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TMI Blog1930 (5) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... emained the sole owner of the business. The deed which she had drawn up to govern the disposition of the lucrative and extensive business after her death is the trust deed, dated 17th March 1924. This deed is a testamentary document and was one of the documents annexed to the Letters of Administration granted by this Court. The other document annexed need not be referred to as it was admitted that its existence did not affect the questions raised in this reference. The deed created a trust for the continuance and maintenance of the hotel business and properties and for their advancement and otherwise for the benefit of her children and grandchildren. 3. The trustees named are Robert and Florence Hotz, two of her children, and Arthur Henry Pook. The beneficiaries are all her eight children, whose shares are specified. All are persons of full capacity, resident ordinarily in British India. The trustees have to keep proper accounts of the business and to have them audited. They have to set aside ₹ 20,000 yearly before distributing profits, a9 a reserve fund against contingencies, this fund to be divided after ten years amongst the beneficiaries, and thereafter periodically as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fth and sixth, which were given up. We are, therefore, concerned only with the three questions set out above. 6. Strictly speaking, there are only two questions to be answered and they are interdependent. This was conceded before us. Questions (1) and (2) go together and raise the question whether the trustees are "an association of individuals" carrying on a business and therefore come within the charging Sections 3 and 55 read with Section 10, etc., of the Act; while question (3) raises the question whether by necessary implication under the scheme of the Act, in which Section 40 finds a place, only beneficiaries, and never trustees, are liable to be taxed. Admittedly Section 40 of the Act, which deals with the liability of a trustee in certain specified special cases, does not apply to the facts of this case; and the Income Tax -authorities then went on to find whether the trustees were liable in this case under the general provisions of the Act, and held that they were. The question of law for decision in short is whether they were-right in so holding. 7. We have been taken through the Indian and English Acts and, in my judgment, there is no essential difference bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a particular rule, appearing in the English Acts, and it was claimed that although by virtue of this rule a body of trustees in England, who carried on a business, might be taxed (though the dicta to this affect in various judgments, it was argued, were wrong), this did not warrant the acceptance of this proposition in India, in spite of the Acts being in all material respects the same, as the rule found no place in the Indian Acts. The rule in question in the English Income Tax Act, 1918, is Rule (1), Miscellaneous Rules applicable to Schedule D and runs: (1) Tax under this schedule shall be charged on and paid by the person or bodies of persons receiving or entitled to the income in respect of which tax under this schedule is hereinbefore directed to be charged. 11. In the English Income Tax Act, 1842, the same principle was laid down in Section 100, where it was enacted that: the duties...shall be charged annually on, and paid by the persons, bodies politic or corporate, fraternities, fellowships, companies, or societies, whether corporate or not corporate, receiving, or entitled to the profits, etc. 12. But in my opinion there is no essential difference between these ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly has arisen on this score in England where the corresponding phrase used is "body of persons." Even if "other association of individuals" must he ejusdem generis with the preceding words, those words are "individual, Hindu undivided family, company, firm." Now firm is a short-hand name for the partners, constituting it. It is true that they contract together to be partners, while the trustees are constituted apparently without their consent, though as a matter of fact they would usually be consulted. In my opinion that does not bring trustees outside the term "other association of individuals." Hindu undivided family also occurs in the list and that is an involuntary association brought about by the mere birth of individuals. From the trust deed itself it is apparent that the trustees are a business association with full powers to carry on the business, extend it, accumulate income and borrow capital which can be repaid by instalments up to half the annual income. It appears to me that by this trust deed a very effective business association has been created, and certainly quite as effective as firm or private company, if not more so. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eat Britain shall be chargeable in the name of his trustee or agent having the receipt of any profits or gains. Section 108 of the same Act which deals with the profits or gains arising from foreign possessions or foreign securities, provided that, in default of the owner being charged, the trustee, agent, or receiver thereof shall be charged for the same. And, even apart from these special provisions, I am not pre-pared to deny that there are many cases in which a trustee in receipt of trust income may be chargeable with the tax upon such income. For instance, a trustee carrying on a trade for the benefit of creditors or beneficiaries, a trustee for charitable purposes, or a trustee who is under an obligation to apply the trust income in satisfaction of charges or to accumulate it for future distribution appears to come within this category. 18. Viscount Cave might have had the trust deed in question before him when he made these remarks; for it not only provides for the carrying on of a business for the benefit of beneficiaries, but the trustees have to pay part of the income in satisfaction of certain charges, such as pensions etc., and also accumulate it for future distributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of conducting business, which a prudent owner would consider as deductions from profits and which trustees would make before they paid the net income over to the beneficiary but which nevertheless for Income Tax purposes, as the law at present stands, are not considered as legitimate deductions from income. In these cases, if the revenue is to receive its full quota, it would seem that the assessment must be put upon the trustee and not upon the beneficiary and that in such cases the trustee is the person to be assessed. 22. It is impossible for me to add to the weighty words of these noble Lords whose remarks, quoted above, might have been made in respect of the case now before us. 23. Tischler v. Apthorpe [1890] 2 Tax Cases 89 is also in point. It was held that though there was a power of assessing an agent of a foreign firm under Section 40 of the English Act, 1842, that did not relieve the principal from his liability to assessment when he could be served with the proper notices. The decision turned on the argument that Section 41 (which i3 equivalent to Section 40 of the Indian Act) was intended only to aid the Commissioners in recovering the tax and not to alter th6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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