TMI Blog1980 (4) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax payable by the assessee-trustees in terms of section 114 read with section 161 and section 164 of the Income-tax Act, 1961, on the undisbursed capital gains added to the trust corpus, the normal trust income payable to the beneficiary and separately charged to tax in her hands could not be taken into account? " The assessment year in question in all the three cases is 1966-67 and the assessees are the trustees under three separate trusts, all dated October 19, 1953, referred to briefly as the. Gargi Trust, Rohini Trust and Hemnalini Trust. Under all the three trusts, there was a sole beneficiary, the beneficiary under the Gargi Trust being Gargiben Bhagubhai Mafatlal. In the case of the Gargi Trust, the income of the trust amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en. These orders of the ITO were upheld by the AAC while dismissing three separate appeals filed by the trustees. When the matter was taken to the Tribunal, the Tribunal took the view that the trustees were liable to be assessed as an association of persons only in respect of the amount of capital gains but not in respect of any other income which was allocated to an identifiable beneficiary. The Tribunal also took the view that the amount of normal trust income paid to the beneficiary had no relevance to the assessment of the trustees as an association of persons in regard to the capital gains added to the trust corpus. Accordingly, the Tribunal took the view that the income of such association of persons, i.e., the trustees, comprised o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry and once this option was exercised and the income of the trust is taxed in the hands of the beneficiary for whose benefit the trust was created, that income cannot, for any purpose whatsoever, be considered as the income of the trustees. The learned counsel contended that the controversy really stands concluded by a decision of this court in Trustees of Chaturbhuj Raghavji Trust v. CIT [1963] 50 ITR 693 and by a further detailed discussion by the Gujarat High Court in Panna Sanjay Trust v. CIT [1969] 74 ITR 396. Under s. 160(1) of the I.T. Act, 1961, a trustee or trustees are liable to be assessed as a representative assessee and s. 161(1) expressly provides that in the case of such a representative assessee, though he is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible to ascertain the beneficiary or his share. , We need only refer then to the provisions of s. 166 of the I.T. Act, 1961, which enables the ITO to make direct assessment on the beneficiary. It provides as follows: " 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." Section 166, therefore, clearly provides that nothing in the provisions of Chap. XV which commences with s. 59 shall prevent direct assessment being made on the person on whose behalf or for whose benefit the income referred to in the earlier provisions is rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the trustees it is difficult to see how that income can be taken into consideration for computation of the total income for the purposes of s. 114 of the I.T. Act, 1961. That income was clearly liable to be excluded from the total income of the trustees for the purpose of chargeability to tax under s. 164 of the I.T. Act, 1961, and it could not by any stretch of imagination become a part of the total income of the trustees. As pointed out by this court in CIT v. N.M. Raiji [1949] 17 ITR 180 (Bom), the scheme of the I.T. Act is that wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion also operates for the purpose of computing the total income and not only is that sum not liable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come for the purpose of chargeability to tax must be held to carry with it exclusion from total income for the purpose of determination of rate." These observations in our view succinctly state the law with regard to the question as to whether when income is excluded from the total income for the purpose of chargeability to tax it must necessarily be excluded from the total income for the purpose of determination of rate. There does not appear to be any provision in the I.T. Act which enables the ITO to include income, which is already brought to tax in the hands of the beneficiary, as a part of the total income of the trustees for the purpose of determining the rate of tax in respect of the other income of the trustees. In the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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