TMI Blog1966 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... he trust deeds, only a portion of the income arising out of the trust property was to be utilised immediately for the benefit of the beneficiaries and the balance accumulated for their benefit to be handed over to them at a future date specified in the deeds. In connection with Nagappa's assessments for the years 1956-57 to 1958-59, questions arose as to whether and, if so, how much of the income arising out of trust property should be added to the assessable income of the assessee. The matter ultimately came up before this court on a reference under section 66(1) of the Indian Income-tax Act, 1922, which governed those assessments. In its answer made on 13th August, 1962, to the question then referred, this court held that the situation was governed by section 16(3)(b) of the Indian Income-tax Act, 1922, and that on a proper application of the said provision, only so much of the income arising out of the trust property as was utilised for the benefit of the beneficiaries could be added to the assessable income of the assessee. One of the questions then referred was whether section 41 of the Act of 1922 was a bar to the inclusion of the trust income in the total assessable income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent to which the income arising out of transferred assets could be added to the total income of the settlor but also in respect of the relative field of operation of sections 16(3)(b) and 41 of the 1922 Act, now replaced by sections 64(v) and 161 of 1961 Act. As to the former, we have already indicated the difference. The difference pointed out as to the latter is the following : "The main provisions of sub-section (1) of section 41 of the 1922 Act are re-enacted in sub-section (1) of section 161 of the new Act, with the difference that, instead of enumerating various persons in the position of trustees, receivers, managers, etc., the new Act uses the compendious expression 'representative assessee' and defines it separately in another section 160. In actual effect, there is no difference between the first sub-section of the old and the new section. But whereas sub-section (2) of old section 41 stated that nothing in the first sub-section would prevent direct assessment of income in the hands of the person on whose behalf the same had been received by the representative assessee or the recovery of the tax directly from such person, the second sub-section of the new section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the beneficiaries themselves would operate as a bar to the department invoking section 64(v) against the assessee, the settlor. The arguments in support of the assessee's case, both before the Tribunal as well as before us, are based largely, if not exclusively, on the opinion expressed by this court in the previous reference. It is not denied, nor can it be, that the direct decision rendered by this court on the last occasion was, however, that the trust being in favour of the minor sons and unmarried daughter of the settlor came directly within the language of section 16(3)(b) of the 1922 Act. But what is relied upon is that the further opinion expressed by this court that section 16(3)(b), being a special provision would exclude the operation of the general provisions contained in section 41 must be regarded as one of the basic considerations in support of the view that the situation is governed by section 16(3)(b). Although the argument is possible, we are not persuaded either that the main decision of this court to apply section 16(3)(b) of the 1922 Act is not possible of support on the language of section 16(3)(b) alone or that the possibility of section 41 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od. The character of old section 41 and the present section 161 as an enabling provision is also, in our opinion, a circumstance which furnishes the key to the proper understanding thereof. Ordinarily, under the Act, income is assessed in the hands of the person who receives it. A person may receive income either for his own beneficial enjoyment or for the beneficial enjoyment of someone else. But in majority of cases, a receipt of income is generally for one's own beneficial enjoyment. Income-tax is a tax which is paid out of the income and forms part of the income. Hence, its ultimate effect should be a burden borne by the person to whom the income belongs. When there are, therefore, two persons connected with the same income, one receiving it and the other actually enjoying it, section 41 of the old Act and section 161 of the new Act enable both of them to be treated as assessees for purpose of assessment and recovery of tax, but make it clear that the liability to tax and the extent of the tax is to be ascertained on the footing that the income belongs to the person who has the beneficial interest in it. At all times, even before the enactment of the 1961 Act, what the sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust income in the personal assessment of the assessee under section 64(v). There is, however, one matter of which we should make a record. The result of our opinion mentioned above is that the entire trust income could be assessed as part of the income or an addition to the income of the assessee, C. R. Nagappa, himself under section 64(v). Hence, it is not available for assessment in the hands of the beneficiaries, nor could it be included in the assessment of the said Nagappa as their representative assessee. The assessments actually made, therefore, on the minors by the Income-tax Officer would be wrong and illegal. In the circumstances, the proper thing for the Commissioner of Income-tax to have done while acting under section 263 was to have cancelled those assessments while directing the reassessment of Nagappa by inclusion of the trust income in his total income. This is now conceded by the learned counsel on behalf of the department. Before the Tribunal, it appears, it was stated that the assessments on the minors were allowed to stand as a protective assessment against the possibility of the Appellate Tribunal taking a view different from the one taken by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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