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TMI Blog1990 (10) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... e prejudicial to the interests of the Revenue and has, therefore, set aside the orders of assessment and directed the Income-tax Officer to assess the liability of the trustee or trustees in their representative capacity as an association of persons calling upon them to pay tax on the total income of the trust as a single unit. Aggrieved by such orders, the assessee-trustee or trustees preferred appeals to the Income-tax Appellate Tribunal, Bangalore Bench. In all the cases, the Tribunal has set aside the order of the Commissioner holding that the assessments concluded by the Income-tax Officer concerned were correct and did not call for interference by the Commissioner. In those circumstances, the applications made before the Tribunal to get certain questions referred to this court for answer by this court, came to be rejected by the Tribunal. Therefore, the present petitions under sub-section (2) of section 256 seeking a direction calling for reference by the Tribunal stating the cases. Mr. Chanderkumar appearing for the Revenue in all the above petitions contended that the questions formulated in the first of the petitions above, viz., 501 of 1989, ought to have been referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a suit for partition, the widow also came to file a separate suit for partition of the same estate and made an application for appointment of receivers. That application was opposed, by her step-son, inter alia, on the ground that she wanted a change in the receivers. In any event, the receivers appointed by the court were ordered to continue and the business was carried on as before. The income accrued by such business was held to be the income of all the heirs and as such should be treated as income of an association of persons in the hands of the receivers as it was being carried on with their consent, because none of the heirs had objected to the appointment of receivers to carry on the family business. It was in those circumstances that the Supreme Court, in those cases, held that the income as such was the income of the association of persons who carried on the business and on whose behalf the business was carried on in reality by the receivers appointed by the court. Section 160 of the Income-tax Act defines a "representative assessee" under clause (4) thereof as follows : "160. Representative assessee.-(1) For the purpose of this Act, representative assessee' means - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of this Act shall apply accordingly: Provided that where .... of an association of persons: Provided further that when part only .... from that part. (2) Nothing contained in sub-section (1) shall prevent either the direct assessment of the person on whose behalf income, profits or gains therein referred to are receivable, or the recovery from such person of the tax payable in respect of such income, profits or gains." As we see, in the sections extracted, while in the earlier Act, an omnibus provision was made covering several types of income in the hands of different persons under several statutes or instruments, section 161(1) specifically now deals with income of a trust in the hands of the trustee or trustees. Barring that difference, the purpose of the two sections appear to be the same. By an amendment brought about by the Finance Act, 1984, with effect from April 1, 1985, section 161(1A) with its proviso and Explanation reads as follows : "(1A) Notwithstanding anything contained in sub-section (1), where any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al), CIT v. Laxmidas Devidas [1937] 5 ITR 584 (Bom) and In re Dwarakanath Harischandra Pitale [1937] 5 ITR 716 (Bom). In In re B. N. Elias [1935] 3 ITR 408 (Cal), Derbyshire C. J. rightly pointed out that the word 'associate' means, according to the Oxford Dictionary, 'to join in common purpose, or to join in an action'. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont C. J. in CIT v. Laxmidas Devidas [1937] 5 ITR 584 (Bom), at page 589 and also in In re Dwarakanath Harischandra Pitale [1937] 5 ITR 716 (Bom). In In re B. N. Elias [1935] 3 ITR 408 (Cal), Costello J. put the test in more forceful language. He said : 'It may well be that the intention of the Legislature was to hit combinations of individuals who were engaged together in some joint enterprise but did not in law constitute partnerships ... When we find ... that there is a combination of persons formed for the promotion of a joint enterprise ... then think no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneficiary who has no right to interfere with such administration, except in cases where the trustee may also be the beneficiary in which case he has to function by separating his two identities. At best, the beneficiary under the instrument of trust created by the maker of the trust has the option in law to accept or reject the benefit. Therefore, applying the ratio decidendi of the cases relied upon by Sri Chanderkumar for the Revenue, it is impossible to hold that the beneficiaries under a trust can be equated with an association of persons who had voluntarily come forward to constitute themselves as a group with the common intention of pursuing a venture from which they may derive profits. No such consent can be implied in the construction of any trust deed. On the other hand, in one of the cases on hand, the trust deed specifically empowers the trustees to do what they liked with the trust money; to invest in business or to keep it in a bank or buy securities ; but the only direction to them in terms of the trust is that profits, if any, gained out of such investments or carrying on of business with the trust money should enure to the individual beneficiary's benefit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person who accepts the confidence is called the 'trustee' : the person for whose benefit the confidence is accepted is called the 'beneficiary' : 'the beneficial interest' or 'interest' of the beneficiary is his right against the trustee as owner of the trust property ; the subject-matter of the trust is called 'trust property' or 'trust money'. These definitions emphasise that the trustee is the owner of the trust property and the beneficiary only has a right against the trustee as owner of the trust property. The trustee is thus the legal owner of the trust property and the property vests in him as such. He no doubt holds the trust property for the benefit of the beneficiaries but he does not hold it on their behalf. The expression "for the benefit of" and "on behalf of" are not synonymous with each other. They convey different meanings. The former connotes a benefit which is enjoyed by another thus bringing in a relationship as between a trustee and a beneficiary or cestui que trust, the latter connotes an agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of another." Therefore, the clear distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iciaries in respect of the remainder on the relevant valuation date and whether their shares are indeterminate or unknown. It is not at all relevant whether the beneficiaries may change in subsequent years before the date of distribution, depending upon contingencies which may come to pass in future. So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of sub-section (1) of section 21. The position has to be seen on the relevant valuation date as if the preceding life interest had come to an end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries and on what determinate shares, sub-section (1) of section 21 must apply and it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being." Thus, the third question stands fully answered by the authoritative pronouncement of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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