or to tax them as trustees under section 41. In so assuming the court exalted sections 40 and 41 into quasi-charging sections. The observation was plainly obiter, for the income-tax department had assessed the income in the hands of the guardians as trustees under section 41. In a later judgment of the same High Court, the court reversed the earlier opinion : Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has enacted that where the income is assessable under Chapter XV in the hands of a person in the capacity of a representative assessee it is not liable to be assessed under any other provision of the Act, that is, the tax is not liable to be levied under any other provision of the Act. In our view Chagla C. J. was right in observing in Balwantrai Jethalal Vaidya's case in dealing with the scheme of section 41 of the Income-tax Act, 1922, that " ....... it is clear that every case of an assessment against a trustee must fall under section 41, and it is equally clear that, even though a trustee is being assessed, the assessment must proceed in the manner laid down in Chapter III.... Section 41 only comes into play after the income has been computed in accordance with Chapter III. Then the question of payment of tax arises and it is at that stage that section 41 issues a mandate to the taxing department that, when they are dealing with the income of a trustee, they must levy the tax and recover it in the manner laid down in section 41. " The same considerations must apply in the interpretation of section 161(2) of the Income-tax Act, 1961. Sub-section (2) of section 161 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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