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TMI Blog1958 (3) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... , both inclusive. The appropriate previous years for them are the financial years 1949-50 to 1952-53, both inclusive. 3. The assessee is M/s. Balwantrai Jethalal Vaidya&Others, trustees to the estate of late Mr. Bapuram Krishnaram Vaidya. Vaidya Bapuram died on May 21, 1932, leaving behind him his will made on August 9, 1924, large moveable and immoveable property, a prosperous dispensary where he was carrying on his profession as "vaidya", a son Jethalal, and four grandsons, Samarathlal, Ajitrai, Balwantrai and Jeswantrai, all sons of Jethalal. Another son of his, Manilal by name, died before him. A copy of the said will is marked annexure 'A' and forms part of the cases. The moveable and immoveable properties are enumerated in clauses 6 and 7 of the will. Clause 8 provided for certain pecuniary legacies. Clause 9 dealt with the moveable and residuary estate. Clause 10 made "dispositions in regard to immoveable property". According to these dispositions of the moveable and immoveable properties the son Jethalal and the four grandsons were given a right to enjoy income therefrom during their respective lifetimes but they had "no right whatever to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted by Ajitrai (one of the four grandsons) as he is conducting now and nobody should intermeddle in it". It also provided that in case he was unable to conduct it for any reason, then "the dispensary should be entrusted to any deserving person of the family by the trustees considering the wishes mentioned in clause 13 of the will". The resolution further went on to empower the trustees that later on and if so found convenient by Ajitrai, the conduct of the dispensary should be re-entrusted to him. Accordingly, Ajitrai was conducting the dispensary till about July, 1937. After meeting all the expenses relating to the dispensary from its gross receipts and after paying one-fourth of the balance of income to Ajitrai "for conducting the dispensary, the balance was being distributed amongst the four grandsons". Later on certain differences arose among the trustees and the beneficiaries in regard to the administration of the trust property. Hence an agreed scheme was submitted on July 26, 1937, to the District Court at Ahmedabad. It received the approval on October 28, 1937, and thereafter the dispensary was conducted in accordance with the terms of that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jayantilal Ravishankar Bhatt, two of the trustees". Ajitrai was authorised to discharge any compounder employed in the dispensary "with the consent of trustee Sjt. Balwantrai Jethalal" (underlined by us*). During the material four years, the dispensary was conducted in accordance with the above scheme and the yearly income and expenditure account of the entire trust property was maintained in accordance with the terms of the agreed and sanctioned schemes. In the relevant account years, the sources of income were the said dispensary, properties and shares. There is no dispute whatever in regard to the figures of income and hence they are not reproduced here. The dispute is merely in regard to the manner in which the assessment of these four years should be made. 5. In response to the notice issued in May, 1950, under section 22(2) for the assessment year 1950-51, to "Messrs. Balwantrai Jethalal Vaidya & Others, trustees of the trust of late Bapuram Krishnaram", a return in that name was made on August 8, 1950. It was signed by Balwantrai Jethalal in the status of an association of persons. It declared a total income of ₹ 30,161 made up of ₹ 885 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner. He upheld the Income-tax Officer's action in so far as the assessment of the income from business was concerned by holding that the said business was "carried on and continued by the trustees with grandsons figuring in managerial capacities", and, in doing this, he followed the said Bombay High Court decision in Saifudin Alimohamed v. Commissioner of Income-tax, Bombay City*. He also rejected the assessee's contention for deducting ₹ 4,800 paid as messing expenses to the four grandsons on the ground that it amounted to application of income after it arose. He, however, accepted the assessee's contention that income from property and dividend should not be brought to tax in the hands of the trustees and that it should be apportioned amongst the beneficiaries and be brought to tax directly in their hands. 8. By the Appellate Assistant Commissioner's decisions, both the assessee as well as the Department were aggrieved on different issues and hence both of them came in appeal to the Tribunal. The appeals filed by the assessee are I.T.A. Nos. 7318 to 7321 of 1954-55 and those by the Department, I.T.A. Nos. 7517 to 7520 of 1954-55. Both the sets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overable from the trustees in the like manner and to the same amount as it will be leviable upon and recoverable from the several beneficiaries. (2) Whether the income arising from the trust property has been so effectively alienated at source by an overriding title of the beneficiaries that there is no income arising from the trust property that is liable to be taxed in the hands of the trustees. (3) If any income is properly chargeable to tax in the hands of the trustees in the status of association of persons, are they entitled to claim deduction of the whole amount of ₹ 4,800 paid to the several beneficiaries "as messing expenses" or any portion thereof proportionate to the income, if any, liable to be taxed in their hands." The case was referred by the President for hearing on these points to a Judicial Member, Shri A.R. Aggarwal, and for reasons given by him in his order dated July 6, 1956, he concurred on all the three points with the President. A copy of the said order is marked annexure 'C' and forms part of the case. The result was that the assessee's appeals succeeded on all the points and those of the Department failed on all the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 41. Now, in order to answer this question, we must first look at the scheme of the Act. The charging section, as has been so often pointed out, is section 3 of the Act. Chapter III and sections 6 to 12 deal with computation of income. That chapter lays down various provisions which have to be applied with regard to different kinds of income which have got to be grouped under the different heads indicated in section 6, and the three heads with which we are concerned here are the head which falls under section 9 "Income from property", income which falls under the head of "Business income" under section 10, and lastly the income from "Other sources" dealt with in section 12. Section 41 falls under Chapter V which deals with "Liability in special cases" and section 41 deals with trustees who are entitled to receive on behalf of any person income, and in the case of these trustees who fall under section 41 it is provided that tax shall be levied upon and recoverable from such trustees" in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to recover the tax from the beneficiaries. But on principle the contention of the Department cannot be accepted that, when a trustee is being assessed to tax, his burden which will ultimately fall upon the beneficiaries should be increased and whether that burden should be increased or not should be left to the option of the Department. The basic idea underlying section 41, and which is in conformity with principle, is that the liability of the trustees should be co-extensive with that of the beneficiaries and in no sense a wider or a larger liability. Therefore, 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. In other words, even though the income to be assessed is the income of a trustee, the income must be put under one of the heads mentioned in Chapter III and the provisions laid down with regard to the computation of that income in Chapter III must be carried out. Section 41 only comes into play after the income has been computed in accordance with Chapter III. Then the question of payment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re being taxed in respect of their respective shares of the profits. Now, the important thing to note is that the Department was actually proceeding against the guardians under section 10 read with section 40, and counsel before us have admitted that till this decision was given it was never suggested by the Department that a trustee could ever be assessed to tax irrespective of the provisions of section 41. It is because of certain observations in this case that the Department now claim to have the option of proceeding against the trustees under sections 9, 10 and 12 without taking into consideration the provisions of section 41. The observations on which the Department relies are at page 244 and there we have suggested that the Department has the option of availing itself of the machinery of section 41 or assessing the guardians as carrying on the business under section 10. It is clear that these observations were not necessary for the decision of the case, and, what is more, having heard a full argument on the scheme of the Act and especially the scheme of section 41, we feel that the observations made were not quite correct if they were intended to convey the meaning that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them and they would have to pay the artificial statutory income as provided by section 41. Mr. Joshi has suggested that a distinction may be drawn between "business income" and "income from property" and "income from other sources"; and Mr. Joshi says that, whatever the position may be with regard to income from property and from other sources, as far as income from business is concerned, in view of the decision in Saifudin Alimohamed v. Commissioner of Income-tax [1954] 25 I.T.R. 237, the position is different. It is true that in that case we did say that a person liable to pay a tax on business income was a person who carried on business; and we pointed out the difference in language used in section 10 and section 9. Whereas section 9 imposed the tax upon the owner of a property, section 10 imposed the tax upon a person who carried on business. But even assuming that the distinction we had drawn between the two sections is sound, it makes no difference as far as section 41 is concerned. Whether the assessee carries on business or is the owner of a property or owns shares and receives dividend, if he is a trustee and if he is being assessed as a tru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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