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PETITIONER: MRS. ARUNDHATI BALKRISHNA

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX

DATE OF JUDGMENT15/03/1989

BENCH: PATHAK, R.S. (CJ) BENCH: 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.

HEADNOTE:     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the  Income Tax  Officer disallowed deduction of two mounts  claimed  as interest  paid  by the Trust for amounts withdrawn  from  an Estate  Account for investment on the ground that a  portion of  the amounts withdrawn from the Estate Account  had  been utilized  for  personal  expenditure by  the  assessee.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  dis- missed  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  in- cluded 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  bene- ficially, and he is 866

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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  bene- fit  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.

JUDGMENT:     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

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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

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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. 870