TMI Blog1983 (7) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... was misconceived and unsustainable in law and in setting aside the assessment with a direction to make separate assessment on the managing trustee under s. 161(1) of the Income-tax Act in respect of the income of the share of each of the three beneficiaries on the basis of three returns filed ? " The facts are that for three assessment years under consideration, the ITO assessed Karelal Kundanlal Trust in the status of an AOP (association of persons). According to the ITO, the settlor executed a trust deed on October 24, 1950, conveying certain movable and immovable properties to the trustees named therein. The ITO, therefore, made the assessment in the hands of the trustees to whom the properties had been conveyed in the status of an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct assessment on the person beneficially entitled to the income. It was contended that thus the ITO and the AAC were right in assessing the trustees as an association of persons and the view taken by the Appellate Tribunal was not justified in law. Learned counsel for the Department placed reliance on CIT v. Smt. Kamalini Khatau [1978] 112 ITR 652 (Guj) [FB]. Learned counsel for the assessee, on the other hand, contended that s. 161 of the I.T. Act, 1961, provides for assessment in a representative capacity and what is a representative assessee, has been defined in s. 160(1)(iv). It was contended that the note put by the learned author in Kanga and Palkhivala's Income-tax Act about the Department's option only means that the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, which reads as under: " 161(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 this 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 ". It clearly lays down that in rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to income. Section 166 makes it clear that ss. 160 and 161 are enabling sections, i.e., the Department has the option to make an assessment on the representative assessee or a direct assessment on the person beneficially entitled to the income ........." " It is, therefore, clear that either the assessment should be made on the representative assessee, i.e., a trustee, or directly on the beneficiary, but it is clear that it could only be with regard to the income to which the beneficiary is entitled and the liability will only be to that extent. Under these circumstances, this note could not be used to justify an assessment on the trustees in their personal capacity and as they are more than one, assess them as an association of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips of the Supreme Court and it was observed as under (p. 629) : " It is implicit in the terms of sub-section (1) that the Income-tax Officer may assess a representative assessee as regards income in respect of which he is a representative assessee, but he is not bound to do so. He may assess either the representative assessee or the person represented by him. That is expressly so enacted in section 166 which states : 'Nothing in the foregoing sections in this Chapter shall 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'." This question was also considered in detail by the Ker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , referred to the decisions in Holz Trust of Simla v. CIT [1930] 5 ITC 8 (Lah) and J. V. Saldhana v. CIT [1932] 6 ITC 114 (Mad) [FB], the Bombay High Court declared that 'it is no longer open to the Department to levy a tax on a trustee in the same way as on an assessee who does not fulfil the character of a trustee '. That court further held that if the income is received by a representative assessee as defined in s. 160 of the Act, the Department is obliged to effect the assessment under s. 161(1) of the Act. The position of law as clarified in Balwantrai Jethalal Vaidya's case [1958] 34 ITR 187 (Bom), has been given statutory acceptance in the light of the recommendation of the Law Commission in its 12th Report and has been specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X
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