Mrs. Arundhati
Balkrishna Vs. Commissioner of Income Tax [1989] INSC 91 (15 March 1989)
Pathak,
R.S. (Cj) Pathak, R.S. (Cj) Misra Rangnath
CITATION:
1989 AIR 1092 1989 SCR (1) 865 1989 SCC Supl. (1) 278 JT 1989 (1) 429 1989
SCALE (1)529
ACT:
Income
Tax Act, 1961--S. 161(1) read with s. 166--Compu- tation of assessee's income
derived from a Trust--Real income of Trust to be included in the total income
of asses- see after taking into consideration different items of permissible
deductions in relation to that income.
HEAD NOTE:
The
appellant was an assessee who derived income from a Trust. For assessment years
1964-65 and 1966-67 the Income Tax Officer disallowed deduction of two mounts
claimed as interest paid by the Trust for amounts withdrawn from an Estate
Account for investment on the ground that a portion of the amounts withdrawn
from the Estate Account had been utilized for personal expenditure by the assessee.
The appellants appeals to the Assistant Commissioner having been rejected, she
preferred second appeals to the Appellate Tribunal raising an additional
question in respect of the assessment year 1964-65 that she was liable to tax
on the net income only received by her from the Trust and not on income
determined in accordance with the provisions of the Income Tax Act in the case of
the Trust. The Tribunal dismissed the appeals but at the instance of the
appellant referred the two questions of law arising therein to the High Court
which answered both of them against the assessee.
Dismissing
the appeals,
HELD:
It is not the income shown in the books of account of the Trust actually paid
to the assessee after deduction of the outgoings from the income received in
the hands of the Trust, but the real income of the Trust has to be included in
the total income of the assessee after taking into consideration the different
items of permissible deductions in relation to that income. [869E-F] It is
apparent from s. 161(1) of the Income Tax Act, 1961 that a representative assessee,
that is to say a trus- tee, as regards the income In respect of which he is a
representative assessee, is 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 he is 866 liable to assessment in his own name in
respect of that income; but any such assessment is deemed to be made upon him
in his representative capacity only, and the tax is 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. And s. 166 of the Act clarifies
that the provisions relating to the liability of a representative assessee will
not prevent either the direct assessment of the person on whose behalf or for
whose benefit income is receivable, or the recovery from such person of the tax
payable in respect of such income. The Income Tax Officer has the option to
proceed either against the trustee or against the beneficiary, but in either
case the income to be assessed must be in the same figure. What the trustee
receives as the income pertaining to the beneficiary is received by him under
an obligation to pass on that income to the beneficiary. However, in most cases
administration charges and expenses have to be met out of the Trust's income
and it is only the net income which reaches the beneficiary. If the income had,
to pass directly to the beneficiary and not under trust through a trustee, the
beneficiary would have equally to meet those outgoings, leaving a net income in
his hands which for the purposes of the Income Tax Act would have been computed
after reducing the gross income by the deductions admissible under the Act.
[868H;
869A-E] (ii) The High Court was right in deciding the question relating to the
disallowance of part of the interest claimed as a deduction against the assessee.
[868F] Padmavati Jaikrishna v. Addl. Commissioner of Income- Tax, Gujarat, [1987] 166 I.T.R. 176, referred
to.
CIVIL
APPELLATE JURISDICTION: Civil Appeal Nos. 80 & 81 of 1975.
From
the Judgment and Order dated 26/27.8.1974 of the Gujarat High Court in I.T.
Reference Nos. 7 and 29 of 1973.
S.C.
Patel for the Appellant.
Dr. V.
Gauri Shanker and Ms. A. Subhashini for the Respondent.
The
Judgment of the Court was delivered by PATHAK, CJ. The appellant is an assessee
who derives income 867 from various sources, including income from the Shrimati
Arundhati Balkrishna Trust, Ahmedabad. In assessment pro- ceedings for the
assessment year 1964-65 the Income Tax Officer found that a sum of Rs. 10,880
had been debited to the interest account maintained in the books of the Ahmeda-
bad Trust as interest paid to the Harivallabhadas Kalidas Estate Account. Upon
further scrutiny, he discovered that substantial debits totalling Rs.2,19,804
included withdraw- als from the Estate Account by the Ahmedabad Trust on ac-
count of the personal expenses of the assessee. After taking into consideration
earlier withdrawals from the Estate Account by the Ahmedabad Trust for the
purpose of investment and making adjustments for deposits during the year, the
Income Tax Officer concluded that the net withdrawals from the Estate Account
for personal expenditure were Rs.3,10,806- He held that the proportionate
interest of Rs.6,199 out of the total interest of Rs. 10,880 paid by the Ahmedabad
Trust to the Estate Account was referable to such withdrawals, and. therefore
constituted an inadmissible deduction. Similarly, for the assessment year
1966-67 the Income Tax Officer found that a sum of Rs.25,496 had been shown in
the books of account of the Ahmedabad Trust for the relevant previous year as
interest paid to the Estate Ac- count. He held that of this sum, an amount of
Rs.12,833 was referable to withdrawals for purposes other than investment, and
accordingly he disallowed the claim of interest to that extent.
The assessee
appealed to the Appellate Assistant Com- missioner of Income-Tax, and failing
there he proceeded in second appeal to the Income Tax Appellate Tribunal,
claiming that the entire amount of interest should have been allowed as a
deduction for each year. An additional question raised in respect of the
assessment year 1964-65 related to the point whether the assessee was liable to
tax on the net income only received by her from the Trust or the income
determined in accordance with the provisions of the Income Tax Act in the case
of the Trust. The Appellate Tribunal dismissed the appeals of the assessee.
At the
instance of the assessee the Appellate Tribunal referred the following
questions of law to the High Court of Gujarat in respect of the assessment year
1964-65:
"(1)
Whether, on the facts and in the circumstances of the case, the Tribunal was
fight in not holding that out of the interest payment of Rs.10,880, Rs.6,199
was not an admissible deduction against the income from other sources? 868
(2)
Whether, on the facts and in the circumstances of the case, the income
includible in the total income of the assessee is income determinable as per
provisions of the Income Tax, 1961 in the case of the Trust or the income
receivable by the assessee from the said trust?" The question referred to
the High Court for assessment year 1966-67 was:
"Whether
on the facts and in the circumstances of the case, the Tribunal was right in
holding that out of the interest payment of Rs.25,496, Rs. 12,833 was not an
admissible deduction against the income from other sources?" The High
Court held that the question relating to the disallowance of part of the
interest for the two assessment years was rightly decided against the assessee
and in favour of the Revenue. On the second question in the reference for the
assessment year 1964-65, the High Court held that the income includible in the
total income of the assessee was income determinable in accordance with the
provisions of the Income Tax Act in the case of the Trust and not the income
actually received or receivable by the assessee from the Trust or according to
the entries in the books of accounts of the Trust. In the result that question
was also answered against the assessee and in favour of the Revenue.
In
regard to the question arising in each of the assess- ment years 1964-65 and
1966-67 relating to the disallowance of part of the interest claimed as a
deduction by the asses- see, the High Court relied on the view taken by it
earlier in Shrimati Padmavati Jaykrishna v. Commissioner of Income Tax., [1975]
101 I.T.R. 153. The judgment of the High Court was considered in appeal by this
Court in Padmavati Jaikr- ishna v. Addl. Commissioner of Income-Tax, Gujarat,
[1987] 166 I.T.R. 176 and this Court affirmed the view taken by the High Court.
For the reasons which found favour with this Court in that case, we must answer
the question in the two appeals before us against the assessee and in favour of
the Revenue.
Turning
to the additional question referred to the High Court fo- r the assessment year
1964-65, it seems to us clear that what is assessable in the hands of the assessee
must be the income of the Trust received by it on behalf of the asses- see. It
is apparent from s. 161(1) of the 869 Income Tax Act, 1961 that a
representative assessee, that is to say a trustee, as regards the income in
respect of which he is representative assessee, is subject to the same du-
ties, responsibilities and liabilities as if the income were income received by
or accruing to or in favour of him bene- ficially, and he is liable to
assessment in his own name in respect of that income; but any such assessment
is deemed to be made upon him in his representative capacity only, and the tax is
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. And
s. 166 of the. Act clarifies that the provisions relating to the liability of a
representative assessee will not prevent either the direct assessment of the
person on whose behalf or for whose benefit income is receivable, or the
recovery from such person of the tax payable in respect of such income. The
Income Tax Officer has the option to proceed either against the trustee or
against the beneficiary, but in either case the income to be assessed must be
in the same figure. What the trustee receives as the income pertaining to the
beneficiary is received by him under an obligation to pass on that income to
the beneficiary. However, in most cases administration charges and expenses
have to be met out of the Trust's income and it is only the net income which
reaches' the beneficiary. If the income had to pass directly to the beneficiary
and not under trust through a trustee the beneficiary would have equally to
meet those outgoings, leaving a net income in his hands which for the purposes
of the Income Tax Act would have been computed after reducing the gross income
by the deductions admissible under the Act.
It
seems to us clear that it is not the income shown in the books of account of
the Ahmedabad Trust actually paid to the assessee after deduction of the
outgoings from the income received in the hands of the Ahmedabad Trust, but the
real income of the Ahmedabad Trust has to be included in the total income of
the assessee after taking into consideration the different items of permissible
deductions in relation to that income. We are of opinion that the High Court is
right in the view which it has taken.
In the
result, the appeals fail and are dismissed with costs.
H.L.C.
Appeals dismissed.
Back