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TMI Blog1990 (7) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... inserted in the Income-tax Act, 1961. This amendment has been inserted by the Finance Act, 1984, with effect from April 1, 1985. We are, therefore, concerned with the relevant provisions of the Income-tax Act prior to that date. Chapter XV of the Income-tax Act, 1961, deals with tax liability in certain special cases. This includes, inter alia, the liability of representative assessees. The relevant portions of the sections in Chapter XV are as under : "Section 160 : Representative assessee. -(1) For the purposes of this Act, 'representative assessee' means..... (iv) In respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (VI of 1913)), receives or is entitled to receive on behalf, or for the benefit, of any person, such trustee or trustees. 161. Liability of representative assessee.-(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame way as on an assessee who does not fulfill the character of a trustee. The court further observed that even though the income to be assessed is the income of a trustee, it must be assessed under one of the heads mentioned in Chapter III of the Act and the provisions laid down with regard to the computation of that income must he carried out. Section, 41 will come into play after the income has been so computed. The Department had contended that business income stood on a different footing from income from property or income from other sources. This contention was negatived by the court in the above case. It held that the nature of the income made no difference as far as section 41 was concerned. The court said (at p. 197) "The sole question, which should be easy to answer, would be : Is the assessment being made upon a trustee or not ? If the assessment is made upon a trustee, whatever the nature of the property, whatever the nature of the income, whatever the mode of computation, his liability to pay tax must be determined in accordance with section 41." This decision of our court has been quoted the approval by the Supreme Court in the case of CWT v. Trustees of, H. E. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as if it formed a part of the beneficiary's income. Tax payable by the trustees Will be the sum total of the tax so calculated on the share of each beneficiary. In fact, under section 166, the Revenue has the option to assess the beneficiary directly. This does not make any difference to the quantum of tax which is liable to be paid. But the income cannot be taxed in the hands of the trustees as one unit under section 161(1). It was submitted by Dr. Balasubramaniam and Mr. Jetley who appeared on behalf of the Department in these applications that the beneficiaries must be looked upon as an association of persons. Hence, the entire income accruing to the beneficiaries must be taken as one unit. Both of them relied upon the decision of the Supreme Court in the case of N. V. Shanmugam and Co. v. CIT [1971] 81 ITR 310. In that case, a suit had been filed for dissolution of partnership and accounts. One of the partners applied for the appointment of a receiver. By consent of parties, receivers were appointed. The receivers were directed to run the business of the partnership for the purpose of winding up, The terms of appointment provided that the receivers could run the business no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the right, of disclaimer under section 9 by implication meant that the beneficiaries had consented to the trustees' carrying on business on their behalf.. The argument is wholly misconceived. The right of disclaimer under section 9 has no reference to any business carried on by the trustees. It is qua beneficiary's interest in the trust. By not renouncing his rights under a trust, a beneficiary does not consent to the trustees' carrying on business. We do not see how the trustees who are authorised to carry on business under the terms of a deed of trust can be considered in the same position as the receivers in Shanmugam's case [1971] 81 ITR 310 (SC). The beneficiaries have not come together with the object of carrying on business nor have they authorised the trustees to carry on any business, as was the case in the above decision. The trustees derive their authority to carry on business, Rot from the beneficiaries, but from the settlor under the terms of the deed of trust, They do not require, the consent of the beneficiaries for exercising their authority under the deed of trust. The authority is conferred on them by the settlor. The beneficiaries are mere recipients of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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