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TMI Blog1974 (8) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of account of the Ahmedabad trust, a sum of Rs. 10,880 was debited to interest account being interest paid to Harivallabhdas Kalidas Estate Account (hereinafter referred to as "the estate account"). The Income-tax Officer analysed the withdrawals from the estate account and found that there was substantial debits for expenses like household expenses, advance income-tax, income-tax, etc., totalling Rs. 2,19,804 and all these withdrawals from the estate account by the Ahmedabad trust were for personal expenses of the assessee. The Income-tax Officer took into consideration earlier withdrawals from the estate account made by the Ahmedabad trust for investments and made adjustments for deposit in the year and finally concluded that the net withdrawals from the estate account for personal purposes was Rs. 3,10,806. He held that proportionate interest of Rs.6,199 out of the total interest of Rs. 10,880 paid by the Ahmedabad trust to the estate account was referable to withdrawals for personal expenses and for payment of tax, etc., and hence could not be allowed as an admissible deduction in computing the income of the assessee. On this basis the Income-tax Officer worked out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Whether, on the facts and in the circumstances of the case, the income includible in the total income of the assessee is income determinable as per provisions of the Income-tax Act, 1961, in the case of the trust or the income receivable by the assessee from the said trust ?" In Income-tax Reference No. 29 of 1973, only one question has been referred to us for our opinion at the instance of the assessee and that question is: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that out of the interest payment of Rs. 25,496, Rs. 12,833 was not an admissible deduction against the income from other sources ? " In Income-tax Reference No. 35 of 1972 (Smt. Padmavati Jaykrishna Trust v. Commissioner of Income-tax ) decided by a Division Bench of this court to which I was party, on December 3, 1973, a similar question arose in connection with the wife of the present assessee's husband's brother. There also the assessee concerned was claiming interest paid to the estate account and an amount of Rs.10,279 was not allowed to be deducted and the question in Income-tax Reference No. 35 of 1972 related to this payment of interest and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similar are the observations of the Supreme Court in Commissioner of Income-tax v. Managing Trustees, Nagore Durgha. It was pointed out that the persons who are referred to in section 41(1) of the Indian Income-tax Act, 1922, equivalent to section 160 of the Income-tax Act, 1961, are not the persons having any beneficial interest in the income. None of them has any beneficial interest in the income, for example, the court of wards, the administrator-general, the official trustee, receiver or manager appointed by or under any order of a court, or any trustee or trustees appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including the trustee or trustees under any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913). All these persons, according to the Supreme Court, are entitled to receive income on behalf of any person and it has been pointed out that none of them has any beneficial income. He collects the income for the benefit of others. The question before the Supreme Court in that case was regarding the income derived by the managing trustee of a particular durgha in the State of Madras and it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat under section 160(1)(iv) a trustee is a " representative-assessee " and under sub-section (2) of section 160, every representative-assessee is deemed to be an assessee for the purposes of the Act. Under section 161, sub-section (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 that particular 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. Therefore, in the facts of this case, the income-tax could be levied upon and recovered from the trustees of the Ahmedabad trust in like manner and to the same extent as it would be leviable upon and recoverable from the assessee before us. Under section 164 provision is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon him in like manner and to the same extent as it would be leviable upon the person represented by him. This last provision can obviously apply only where income is specifically receivable by the representative-assessee on behalf or for the benefit of a single beneficiary or where there are more beneficiaries than one, the individual shares of the beneficiaries are determinate and known. Tax in such a case would be levied on the representative-assessee on the portion of the income to which any particular beneficiary is entitled in the same manner and to the same extent as it would be leviable upon the beneficiary and in respect of such portion of the income the representative-assessee would be assessed in a representative capacity as representing the beneficiary. But this does not mean that the revenue cannot proceed to make direct assessment on the beneficiary in respect of the portion of the income to which he is beneficially entitled. Such income having accrued to him would form part of his total income and would be clearly assessable in his hands and this right of the revenue to make direct assessment on him in respect of such income stands unimpaired by the provision ena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the mother. Similarly, in Ratilal B. Daftari v. Commissioner of Income-tax, there was a question of a sub-partnership and again the question of the overriding obligation was brought into play and only the income after accounting for this overriding obligation was held to be liable to tax. In Murlidhar Himatsingka v. Commissioner of Income-tax, again the principle of overriding obligation was held to be the correct principle and it was held that Ratilal B. Daftari's case was rightly decided. There the Supreme Court was concerned with the case of a sub-partnership. In Commissioner of Income-tax v. C. N. Patuck, there was a question of an overriding obligation created at the time of dissolution of marriage. It is no doubt true that the trustees of the Ahmedabad trust are under an obligation to pay the net income of the trust to the beneficiary who is the assessee herein after accounting for all the outgoings properly debitable to the trust account and the sole question that we are concerned with in this case is not finding out what the book entry in the trust account is, but what is the real income of the trust for the purpose of the Income-tax Act. As shown by the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of Rs. 10,880 cannot in any sense be said to be expenditure incurred by the Ahmedabad trust for the purpose of earning income received by the Ahmedabad trust. Thus, whether at the time of assessing the trustees or assessing the beneficiary, the question has got to be examined and it is only in the light of such an examination that the real income of the Ahmedabad trust can be ascertained and it is only that real income which can be included in the assessee's income charged to tax. The department has not examined whether there are any other items in the Ahmedabad trust account which can be considered to be permissible deductions so far as the trust is concerned and if there are any such items, they have to decide the question as to what is the real income of the trust for the purpose of the Income-tax Act and whenever ascertained that income will have to be included in the total income of the assessee which is brought to tax. In the light of the above discussion it is clear that so far as question No. (2) in Income-tax Reference No. 7 of 1973 is concerned, it is not merely the income which is shown in the books of account of the Ahmedabad trust as paid to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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