TMI Blog1994 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year being the calendar year 1968. The assessee was the beneficiary of nine trusts. In respect of three of these she was the sole beneficiary, and there is no dispute about their income. In regard to the other six trusts, the assessee was one of the beneficiaries thereunder. In each of these six trust deeds the clause relevant for our purpose read thus: "From and after the date hereof (i.e., the date of the trust deed) and during the periods mentioned in this clause, the trustees may either accumulate the net income of the trust or at their discretion pay the same to the persons as mentioned therein or to any one or more of them to the exclusion of others or other of them for their, his or her absolute use or benefit in such proportion and in such manner as the trustees may in their absolute discretion think fit....." During the accounting year relevant to the assessment year 1969-70, the assessee received the amounts set out hereafter. The amounts were received pursuant to the resolutions of the trustees to distribute the same from out of the income of the six trusts for the accounting year: Name of the trust Amount (Rs.) 1. Geeta Mayour D.-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing on the issue that we are called upon to decide. Section 4 imposes the charge; it says that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate, income-tax at that rate shall be charged for that year, in accordance with and subject to the provisions of the Act, in respect of the total income of the previous year of every person. Section 5 defines the total income of a person resident in India to include "all income from whatever source derived which-- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year". Chapter XV of the Act is titled "Liability in special cases". Part B thereof sets out the general provisions applicable to representative assessees. Section 160 defines a representative assessee for the purposes of the Act to mean: "(i) in respect of the income of a non-resident specified in sub-section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163; (ii) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative capacity. As it stood at the relevant time, section 164 read thus: "Charge of tax where share of beneficiaries unknown.--Where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof, is not specifically receivable on behalf or for the benefit of any one person, or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable (which persons are hereinafter in this section referred to as 'the beneficiaries') are indeterminate or unknown, tax shall be charged as if such income or such part thereof were the total income of an association of persons, or, where such income or such part thereof is actually received by a beneficiary, then at the rate or rates applicable to the total income or total world income of the beneficiary if such course would result in a benefit to the Revenue." Section 166 read thus: "Direct assessment or recovery not barred.--Nothing in the foregoing sections in this Chapter shall prevent either the direct assessment of the person on whose behalf or for whose benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a discretionary trust is that which would be paid upon such income by an association of persons. Where, however, such income or a part thereof is actually received by a beneficiary, tax shall be charged thereon at the rate applicable to the total income of the beneficiary if this benefits the Revenue. Section 166 states that nothing in sections 160 to 165 shall prevent the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable or the recovery from such person of the tax payable in respect thereof. Some analogous provisions of the Indian Income-tax Act, 1922, may also be noted. Section 40 stated that where the guardian or trustee of any person being a minor, lunatic or idiot was entitled to receive on behalf of such beneficiary or was in receipt on behalf of such beneficiary of any income, profits or gains chargeable under that Act, tax would be levied upon and recoverable from such guardian or trustee in like manner and to the same amount as it would be leviable upon and recoverable from any such beneficiary if of full age or sound mind and in direct receipt of such income, profits or gains. More relevant are the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged" in the body thereof. The charge created by section 4 was in accordance with and subject to the provisions of the Act and it was held that, therefore, the charge in the case of the special class of representative assessees created by section 164 prevailed over the charge created by section 4. In cases falling under section 164 one had to look only to its provisions rather than to the provisions of section 161. The word "receivable" in the context in which it occurred in section 164 indicated that it was the trust deed that one had to look at and not the actual exercise of the discretion by the trustees in the course of the year. Section 166 permitted the direct assessment of the beneficiary when it could possibly be done under the provisions of sections 160 to 169 in Chapter XV. What was crucial was not section 166 but section 164; because if, under section 164, it was not open to the Revenue to proceed against the beneficiary, it was not open to the Revenue to treat the income of the trust except as the income of a fictional association of persons. The last portion of section 164 only gave an option as to the rates at which the tax was to be levied. The interest of a benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustees allocating amongst the beneficiaries the whole or part of the income in the exercise of their discretion during the accounting year for, upon the happening of such event, the income was received by the beneficiaries in fulfilment of the disposition made by the trust deed and such income became chargeable to tax in the hands of the beneficiaries in view of the provisions of sections 4 and 5 of the Act. As regards the use of the word "charge" in the marginal note and the body of section 164 in contradistinction to the use of the expression "levied upon and recovered from" in section 161, the difference in the choice of language was of no significance. The word "charged" in section 164 could only be construed as conveying the meaning "levied and recovered". Section 166 was attracted in cases covered by section 164 where the beneficiaries had received the income or part thereof pursuant to the exercise of discretion by the trustees of a discretionary trust in the course of the same accounting year. Even assuming that the word "receivable" in section 164 had to be interpreted to mean "receivable under the trust deed" and that it was the trust deed that one had to look at, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal title thereto. On a parity of reasoning, there was no impediment to taxing the beneficiary of a discretionary trust when he had received the income in the accounting year. Section 161 made the representative assessee subject to the same duties, responsibilities and liabilities as if the income was received by him beneficially. It was necessary to create this fiction because it was never the object or intention of the Act to charge tax upon anybody other than the beneficial owner of the income. Having created the fiction of beneficial receipt, protection was given to the representative assessee by providing that the tax in his hands would 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. It was implicit in this that the tax could be leviable upon and recoverable from the person represented by the representative assessee. In the submission of Mr. Salve, learned counsel for the assessee, section 161 dealt generally with the taxation of all representative assessees, including trustees, whereas section 164 was a special provision applicable to discretionary trusts and was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees and, by reason of section 161(2), was incompetent to assess the income in the hands of either the appellant or the beneficiaries. This court held that it was implicit in the terms of section 161(1) that the Income-tax Officer could assess a representative assessee as regards the income in respect of which he was a representative assessee, but he was not bound to do so. He could assess either the representative assessee or the person represented by him, and this was expressly so enacted in section 166. The Income-tax Officer could assess the person represented in respect of the income of the trust property and the appropriate provisions of the Act relating to the computation of his total income and the manner in which the income was to be computed would apply to such assessment. The Income-tax Officer could also assess the representative assessee in respect of that income and limited to that extent and tax could be levied and recovered from the representative assessee to the same extent as it was leviable upon and recoverable from the person represented by him. The contention raised by the appellant's counsel that since the trustees were assessable in respect of the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 (SC), this court was dealing with the provisions of the Wealth-tax Act, 1957, analogous to sections 160 to 166 of the Act and sections 40 and 41 of the 1922 Act. Section 21(1) of the Wealth-tax Act stated that in the case of assets chargeable to tax thereunder which were held, inter alia, by a trustee appointed under a trust deed, wealth-tax "shall be leviable upon and recoverable from the....trustee...in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf the assets are held.... Sub-section (2) stated that nothing contained in sub-section (1) would prevent either the direct assessment of the person on whose behalf the assets were held or recovery from him of the tax payable in respect thereof. This was a case in which the late Nizam of Hyderabad had created several trusts. For the purposes of the judgment it was sufficient that the provisions of what was called "the family trust" were referred to. By the trust deed, the Nizam had transferred a corpus of rupees nine crores to the trustees to be notionally divided into 175 equal units, of which 166 1/2 units w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust could be assessable in respect of the trust properties under section 3 even in the absence of section 21. But section 3 imposed the charge of wealth-tax subject to the other provisions of the Act and these other provisions included section 21. Section 3 was, therefore, made expressly subject to section 21 and had to yield to that section in so far as the latter made special provision for the assessment of a trustee of a trust. Section 21 was mandatory in its terms. It was clear on a combined reading of sections 3 and 21 that whenever assessment was made on a trustee, it had to be made in accordance with the provisions of section 21. Every case of assessment on a trustee would necessarily fall under section 21 and he could not be assessed apart from and without reference to that section. To take a contrary view, giving option to the Revenue to assess the trustee under section 3 without following the provisions of section 21, would be to refuse to give effect to the words "subject to the other provisions of this Act in section 3", to ignore the maxim "generalia specialibus non derogant" and to deny mandatory force and effect to the provisions of section 21. The court noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Obviously, in such a case, it was not possible to make direct assessment on the beneficiaries in respect of their interest in the trust properties, because their shares were indeterminate or unknown and that is why it was provided that the assessment could be made on the trustee as if the beneficiaries for whose benefit the trust properties were held were an individual. The beneficial interest was treated as if it belonged to one individual beneficiary and assessment was made on the trustee in the same manner and to the same extent as it would be made on such fictional beneficiary. In this case too it was the beneficial interest which was assessed to wealth-tax in the hands of the trustee. It may be added that this court in the case of CWT v. Kirpashankar Dayashanker Worah [1971] 81 ITR 763 (SC), has held that section 21(1) of the Wealth-tax Act, 1957, was analogous to section 41(1) of the 1922 Act, the only difference being that whereas the former dealt with assets, the latter dealt with income and, subject to this difference, the two provisions were identically worded. Hence, the decisions rendered under section 41(1) of the 1922 Act had a bearing upon the interpretation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 he is made liable to assessment in his own name in respect thereof. The second part affords protection to the representative assessee; it states that such assessment shall be deemed to be made upon him only in his representative capacity and also that tax may be levied upon and recovered from him only in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. Section 161(2) gives the representative assessee a further measure of protection by making it explicit that "he shall not, in respect of that income, be assessed under any other provisions of this Act". This is of significance for "any other provisions of this Act" must plainly mean any provision of the Act other than section 161. Section 164 states that where any income in respect of which a trustee is liable as representative assessee is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or part ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it cannot be held that the beneficiary of a discretionary trust, even if he has received its income in the accounting year, cannot be taxed thereon because section 164 does not provide for such contingency. The principal contention raised by Mr. Salve on behalf of the assessee must, accordingly, be rejected. Why, then, should the beneficiary of a discretionary trust stand on a footing different from that of the beneficiary of a specific trust ? It is true that the language of section 166 does not avail the Revenue because it states that sections 160 to 165 do not prevent "either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable or the recovery from such person of the tax payable in respect of such income". The section is clearly clarificatory. It does not empower any assessment or recovery by itself. It only makes it clear that sections 160 to 165 do not bar the direct assessment of the person on whose behalf or for whose benefit the income is receivable or the recovery from such person of the tax payable thereon, provided that is permissible under any other provisions of the Act. Even so, since the word used in se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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