Vildirect: IncomeTax-caselaws-1991-VIL-119-ITAT-HYD

1991-VIL-119-ITAT-HYD

Equivalent Citation: ITD 040, 001, TTJ 041, 459,

Income Tax Appellate Tribunal HYDERABAD

Date: 21.10.1991

MOHAMMED OMER FAMILY TRUST.

INCOME TAX OFFICER.

BENCH

Member(s) : CH. G. KRISHNAMURTHY., T. N. C. RANGARAJAN., G. SANTHANAM., M. K. CHATURVEDI., N. KRISHNAMURTHY.

JUDGMENT

Per Shri M.K. Chaturvedi, Judicial Member --- These two appeals by the assessee are directed against the order of the Commissioner of Income-tax (Appeals)-II, Hyderabad and relate to the asst. years 1985-86 and 1986-87. Since issues involved are identical, for the sake of convenience, these are disposed of together by a common order.

2. The status of assessee was taken as 'Association of Persons'. The accounting year of the assessee ends on 31st March. The assessee is following the mercantile system of accountancy. The name of the assessee trust is Md. Omer Family Trust. This Trust was created by a registered deed of trust dt. 3-4-1982, for the benefit of their nephews and their wives and comprises of 59 beneficiaries. These are sons of late Md. Omer and wife and children of the sons.

3. Six of the beneficiaries are trustees also, whose names are as under:

1. Md. Hussain

2. Md. Ahmed

3. Md. Younus

4. Md. Waheed

5. Md. Yaseen

6. Md. Anwar

Md. Yaseen and Md. Anwer, each of the trustees were paid salary of Rs. 18.000. Three of the beneficiaries, viz., Md. Layeeq, Faheem and Muneer were also paid a salary of Rs. 12,000 each.

4. The assessee carries on business in automobile spare parts in different names and styles as under :

1. Royal Auto Traders

2. Royal Motor Stores

3. Royal Automobile

4. Royal Firms

While the business in Royal Auto Traders and Royal Motor Stores is mostly in old parts, in Royal Automobile and Royal Firm is in new parts of automobile. In addition. to that assessee runs a poultry farm. Separate sets of accounts are maintained for the business carried on in each of the above names and the profits thereon have been transferred to the books of the trust.

5. For the asst. year 1985-86, in the consolidated profit and loss account of the trust (to which the profits have been transferred), a deficit of Rs. 1,81,707 was shown as against a profit of Rs. 2, 94,796 shown in the earlier year. The deficit is mainly on account of interest payment made to the tune of Rs. 4,25,864 to the beneficiaries, some of whom are also the trustees. It was stated before the assessing officer that the beneficiaries who have substantial credit balances have demanded payment of interest at the rate of 12 per cent and consequently the trust had to incur expenditure on interest.

6. The assessing officer found from records that this is the third year of business carried on by the trust and the assessee made payment of interest to the beneficiaries only during this year and not in earlier years. For the asst. year 1986-87, ITO made addition on account of interest paid to beneficiaries amounting in all to Rs. 4,38,395 and Rs. 36,000 on account of remuneration paid to beneficiaries along with other additions.

7. According to the assessing officer, assessee paid interest and remuneration with the only view to get over the provisions of sec. 161 (1A) of the Income-tax Act, 1961 (hereinafter called the Act), which came into force from the asst. year 1985-86. There is no agreement between the beneficiaries and the trust for payment of this interest. The assessing officer took it as a device adopted by the trust to avoid payment of tax on the profits that accrued to it. Even without payment of this interest, the profits accrued to the trust would have gone into the hands of the beneficiaries in the proportion of shares specified in the trust-deed. According to the ITO, the case clearly falls within the mischief of section 161 (1A). Applying the ratio laid down by the Apex Court, in the case of Mc. Dowell & Co. Ltd. v. CTO [1985] 154. ITR, 148, ITO disallowed the interest payment and salary and charged the tax in accordance with the prescription laid down under sec. 161 (1A).

8. Shri M.J. Swamy and Smt. Prabha Jain, learned counsels for the assessee appeared before us and submitted the following additional grounds :

(1) The Commissioner (Appeals) failed to note that the assessment on the appellant-trust in the status of an 'AOP' is void, illegal and invalid in law.

(2) CIT(A) ought to have seen that the income of trust governed by trust-deed in writing determining the shares of the beneficiaries, has to be assessed in the hands of the trustee or trustees on behalf of the beneficiaries or in the hands of the beneficiaries themselves individually on their individual share but not in the hands of the trust itself much less in the status of an 'AOP'.

(3) CIT(A) ought to have held that the assessment of the trust as an 'AOP' is misconceived and unsustainable in law in view of the provisions of sec. 161 of the Act.

(4) In any event, the assessment under appeal having been made and upheld by the CIT(A) without application of appropriate provisions of the Act, the said assessment is liable to be cancelled.

9. It transpires from the perusal of grounds taken before the first appellate authority, that the assessee only disputed the disallowance made on the count of interest, salary etc. The main ground taken before the CIT (A) is reproduced here as under :

"The Commissioner (Appeals) erred in holding that the appellant is assessable at maximum marginal rate of tax as provided in section 16 1 (I A) of the Income-tax Act, 1961 notwithstanding the fact that the appellant is not assessable to tax inasmuch as the beneficiaries of the trust were earlier assessed, in which event, according to section 166 of the Income-tax Act, 1961 there can be no assessment on the AOP subsequent to the option exercised by the ITO to make assessments of the beneficiaries earlier."

10. The general conspectus of the main plank of Shri Swamy's argument was that having exercised option under sec. 166 of the Act to assess the beneficiaries, the ITO cannot then assess the trust/trustees on the same income. Since the assessee is a specific trust, it cannot be assessed in the status of an 'AOP'. Assessment of the trust in the status of AOP can be made only under sec. 164(1) which makes provision for the assessment of indeterminate and discretionary trust.

11. It was further argued by Shri Swamy that once the trust falls under sec. 161, the provisions of sec. 161(1A) are attracted for the purposes of rate only in regard to the business income. Learned counsel invited our attention on the provisions of sec. 161(1A). The section reads as under :

"Notwithstanding anything contained in sub-section (1), where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate."

12. It was submitted that the word so appearing in the section means to do a thing in the manner so as to satisfy the requirement previously prescribed. This connotes that when a specific trust carries on business, income shall be computed in the manner as prescribed under sec. 161(1). But the rate for this particular source of income shall be the maximum marginal rate. The very fact that the words "so liable" used in section 161(1A) is that the intention of the Legislature was that the extent of liability of the trustees still remain the same as prescribed in sec. 161(1) but as far as income from business is concerned, maximum marginal rate shall apply. If the intention of the Legislature has been to the contrary then there would have been no difference between sec. 161(1A).and sec. 164(1) and the existence of adverb so is not at all required.

13. Even after insertion of sec. 161(1A), if a specific trust earns income from business, the ITO can still exercise his option under sec. 166 to assess either the trustees or the beneficiaries because even new sec. 166 starts with the words "Nothing in the foregoing section in this Chapter shall prevent" i.e., the ITO can exercise this option to assess the income of the trust either in the hands of the beneficiaries or the trustees and the option can be exercised when income is computed in the manner prescribed under sec. 161 (1) unlike sec. 164(1).

14. If the intention of the Legislature was to assess a specific trust earning income from business in the manner prescribed under sec. 164, then there is no need for the Legislature to bring a new sub-section under sec. 161. A simple amendment to sec. 164 would have sufficed the purpose. Having not amended sec. 164, the intention of the Legislature is to assess a specific trust in the manner specified under section 161 (1) to levy a maximum marginal rate on that portion of income which is derived from business or profession.

15. Shri Swamy further submitted that generally, non obstante clause is used to take away what another confers because if both the sections are clear, the result will be head-on clash. But if the words of a statute are clear and are capable of a well reasoned interpretation, in that case the non obstante clause has to be read as clarifying the whole position and must be comprehended to have been incorporated by the Legislature by way of abundant caution and not by way of limiting the ambit and scope of the operative part of the statute.

16. Shri Swamy further relied on the following : ---

1. CIT v. Karelal Kundanlal Trust [1984] 148 ITR 412 (MP)

2. Aarti Trust (India) v. First ITO [1988] 37 Taxman 379 (Bom.)

3. CIT v. Trustees of Staff Gratuity Fund of shree Ram Mills Ltd. [1986] 162 IT 471 (Bom.)

4. CIT v. Trustees of Raptakos Brett & Co. (P.) Ltd. Employees' Service Gratuity Fund [1989] 177 ITR 202 (Bom.).

17. Shri Swamy also submitted before us a xerox copy of the ledger account of the beneficiaries. He submitted that apart from the trust funds, beneficiaries deployed their own funds also in the business of the trust and interest allowed on those funds cannot be disallowed.

18. Our attention was invited to ground No. 9 taken in the grounds of appeal, which is as under :---

"The Commissioner (Appeals) erred in confirming the disallowance of interest of Rs. 4,25,864 to the beneficiaries on their credit balances and Payment of salary of Rs. 36,000 to three of the beneficiaries, one of whom is a trustee, on the only ground that the claim for payment of interest and the claim for payment of salary constituted a device adopted by the appellant to convert the profit into loss and thus claim that there can be no assessment on the trust on the ground that the business carried on by the trust resulted in losses but not in profits."

19. Shri D. Kailashnath, learned D.R. submitted that on similar facts, the question as to the intention and purpose of introducing sub-section (1A) of sec. 161 of the Act came up before the ITAT Bangalore Bench, in the case of P.S. V. Rasquinha v. ITO [1989] 30 ITD 132 and the Tribunal held "we have to say only what is the income including the profits and gains of business in the hands of the trustees, i.e., to be taxed at the maximum marginal rate. There is no need for apportioning this income among the beneficiaries.

20. Learned D.R. further submitted that the case should be tested on the touchstone of the mischief rule. According to learned D.R. this is a clear case of tax evasion and falls within the ambit of ratio laid down by the Apex Court in the case of McDowell & Co. Ltd. He mainly relied on the decision of the revenue authorities.

21. We have heard the rival submissions in the light of material placed before us and precedents relied upon. Sec. 161 (1A) was inserted by the Finance Act, 1984 w.e.f. 1-4-1985. In order to understand the implication of the section we propose to resort to the notes and clauses and memorandum explaining provisions in Finance Bill, 1984.

Finance Bill, 1984, Notes and Clauses :

The proposed amendment seeks to insert a new sub-section (1A) in section 161 of the Act. The new sub-section provides that where any income in respect of which a person mentioned in clause (iv) of sub-section (1) of section 160 is liable as a representative assessee consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the "maximum marginal rate". The proposed provision will, however, not apply in cases where such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him.

For the purposes of the new provision, the term "maximum marginal rate" shall have the same meaning as in Explanation 2 to section 164 of the Income-tax Act.

The proposed amendment will take effect from 1st April, 1985 and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years."

22. In memorandum explaining provision in Finance Bill, 1984, Paras 44 to 47 speak about taxation of business profits of private trust at maximum marginal rate of income-tax. These are re-produced here as under : ---

Para 44 - Trustees of a private trust are ordinarily not expected to carry on any business because, implicit in the nature of business is the possibility of incurring loss and no prudent trustee would risk the trust's property in business venture. However, it has come to notice that taxpayers are increasingly conducting business through the medium of private trusts. Such arrangements are entered into for purposes of tax avoidance, the main object being to avoid payment of the registered firm's tax which would become payable if the business is carried on in partnership.

Para 45 - In order to counteract such attempts at tax avoidance, it is proposed to make a provision in the Income-tax Act, that where any income in respect of which any person mentioned in clause (iv) of sub-section (1) of section 160 of the Income-tax Act (i.e., a trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise, including a wakf deed) is liable as representative assessee consists of or includes profits and gains of business, income-tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. "Maximum marginal rate", for this purpose, means the rate of income-tax (including surcharge) applicable in relation to the highest slab of income in the case of an individual or an association of persons as specified in the Finance Act of the relevant year. However, with a view to avoiding hardship in genuine cases, it has been specifically provided that the proposed provision for charging the entire income of the trust at the maximum marginal rate of income-tax will not apply in a case where the profits and gains of business are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him.

Para 46 - It is relevant to mention that under an existing provision in the Income-tax Act, income received by trustees of discretionary trusts is charged to tax at the maximum marginal rate of income-tax. (A trust is regarded as a "discretionary trust" if the income or any part thereof is not specifically receivable by the trustee on, behalf of or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or part is receivable are indeterminate or unknown). The Income-tax Act, however, provides that income received by discretionary trust, will not be charged to tax at the maximum marginal rate, but at the normal rates of tax applicable to individuals, association of persons, etc., in cases where any one of the following conditions is fulfilled, namely : ---

(i) none of the beneficiaries has any other income chargeable under the Income-tax Act exceeding the exemption limit or is a beneficiary under any other trust;

(ii) the trust is declared by a person by will and such trust is the only trust so declared by him;

(iii) the trust has been created before 1st March, 1970, by a non-testamentary instrument and the Income-tax Officer is satisfied that the trust was created bonafide exclusively for the benefit of the relatives of the settlor or where the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance;

(iv) the trust has been created bonafide by a person carrying on business or profession exclusively for the benefit of his employees.

The bill seeks to provide that the aforesaid provisions will not apply in a case where the income of a discretionary trust consists of, or includes, profits and gains of business. In such cases, the entire income of the trust would be charged at the maximum marginal rate of tax, except in cases where the profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him. In such cases, the income of the discretionary trust would be charged to tax at normal rates applicable to individuals and not at the maximum marginal rate of income-tax.

Para 47 - The proposed provisions will take effect from 1st April,- 1985 and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years.

23. In the case of Dr. Baliram Waman Hiray v. Mr. Justice B. Lentin [1989] 176 ITR 1, the Hon'ble Supreme Court discussed the implication of mischief rule as enunciated in Heydon's case [1584] 3 Co. Rep. 7a. The following principles enunciated in Heydon's case, and firmly established, are still in full force and effect : "that for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law), four things are to be discerned and considered: (1) what was the common law before the making of the Act; (2) what was the mischief and defect for which the common law did not provide; (3) what remedy Parliament has resolved and appointed to cure the disease of the commonwealth; and (4) the true reason of the remedy. And then, the office of all the Judges is always to make such construction as shall suppress the mischief and advance the remedy, and to suppress subtle inventions and evasions for the continuance of the mischief and pro privato commodo, and to add force and life to the cure and remedy according to the true intent of the makers of the Act pro bono publico. There is now the further addition that regard must be had not only to the existing law but also to prior legislation and to the judicial interpretation thereof."

24. The things which are to be designed and considered as proposed in Heydon's case are contained and crystallised in the notes and clauses and in memorandum explaining provisions in Finance Bill, 1984 referred to above. The intention of the Legislature is obvious and the profile of law shaped by the Legislature to cure the defect is contained in sub-section (1A) of sec. 161 which was inserted by the Finance Act, 1984.

25. Coming now to the case relied upon by the counsel for the assessee, in the case of Karelal Kundantal Trust it was held that the combined reading of secs. 160 and 161 of the Income-tax Act, 1961 clearly establishes the position that a representative assessee is to be assessed only under sec. 161(2) of the Act. The definition of "representative assessee" in clause (iv) of sec. 160 (1) makes it clear that he could be assessed in respect of the income it has gained for the beneficiary whom he represents. The assessment should be made either in the hands of the representative assessee or directly on the beneficiary but it could only be with regard to the income to which the beneficiary is entitled and the liability will only be to that extent. There is no option on the revenue in the case of representative assessee to assess him personally.

26. In the case of Aarti Trust (India) the Bombay Bench of the Tribunal decided the question whether ITO was justified in assessing income earned by trust in hands of trust directly under sec. 164, especially when assessment of some of beneficiaries in respect of their shares in income of trust had already taken place. Held - no. Whether income of trust should be assessed under sec. 161 (1) in the hands of beneficiaries. Held - yes.

27. In the case of Trustees of Staff Gratuity Fund of Shree Ram Mills Ltd., it was held that Trustees of Staff Gratuity Fund - Trustees required to pay Gratuity to whole-time bona fide employees of certain Mills and others mentioned in the deed of trust. Employees who had been dismissed for dishonesty or misconduct not entitled to claim gratuity. On these facts, it was held that it cannot be said that the beneficiaries are indeterminate and fluctuating and that assessee to be assessed under sec. 161.

28. In the case of Trustees of Raptakos Brett Co. (P) Ltd. it was held that share of beneficiaries of the trust were specifically known and determinate at the end of each accounting year. Hence, the income of trust fund received by the trustees was assessable under the provision of sec. 161 and not under those of sec. 164 of the Income-tax Act, 1961.

29. So far as the application of the prescription of sec. 161, there is no dispute. In the instant case, sec. 164 was never applied. Once it is clear that the case comes within the grip of sec. 161 there is no point in discussing the applicability of sec. 164 in the present case. The cases therefore cited by the learned counsel for assessee are, in our opinion, of not much help in the facts and circumstances of this case. Since in the present case, the main question is that as because trust is engaged in the activities of business, it falls clearly within the mischief of sec. 161(1A).

30. Section 161(1A) of the Act begins with a non obstante clause. A non obstante clause is usually used in a provision to indicate that the provision should prevail despite anything to the contrary in the provision mentioned in such non obstante clause. In case there is any inconsistency or departure between the non obstante clause and another provision, one of the objects of such a clause is to indicate that it is the non obstante clause which would prevail over the other clause. This view was taken by the Hon'ble Andhra Pradesh High Court in the case of CIT v. Navbharat Enterprises (P.) Ltd. [1988] 170 ITR 332. Since the Legislature manifested its intention, and ambit of the law with reference to the language in which the section is couched has well been explained in the nos and clauses and in memorandum explaining the provisions, in our opinion, there is no inconsistency or a departure between the non obstante clause and another provision in regard to the taxability of the business profits of the trust. Sec. 161(1A) contemplates in very clear and unequivocal terms its applicability with reference to the business profits of a trust. Since this sub-section begins with a non obstante clause it has got overriding effect and it prevails over the other provisions laid down in the Act. In our opinion the case clearly falls within the ken of sec. 161(1A). Hence tax treatment should also be in conformity with the section applicable to the case. Since maximum marginal rates are prescribed in the section applicable to the present case, we are of the opinion that revenue authorities have rightly charged tax at the maximum marginal rate. To this extent, the order of the revenue authorities is in conformity with the letters of law.

31. Once this position is clear, the assessability in the status of 'AOP' cannot be challenged as because it is mentioned in clause (iv) of sub-section (1) of sec. 160 that representative assessee means "in respect of income which a trustee appointed under a trust declared by duly executed instrument in writing whether testamentary or otherwise received or is entitled to receive on his behalf or for the benefit of any person such trustee or trustees". The other condition is that the income received by representative assessee consists of or includes profits and gains of business. This requirement of the section is also satisfied here. In this eventuality, law prescribes that tax shall be charged on the whole of the income in respect of which such person is so liable, at the maximum marginal rate. Since the chargeability is in respect of the whole of the income is clearly laid down in the section. the argument of Shri Swami in relation to the implication of the word so liable in our opinion, is not correct.

The position is very clear. The sweep of the section attracts the entire income of the trust as a whole. For the purpose of taxation, as clearly laid down in the memorandum explaining provisions discussed above that by making private trust, "arrangements are entered into for the purpose of tax avoidance, the main objective being to avoid payment of registered firm's tax which would become payable if the business is carried on in partnership". Since this sub-section is enacted to pluck this loophole and to cure the lacuna, following the mischief rule of construction, we conclude that the tax is chargeable on the whole of the income of the trust in the hands of representative assessee at the maximum marginal rate.

32. So far as the allowability of interest, we find that the interest is being charged and debited in the books of the trust and credited in the names of the beneficiaries. Since beneficiaries cannot be construed to be defacto or dejure owners of the trust property such payments cannot be deducted in computing the total taxable income of the Trust. It is seen that beneficiaries have deployed their own funds also. We are of the opinion that to the extent beneficiaries have deployed their separate funds, interest may be allowed. In regard to this, we direct the assessing officer to find out the personal funds deployed by the beneficiaries in the business of the trust and allow the actual amount of interest charged thereon. In regard to the other disallowance in salary etc. we uphold the order of the learned CIT(A). Since no cogent material as to its admissibility was placed before us, we confirm the said disallowance.

33. In the result, appeals are partly allowed.

Per Shri G. Santhanam, Accountant Member - I have gone through the order proposed by my learned brother in the case of Mohammed Omer Family Trust [WT Appeal Nos. 1569 and 1570 (Hyd.) of 1989], and I am in agreement with the facts stated in the proposed order. In these appeals on the following issues, I am not able to persuade myself to the order passed by my learned brother:

(a) Interpretation of section 161(1A), assessment in the status of association of persons.

(b) Disallowance of salary paid to some of the beneficiaries.

2. There are as many as 59 beneficiaries each having definite shares. Thus the beneficiaries are known and the shares are determinate. There is no dispute on this aspect. Section 161 (1A) reads as follows :---

"(1A) Notwithstanding anything contained in sub-section (1), where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate:"

While interpreting sec. 161 (1A) in para 30, it is held by my learned brother "that section 161(1A) contemplates in very clear and unequivocal terms its applicability with reference to the business profits of the trust". However, way down in para 31, it is held by him "that the sweep of the section attracts the entire income of the trust as a whole". These observations require reconsideration. Then he concluded that the tax is chargeable on the whole of the income of the trust in the hands of the representative assessee at maximum marginal rate. With respects, I disagree. In a case where the income from trust of which the trustee is a representative assessee on behalf of or for the benefit of others, includes profits and gains of business, the crucial question is whether the maximum marginal rate should be applied on the entire income of the trust as such or with reference to the entire share income of each of the beneficiaries individually who are known and whose shares are determinate. In my view, in a case of this type, after ascertaining the income from the trust, the same should be apportioned to the different beneficiaries in accordance with their respective shares and then tax at the maximum marginal rate should be levied on the shares of each of the beneficiaries in the hands of the representative assessee.

The reasons are as follows:---

"Representative assessee" --- General provisions---

'160(1). For the purposes of this Act,---

'representative assessee' means---

(i) in respect of the income of a non-resident specified in sub-section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163 ;

(ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot ;

(iii) in respect of income which the Court of Wards, the Administrator General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court, receives or is entitled to receive, on behalf of or for the benefit of any person, such Court of Wards, Administrator General, Official Trustee, receiver or manager ;

(iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Musalman Wakf Validating Act, 1913 (6 of 1913) receives or is entitled to receive on behalf of or for the benefit of any person, such trustee or trustees . . . . .' ."

Thus a representative assessee is one who receives or is entitled to receive on behalf' of or for the benefit of any person. This concept runs through the entire chapter.

Section 161 is as follows :---

"Liability of representative---

161 (1). Every representative assessee, as regards the income in respect of which he is 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.

(1A) Notwithstanding anything contained in sub-section (1), where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate:"

No doubt, section 161(1A) begins with a non obstante clause. For purpose of resolving the issue before us, it is necessary to ascertain whether the non obstante clause overrides the provisions of section 161(1) in all its ambit, scope and content. or whether the overriding effect is only to a limited extent and for a limited purpose? In my opinion, unless the non obstante clause is construed in a limited sense, or read down, there will be a head-on clash between section 161(1) and section 161(1A).

3. Section 4 of the Income-tax Act is the charging section. The charge is in respect of the total income of the previous year on every person at a rate or rates prescribed by the Finance Act and the charge is subject to the provisions of the Income-tax Act. Section 4, therefore, yields to all other sections in the computation of total income. "Income" as defined in section 2(24) of the Income-tax Act includes profits and gains. "Total income" as defined in section 2(45) means the total amount of income referred to in section 5 computed in the manner laid down in the Act. Section 5 which deals with the scope of total income is also subject to the provisions of the Act. Thus the total income is to be read in the context of the definition of "income" as given in section 2(24). Section 14 deals with the heads of income and it is as follows:---

"Heads of Income

14. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income and computation of total income, be classified under the following heads of income:---

A. Salaries.

B. Interest on securities.

C. Income from house property.

D. Profits and gains of business or profession.

E. Capital gains.

F. Income from other sources."

It would be evident from the above that the charge of income-tax is not on any particular head of income but all the incomes comprising every head of income. The charge is one indivisible charge. In other words, there cannot be a separate tax for salary income, a separate tax for house property income, much less a separate tax for profits and gains of business. We have to keep in mind the scope of charge of income-tax and the definition of "income" when we deal with the expression "income" occurring in different sections of the Income-tax Act Sec. 161(1) deals with the income in respect of which a person is the representative assessee. In the light of the above, can it be said that the income referred to in sec. 161 (1) excluded profits and gains? In my opinion, it is not so because the term "income" is always an inclusive one and in its sweep it will include profits and gains also and it has been so understood till assessment year 1984-85 in 161 (1). In this context, the observations of the Andhra Pradesh High Court in Taj Mahal Hotel v. CIT [1968] 70 ITR 366 at pp. 368 and 369 may be usefully reproduced :

"As observed by Lord Watson in Dilworth v. Commissioner of Stamps [1988] AC 99,105,106 'include is very generally used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statutes'. When it is so used, these words and phrases must be construed as comprehending, not only such things as they signify according to their nature and import, but also those things which the interpretation clause declares that they shall include. The word' include' is susceptible of another construction which may become imperative if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. When it is mentioned that a particular definition 'includes' certain things, it should be taken that the Legislature intended to settle a difference of opinion on the point or wanted to bring in other matters that would not properly come within the ordinary connotation of the word or expression or phrase in question (vide Madras Central Urban Bank Ltd. v. Corporation of Madras). The Legislature uses the word 'means' where it wants to exhaust the significance of the term defined and the word 'includes' where it intends that while the term defined should retain its ordinary meaning, its scope should be widened by specific enumeration of certain matters which its ordinary meaning may or may not comprise so as to make the definition enumerative but not exhaustive (vide Province of Bengal v. Hingal Kumari)."

If with the advent of section 161 (1A) dealing with the "income, which consists of or includes profits and gains of business" the meaning and scope of the word "income" occurring in section 161(1) is seen as curtailed or limited so as to exclude profits and gains of business in section 161(1), it would be in derogation of the definition of "income" as given in clause 2(24). If, on the other hand, it is held that the word "income" occurring in section 161(1) is not affected by the non obstante clause in section 161(1) and retained its original scope and content then the question arises whether it is permissible to have two different tax rates and two different modes of assessment in respect of an identical subject, viz., "income". The answer is obvious. The construction placed by my learned Brother on section 161(1A) leads to such anomalies.

4. The interpretation of sec. 161(1A) as given by my learned-Brother obliterates the distinction between a case of a trust where the beneficiaries are known and their shares are determinate and a case of a trust where the beneficiaries are not known and their shares indeterminate. In other words, no distinction is made between the provisions of sub-section 161(1A) and section 164.

Further, under section 166, the Revenue has the option to make direct assessment on the known beneficiaries with determinate shares. Even in such a case, if entire income of the trust as a unit is chargeable to tax at the maximum marginal rate under section 161 (1A), as has been suggested by my learned Brother, recourse to sec. 166 is not open to the Revenue, as there cannot be double taxation of the same income. To put it differently, the construction adopted by my learned Brother for the non obstante clause as found in section 161(1A) to override section 161(1) goes to the extent of overriding section 166 itself - certainly a consequence not even envisaged by the Legislature :

Legislature cannot be presumed to be guilty of tautology. An interpretation which leads to a conclusion that any provision in an enactment is a superfluity ought not to be applied except in very compelling circumstances. In Dinesh Chandra Sangma v. State of Assam AIR 1978 SC 17 the Hon'ble High Court has held: "No word is superfluous, redundant or surplus". In Aswani Kumar Ghose v. Arabinda AIR 1952 AIR SC 369, the Hon'ble Supreme Court held:

"Interpretation of Statutes - Surplusage - Civil P.C.(1908), Preamble.

It is not a sound principle of construction to brush aside words in a statute as being imapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute." Thus there is need to so construe section 161(1) and section 161(1A) as to harmonise any seeming conflict as between them and ensure their co-existence with other provisions of the Act. "In the interpretation of the statutes, if a special definition of the word or words is given in the Act, it should be adopted if not repugnant to the context" - Reg v. Gobind ILR 16 Bom. 283. "It is commonplace in the interpretation of statutes that the same word or expression occurring in different statutes or in different parts of the same statute need not mean the same thing. The word or expression must take its colour from the context, more so in the labyrinth of taxing enactments" - Deccan Wine & General Stores v. CIT [1977] 106 ITR 111 (AP).

Hence (a) the meaning of the word "income" occurring in section 161 (1) should be construed as "income other than profits and gains of business", (b) the expression "on the whole of the income" occurring in sec. 161(1A) should reach back to 44 any income" (in respect of which a person is assessable: as representative assessee)" which consists of or includes "profits and gains of business". It does not mean that the representative assessee is assessable on the entire income as a single unit of assessment as an association of persons. This will be evident from the fact that notwithstanding the "non obstante clause", the representative character of the trustee is retained throughout the section, as for instance by the user of the words "liable as a representative assessee"; the expression "such person" would again refer to the representative assessee. The adverb "so" qualifying the word "liable" would pin-point the representative character of the liability and it is to be read as "so liable as a representative assessee". The question then would be how and in what manner or mode the representative assessee would be liable? He is liable because "he receives or entitled to receive income on behalf of or for the benefit of any person" or persons. In order to ascertain the mode of assessment, beneficiaries are to be classified into two groups and the "income" into three groups and different rates of taxes would step in. This is represented in the following chart :

BENEFICIARIES

|----------------------------------------------------|---------------------------------------------------------------|

Known and Known and Not known or shares determinate. determinate shares share. indeterminate.

INCOME FROM TRUST

|----------------------------------------------------|---------------------------------------------------------------|

Total income from Total income from Total income trust without profits trust including with or without and gains of profits and gains profits & gains business. of business. of business.

RATE OF TAX

|----------------------------------------------------|---------------------------------------------------------------|

Individual rates Maximum marginal Maximum on the share of each rate on the share marginal rate beneficiary of each beneficiary on the entire (subject to such (subject to such income of all exemptions as he exemptions as he beneficiaries. may be entitled). may be entitled).

If section 161(1A) is interpreted on the above lines, all the provisions in the Chapters 'B' and 'C' would co-exist without inherent conflict and the purpose of the Act would be served. If the Legislature wanted to curb the tendency of resorting to creation of trust to avoid payment of Firm tax which at the maximum is 25% (a point highlighted by my learned Brother) on the interpretation placed by me also it would be seen that the beneficiaries pay the maximum marginal rate of nearly 60% in case of the trust, if its income included profits and gains of business, but each such beneficiary would be entitled to such exemptions as are due to him under the IT Act, as, in the words of the Hon'ble Supreme Court, "the enacting part of a statute must, where it is clear, be taken to control the non obstante clause where both cannot be read harmoniously". The assessment in the status of 'A.O.P.' cannot be sustained for the following reasons :---

On the interpretation placed by him, the learned Judicial Member comes to the conclusion in para 31 as follows:

"Once this position is clear, the assessability in the status of 'AOP' cannot be challenged as because it is mentioned in clause (iv) of sub-section (1) of sec. 160 that the representative assessee means 'in respect of income which a trustee appointed under a trust declared by duly executed instrument in writing whether testamentary or otherwise received or is entitled to receive on his behalf or for the benefit of any person such trustee or trustees'. The other condition is that the income received by representative assessee consists of or includes profits and gains of business.... In this eventuality, law prescribes that tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate."

I am unable to understand how an interpretation of sec. 161 (1A) in the manner done by the learned Judicial Member can lead to the conclusion that the assessment should be made in the hands of the representative assessee in the status of "Association of persons". Shri Swamy's arguments are two-fold: (a) Up to the assessment year 1984-85, all the individual beneficiaries of the trust had been independently assessed though u/s. 143(1). Even in respect of the impugned assessment years, some of the beneficiaries had been assessed. Therefore no assessment can be made as "AOP". (b) If assessable as AOP, 161(1A) cannot be invoked. Some assessment orders of the beneficiaries were shown before us in which the assessments were made u/s. 143(1). As it is, it is not clear to me whether those assessment orders related to the assessment year 1986-87 also. It is settled law that once an assessment is made on the individual members of an A.O.P., it is not open to the I.T.O. to assess the same income in the status of 'A.O.P.'. This is because the option given to the I.T.O. exhausted with the assessment of the member or members - CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, 228 (SC) and CIT v. Hyderabad Deccan Liquor Syndicate [1974] 95 ITR 130 (AP). Of course, these cases were decided under the 1922 Act and a question may arise whether the same position continues to hold the field after the coming into force of the Income-tax Act, 1961. Even in such cases, it was held that if one or more members of the association had been taxed on his or their share of income from the association, the I.T.O. cannot assess the total income of the association in the hands of the association - C.H. Atchaiah v. ITO [1979] 116 ITR 675 (AP), CIT v. R. Dhandayutham [1978] 113 ITR 602 (Mad.) and CIT v. C. Ratan & Co. [1981] 128 ITR 39 (Cal.). In view of the authoritative pronouncements, it is my considered view that the assessment on the representative assessee in the status of an A.O.P. is not available to the Revenue. Such a course of action is not available to the Revenue for another reason as well. For an A.O.P. to come into existence, there must be a profit motive and the coming together of many individuals comprising the Association for the purpose of earning income. This essential ingredient of an A.O.P. is not found in the case before us.

Even if it is held that the assessment is to proceed on the status of A.O.P., the provisions of sec. 167A as they stood at the relevant point of time would not be applicable as this is a case known beneficiaries with known shares. My learned brother in his proposed order has not dealt with these aspects of the matter. In the light of the above discussion, I hold that the representative assessee cannot be assessed in the status of 'A.O.P.' in the facts and circumstances of the case at the maximum marginal rate and the assessment should be on the individual share income of each beneficiary in the hands of the representative assessee at the maximum marginal rate.

5. S/Shri Mohammed Layeeq, Faheem and Muneer were paid a salary of Rs. 1,000 per mensem. The learned I.T.O. disallowed the salary of Rs. 12,000 in all paid to the three beneficiaries on the ground that "it amounts to payments to self". On appeal, the first appellate authority felt that the payment of salaries to the three beneficiaries was just a device to neutralise the impact of the new statutory provisions introduced by the Finance Bill, 1984. None of the beneficiaries had withdrawn their salaries credited to their accounts. No salary was paid to them ever since the inception of the trust There is no indication of rendering of any specific service. On these grounds, the disallowance was sustained by the CIT(A).

6. My learned Brother upheld the disallowance on the ground that no cogent material was placed before the Tribunal. In my considered opinion, this is a short way of disposing the ground of appeal. The ITO did not doubt or deny that the three persons had rendered any service. The CIT(A) While sustaining the disallowance has stated that there is no indication of rendering of any specific services. It is the case of the assessee that these three persons' services were utilised generally for all the businesses of the trust and in the context of the turnover of Rs. 50.91 lakhs in the assessment year 1985-86 and Rs. 59.47 lakhs in the assessment year 1986-87, the payment of salary was justified. When it is the plea of the assessee that these persons were looking after the business in general in all the four places and when it is the case of the ITO that the payment of salary is a payment to self and when the ITO had not questioned the factum of services being rendered by these employees, I fail to understand what material was there before the CIT(A) to say that no specific service was rendered? In the light of the above facts, I further fail to understand how my learned Brother was persuaded to think that no cogent material was adduced before the Tribunal to warrant its deduction from the income of the trust. There is nothing on record to show that the CIT(A) called for the details of the kind of services rendered by the assessee's employees and that the assessee did not furnish such details. Nor the Bench called for the details. Such being the case, to hold that the assessee did not adduce cogent material in support of its claim does not appear to be justified. The payment of salary for services rendered to the business cannot be considered as a device to materialise the provisions of the Finance Act. Such payments would constitute valid deductions.

7. In the result, the appeals are partly allowed.

Reference under sec. 255(4) of the IT Act, 1961

The assessee is a trustee of a trust having income from business. The beneficiaries are known and their shares are determinate. The Income-tax Officer assessed the trustee in the status of an 'A.O.P.' and applied the maximum marginal rate of tax. The learned Judicial Member in the order dated 10-8-1990 proposed by him upheld the assessments in the manner in which they were done. The learned Accountant Member having disagreed with the learned Judicial Member, in his separate order, the following issues are referred to the Hon'ble President with a request for appointment of a Third Member or Members to resolve the differing points of view: "

1. Whether in the facts and circumstances of the case, the assessments on the trustee as an Association of persons were justified."

2. In a case where the beneficiaries are known and their shares are determinate, where the total income includes income from profits and gains of business, whether the maximum marginal rate of tax is to be applied on the entire income of the trust as a single unit for assessment in the hands of the trustee or whether the maximum marginal rate is to be applied in the hands of the representative assessee with reference to the entire share income of each of the beneficiaries individually? This involves the interpretation of sec. 161(1A).

3. Whether, in the facts and circumstances of the case, the salaries paid to three of the beneficiaries for the work done for the business of the trust were rightly disallowed by the ITO ?"

Per Shri Ch. G. Krishnamurthy, President --- In these matters on account of a difference of opinion between the Members of the Hyderabad Bench who heard this appeal in the first instance, the matter was referred to the President under section 255(4) of the Income-tax Act, for reference to a Third Member.

2. The President as a Third Member heard the matter for sometimes It was brought to his notice during the course of the hearing that the Bangalore Bench of the Tribunal expressed an opinion against the assessee in the case of P.S.V. Rasquinha The point made out during the course of hearing was that this decision had proceeded on an erroneous interpretation of the law and, therefore, required reconsideration. The President felt that the re-consideration of a view expressed by Division Bench must be done by a larger Bench of three Members. That is how this larger Bench of Three Members was constituted by the President to hear and dispose of this difference of opinion.

3. The relevant facts are : Under a deed dated 3-4-1982, Haji Qari Mohammed Akbar created a trust called "Mohd. Omer Family Trust' for the benefit of the family members of his elder brother late Shri Mohd. Omer. The beneficiaries are sons of late Shri Mohd. Omer and their wives and children. In all there are 59 beneficiaries. Their shares are clearly specified and determined in the trust deed. Initially six sons of Mohd. Omer were appointed the trustees with a power to co-opt the other trustees. Among the powers vested, the trustees were empowered to carry on business either by themselves or by joining as partners in any firm. Some of the beneficiaries were partners in three firms called "Royal Auto Traders, Royal Motor Stores and Royal Automobiles". By an agreement dated 10-5-1982, the trust took over these businesses w.e.f. 1-4-1982. The partners in these firms were the family members of the beneficiaries under the trust deed. For the assessment years 1983-84 and 1984-85 the assessee filed the income-tax returns in the status of Association of persons admitting 'nil' income for each of these years. The Income-tax Officer computed the income for these years at positive figures and transferred the same to the beneficiaries according to their shares. In the case of the assessee trust, no demand was raised. All the beneficiaries filed the income-tax returns for the assessment years 1983-84 and 1984-85 showing the respective share incomes at figures below taxable limit and claiming that no income-tax was payable thereon. The Income-tax Officer accepted these returns u/s 143(1) and raised no demands. The trust carried on the business in the same manner as before except that the trustees instead of being partners as before, became trustees on behalf of the other beneficiaries. These trustees were paid salaries for looking after the businesses.

4. In the previous year relevant to the assessment year 1985-86, three beneficiaries had become major, they also looked after the businesses and they were also paid salaries. The trust also paid interest to the trustees and beneficiaries whose funds were utilised in these businesses.

5. For the assessment year 1985-86, the assessee trust claimed deduction for the interest paid to the trustees and beneficiaries as well as the salaries paid to the beneficiaries. The Income-tax Officer was of the opinion that these arrangements to pay interest and salary was a device to circumvent the application of section 161(1A) of the Income-tax Act which came into effect from 1-4-1985 as this was the first year in which the interest and salary was paid. According to this provision, if a representative assessee receives income on behalf of any beneficiary and if that income includes income from profits and gains of business, the whole of the income of the representative assessee should be charged to tax at maximum marginal rate. The Income-tax Officer, as we mentioned above was of the opinion that since by the payments of interest and salary, the positive income of the businesses was converted into negative income, this was a device adopted to avoid the application of section 161 (1A) of the Income-tax Act. The Income-tax Officer was also of the opinion that as a consequence of this amendment, the assessment had to be made in the status of Association of persons in the hands of the trustee aggregating the income of all the beneficiaries. The Income-tax Officer also found that there was no agreement between the trust and the beneficiaries for the payment of the interest on their credit balances. In this view of the matter, for the assessment year 1985-86, the loss return, by the trust of Rs. 1,81,707 was convened into an income of Rs. 2,91,663 by disallowing the interest and the salaries and by disallowing some other minor expenses.

6. In the same way, for the assessment year 1986-87, the loss return of Rs. 1,71,803 was converted into an income of Rs. 3,13,590.

7. On appeal, the Commissioner of Income-tax agreeing with the Income-tax Officer's view held that after the amendment, the profits and gains of the trust must be taxed at the maximum marginal rate, irrespective of the person in whose hands it was to be taxed. He also disallowed the assessee's claim for deduction of the interest and salary.

8. When the matter came in appeal before the Tribunal, the learned Judicial Member upheld the orders of the authorities below in so far as the question of status of Association of Persons is concerned. But the learned Accountant Member held that on a careful reading of section 161(1A) of the Income-tax Act along with section 166, the assessment in the status of Association of Persons could not be maintained. With regard to the claim for deduction of interest paid, both the Members agreed that it should be allowed as a deduction. But with regard to the salary paid, the learned Judicial Member upheld the disallowance while the learned Accountant Member allowed the claim. This led to the difference of opinion between them and the following points of difference of opinion are referred to the Third Member u/s 255(4) of the Income-tax Act :

"1. Whether, in the facts and circumstances of the case, the assessments on the trustees as Association of Persons were justified?

2. In a case where the beneficiaries are known and their shares are determinate, where the total income includes income from profits and gains of business, whether the maximum marginal rate of tax is to be applied on the entire income of the trust as a single unit for assessment in the hands of the trustee or whether the maximum marginal rate is to be applied in the hands of the representative assessee with reference to the entire share income of each of the beneficiaries individually ? This involves the interpretation of section 161(1A).

3. Whether, on the facts and circumstances of the case the salaries paid to three of the beneficiaries for the work done for the business of the trust were rightly disallowed by the Income-tax Officer ?"

9. Before us it was contended on behalf of the assessee that the assessments on the trustees can only be in a representative capacity and that too only in the like manner and to the same extent to which the beneficiaries are liable and consequently when the beneficiaries themselves could not form an Association of Persons, an assessment could not be made in that status. It was also contended that the amendment by which sub-section (1A) was introduced to section 161 had the effect of only applying the maximum marginal rate which is applicable to 'Association of Persons' and it did not authorise making assessment on the Trustees in the status of association of persons aggregating the income of all the beneficiaries. It was pointed out that the Act provided for a direct assessment of the beneficiaries and in the present case since such direct assessment had already been made, the Income-tax Officer did not have the option of bringing the same income again to tax in the status of Association of Persons in the hands of the trustees.

10. On the other hand, the revenue relying upon the opinion given by the Ministry of Law contended that the beneficiaries must be taken to have formed an association of persons by the doctrine of acquiescence. The business having been continued to be carried on by the same persons in the capacity of trustees which was earlier being carried on in the capacity of partners the doctrine of acquiescence applied. It was submitted that once the status is determined as an association of persons, the question of any option of status does not arise and the assessment made in the status of association of persons had to be upheld. It was also contended that sub-section (1A) of section 161 must be considered to be a charging section to assess the income from business held by a Trustee in the status of 'Association of Persons' at the maximum marginal rate. In support of the view reliance was placed on the decision of the Bangalore Bench in the case of P.S.V. Rasquinha.

11. Before we consider the impact of the amendment introduced in sub-section (1A) of section 161, we may take a look at the law as it stood before the amendment. In the case of trust, the trustee under the Law of Trusts is the legal owner whereas the beneficiaries are the real owners. This legal position led to a doubt whether the revenue had an option to tax the real owner, viz. the beneficiary directly or should tax only the trustee. This doubt was particularly significant in a case where the trustee was carrying on business since the revenue sought to impose a higher rate of tax on the aggregate income from business in spite of the circumstance that that aggregate income belonged to several beneficiaries having definite shares. Courts then elucidated the correct principle underlying the representative assessment, viz., that the primary liability for payment of tax was on the beneficiary alone as a real owner, and, therefore, the assessability of the representative trustee was only a vicarious liability designed to facilitate the collection, since he was the person ordinarily handling the income of the beneficiary - See CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187 (Bom.) and A.W. Williams v. W.M.G. Singer 7 TC 387 (HL). In this situation, the Law Commission in its 12th Report at pages 425 and 426 recommended as under :

"Persons liable as representative assessees, especially the trustees, guardian or manager (i.e., the assessees governed by existing sections 40 and 4l) are at present, liable to be charged directly under section 3 also. In any case, the absence of a specific provision lends support to the opinion expressed by some commentators that the Act leaves an option with the Department to assess the trustee, etc., either under section 3 or under section 40 or 41. Since assessment under section 3 might be more onerous than under section 40 or 41, it seems desirable to make it clear that it is obligatory on the Department to apply the provisions of sections 40 and 41 in cases where they are applicable, leaving the general liability under section 3 to be applied only in cases which are outside sections 40 and 41, The draft sub-clause under discussion is intended to achieve this object."

Accordingly, when the Income-tax Act, 1961 was enacted, section 161 specifically provided for taxing the beneficiary alone through the representative assessee with the consequence that it is no longer permissible for any income received by a representative assessee as defined u/s 160 to be taxed under the general charging section 4. While explaining the corresponding provisions of the Wealth-tax Act, namely section 21, the Supreme Court held in the case of CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 that this provision was mandatory and every assessment on a trustee must necessarily fall under this section and he cannot be assessed apart from and without reference to the provisions of this section. It was further explained that the assessment of the trustee in the like manner and to the same extent as a beneficiary means that there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary, that the assessment of the trustee would have to be made in the same status as that of the beneficiary and the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest, if he were assessed directly. Section 166 no doubt reserves the power of the Income-tax Officer to make a direct assessment on the beneficiary and the recovery of tax from him. It may be recalled that the Supreme Court in its decision in the case of C.R. Nagappa v. CIT [1969] 73 ITR 626 at page 632 approved the following observation of Justice Chagla in the case of CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187 (Bom.) at page 194 :---

"If the assessment is upon a trustee, the tax has to be levied and recovered in the manner provided in section 41. The only option that the Legislature gives is the option embodied in sub-section (2) of section 41, and that option is that the department may assess the beneficiaries instead of the trustees, or having assessed the trustee it may proceed to recover the tax from the beneficiaries. But on principle the contention of the department cannot be accepted that, when a trustee is being assessed to tax, his burden which will ultimately fall upon the beneficiaries should be increased and whether that burden should be increased or not should be left to the option of the department. The basic idea underlying section 41, and which is in conformity with principle, is that the liability of the trustees should be co-extensive with that of the beneficiaries and in no sense a wider or a larger liability. Therefore, it is clear that every case of an assessment against a trustee must fall under section 41, and it is equally clear that, even though a trustee is being assessed, the assessment must proceed in the manner laid down in Chapter III."

[Emphasis supplied]

The Department has also always understood that this was only a residuary power to prevent any escapement of income but not to enable the revenue to tax the income derived from a trust as part of the total income of the beneficiary. Thus the Central Board of Direct Taxes has issued instructions in letter No. F. 45/78/66-ITJ(5), dated 24-2-1967 to the effect that :

"Once the choice is made by the Department to tax either the trustee or the beneficiary, it is no more open to the department to go behind it and assess the other at the same time. The inclusion of the share income from the trust in the total income of the beneficiary for rate purposes would virtually amount to an assessment of the income which has already been assessed and subjected to tax. According to the scheme of the Act, if certain income is to be included for rate purposes in the total income, a specific provision in that behalf is made in the Act In the absence of any such express provision, the general principle to charge all income only once would be applicable in such a case."

12. However, the Central Board of Direct Taxes issued the following instructions in 1985 to the assessing officers :

"Instruction No. 1643

Assessment of Representative assessee (Trust) - Status - Instructions Reg.

The question whether trustees who are assessed in the capacity of representative assessees under section 160 of the Income-tax Act, 1961, can be assessed in the status of an Association of persons where such trustees are authorised by the settlor to carry on business on behalf of and for the benefit of the beneficiaries was examined by the Board in consultation with the Ministry of Law. The opinion given by the Ministry of Law on the subject is as follows:

'Under section 161, the tax shall be levied upon and recovered from the representative assessee in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. In other words, the amount of tax payable by the Trustee would be the same as that payable by each beneficiary in respect of his beneficial interest if he were assessed directly. The status to be assigned to the representative assessee is the same as that of the beneficiaries. The status becomes all the more important in cases where the trustee is authorised to carry on business by the settlor on behalf of the beneficiaries. In such cases, the Trustees can be treated as an Association of Persons, the charge would be attracted to the totality of the income accruing to the person carrying on the business. In this context, we may refer to the judgment of the Supreme Court reported in N.V. Shanmugham and Co. (811 I.T.R. p. 310). It was held by the Supreme Court that the profits were earned on behalf of the persons who had a common, interest created by the order of the Court and were on that account an association of persons. The liability to tax depends upon the earning of profits by a unit and not upon the ultimate division of profit Referring to the facts of the case in Indira Balakrishna (39 ITR p. 546), it was observed :

'It was not said that any of them declined to receive the same. That means all of them acquiesced in the continuance of business. Each one of the assessee wants to share profits earned on behalf of all of them but then it comes to question of paying tax, they want to deny that the business was conducted on behalf of all of them. It is true that considerations of equity are irrelevant in interpreting taxing provision but while considering the question who carried on a business, the course of conduct of the concerned parties is relevant.'

In other words, in a case where a Trustee is authorised by the settlor to carry on business on behalf of the beneficiaries, the status of the beneficiaries is that of the Association of Persons. Except in the case of minors, it cannot be said that there was no consent is implied and, therefore, it is possible to take a view that the beneficiaries constitute an Association of Persons. However, we are not expressing any final view in case of trust exclusively for minors. The Supreme Court categorically held that where the beneficiaries receive profits that means they have acquiesced in the continuance of the business. The course of conduct of the beneficiaries is relevant in determining who carried on the business. In the case of Shanmugham and Co., it is no doubt true that the business was carried on by the orders of the Court. However, in cases where a Trust is created in writing and the Trustee is authorised to carry on business by the settlor for the benefit of the beneficiaries, the profits earned on behalf of the persons who had a common interest created under the Trust Deed and, therefore, they were on that account an Association of Persons. It may not be necessary to refer to the earlier judgments of the Supreme Court reported in Mohammed Noorallan v. Commissioner of Income-tax (42 I.T.R. p. 150).

As far as the assessment year 1985-86 is concerned, the problem is solved by the Taxation Laws (Amendment) Act, 1984.

In other cases since the language of section 161 is clear the status of the Trustee shall be the same as that of the beneficiary and the tax shall 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.

In other words, the judgment of the Supreme Court in CWT v. Trustee of Nizam Family Trust (108 ITR p. 555) may have to be followed.'

The position of law as explained in the MOL's opinion may kindly be brought to the knowledge of all officers working in your charge.

[F. No. 279/2785-ITJ, dated 29-7-1985 from Central Board of Direct Taxes.]"

13. The revenue supported the assessment in the status of 'Association of Persons' on the basis of the above opinion of the Law Ministry. But this opinion has not stood the test of judicial review. The opinion proceeds on the basis that when the trustee is authorised to carry on the business for the benefit of beneficiaries the profits were earned on behalf of persons who had a common interest created by the Trust deed and, therefore, they formed an Association of Persons. The Courts have pointed out two flaws in this proposition. The first is that it overlooks the law laid down by the Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust, that the status of the trustee shall be the same as that of the beneficiary and, therefore, unless the beneficiary has formed an Association of Persons, the status of the trustee, cannot be an Association of Persons. The second flaw is that the trustees are not the agents of the beneficiary as held by the Supreme Court in the case of W.O. Holdsworth v. State of U.P. [1958] 33 ITR 472 and when they carry on the business, they are not carrying on the business on behalf of the beneficiaries but only at the behest of the settlor. The carrying on of business by the trustee is, therefore, not a carrying, on of business by the beneficiaries as they have not come together with a common interest or intention to carry on business and so they do not form an 'Association of Persons' by themselves so as to assess the trustees in that status, This has been clearly explained by the recent decisions of the Bombay High Court in the case of CIT v. Marsons Beneficiary Trust [1991] 188 ITR 224 and the Karnataka High Court in the case of CIT v. K. Shyama Raju (Trustees) [1991] 189 ITR 392. The Karnataka High Court has further explained that the receipt of the share of the income by the beneficiary cannot amount to an implied consent for carrying on the business so as to form an Association of Persons.

14. It was then contended on behalf of the revenue that, on the facts of the present case, the formation of association of persons by the beneficiaries should be inferred because there was an identity of the persons who are carrying on the business and those who are trustees and beneficiaries. It was pointed out that the same persons who were carrying on business originally as partners continued to carry on the business as trustees and since the beneficiaries who have become majors also participated in the business, it must be accepted that there was a common intention to carry on business, thus factually forming an association of persons. We are unable to accept this contention also because in this case there are 59 beneficiaries, many of them minors, and unless it can be shown that all of them had a common intention to carry on the business, there cannot be an association of persons constituted by all of them. In the absence of a formation of an association of persons by all the 59 beneficiaries, it is also not possible to consider the creation of an association of persons by all the 59 beneficiaries, it is also not possible to consider the creation of an association of persons of a few of them when in fact the business is held in trust for the benefit of all of them. Further, the trustees carried on business in exercise of the power conferred on them by the settlor and not in exercise of any power conferred on them by the beneficiaries or as their agents. The business which was carried on by the trustees as partners was acquired by the trust. Though they were the same persons when they continued to carry on the business, they did so in a different capacity as trustees accountable to the beneficiaries and not in their own individual capacity. Since their status depends upon the common intention of the beneficiaries and such a common intention is lacking, it is not possible to consider them as having formed an association of persons. The point made by the revenue that some of the beneficiaries, who had become majors, have also participated in the business, loses its significance when we find that those persons were only employed on a salary in the business already carried on by the trustees. The participation of the beneficiaries was again in their individual capacity and not in the capacity of beneficiaries as such. Moreover, as noted above, the participation of the few of the beneficiaries cannot by itself indicate the existence of a common intention on the part of all the beneficiaries to form an association of persons. In the circumstances, we are of the considered opinion that both on facts and in law, the status of the trustees could not be taken as 'Association of Persons' under the provisions of section 161 before the introduction of sub-section (1A).

15. In spite of the repeated instructions of the Central Board of Direct Taxes by letter dated 24-2-1967 and circular dated 26-12-1974 the assessing officers appear to take the view that, because a higher amount of tax could be collected if the income of all the beneficiaries are aggregated and taxed together, the formation of specific private trust itself could be treated as a device to avoid tax on the aggregate which will be larger than the tax on the individual shares of the beneficiaries. This was the attempt in the case of K.T. Doctor v. CIT [1980] 124 ITR 501. In that case a trust had been created for the benefit of the assessee, his wife and two minor sons by his mother and the trustee had been authorised to start any business. The assessee who was a chemical engineer resigned his job and devoted himself to that business carried on by the trust. The Income-tax Officer rejected that claim that only his 40% share of income derived as beneficiary was taxable and sought to tax the aggregate income from the business as such in the hands of the trust. The Gujarat High Court pointed out that,---

"So long as there is nothing illegal or immoral in the creation of the trust or in the objects of the trust and the business is a normal legal business, and so long as it cannot be said that the trust is illusory or fraudulent, the trust deed must be allowed to operate in the manner contemplated by the settlor. Lifting the veil to ascertain whether a business in reality and substance is the business of the trust is not permissible in law so far as trusts are concerned. The concept of lifting the veil is permissible only in the case of a company with a view to finding out the real person behind the corporate body, namely, the company. Trustees are under a legal obligation to carry out the objects of the trust and to act in accordance with the deed of trust subject to the provisions of the Indian Trusts Act, 1882, and if they fail in their duty they are accountable in their capacity as trustees."

It was further pointed out that though the assessee devoted himself to the business, it was in his capacity as trustee which was not expressly remunerated and, therefore, the income derived could not be taken to be that of the assessee.

16. In this background, the revenue initiated an amendment to section 161 in the form of sub-section (1A). The Notes on Clauses stated as follows:

"Clause 20 seeks to amend section 161 of the Income-tax Act relating to liability of representative assessee. Sub-section (1) of section 161 provides that every representative assessee, as regards the income in respect of which he is a representative assessee, shall be liable to assessment in his own name in respect of such income and tax shall 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. The proposed amendment seeks to insert a new sub-section (1A) in section 161 of the Act. The new sub-section provides that where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of Section 160 is liable as a-representative assessee consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate'. The proposed provision will, however, not apply in cases where such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him. For the purposes of the new provision, the term 'maximum marginal rate' shall have the same meaning as in Explanation 2 to section 164 of the Income-tax Act.The proposed amendment will take effect from 1st April, 1985 and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years."

The Memorandum explaining the provisions of the Bill also stated as follows :

"Taxation of business profits of private trusts at maximum marginal rate of income-tax :

44. Trustees of a private trust are ordinarily not expected to carry on any business because, implicit in the nature of business is the possibility of incurring loss and no prudent trustee would risk the trust's property in business venture. However, it has come to notice that tax-payers are increasingly conducting business through the medium of private trusts. Such arrangements are entered into for purposes of tax avoidance, the main object being to avoid payment of the registered firm's tax which would become payable if the business is carried on in partnership.

45. In order to counteract such attempts at tax avoidance, it is proposed to make a provision in the Income-tax Act, that where any income in respect of which, any person mentioned in clause (iv) of sub-section (1),of Section 160 of the Income-tax Act (i.e., a trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise, including a wakf deed) is liable as representative assessee consists of or includes profits and pins of business, income-tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. 'Maximum marginal rate', for this purpose, means the rate of income-tax (including surcharge) applicable in relation to the highest slab of income in the case of an individual or an association of persons as specified in the Finance Act of the relevant year. However, with a view to avoiding hardship in genuine cases, it has been specifically provided that the proposed provision for charging the entire income of the trust at the maximum marginal rate of income-tax will not apply in a case where the profits and pins of business are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him.

46. It is relevant to mention that under an existing provision in the Income-tax Act, income received by trustees of discretionary trusts is charged to tax at the maximum marginal rate of Income-tax (A trust is regarded as a 'discretionary trust' if the income or any part thereof is not specifically receivable by the trustee on behalf of or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or part is receivable are indeterminate or unknown). The Income-tax Act, however, provides that income received by discretionary trusts will not be charged to tax at the maximum marginal rate, but at the normal rates of tax applicable to individuals, association of persons, etc., in cases where any one of the following conditions is fulfilled, namely :

(i) none of the beneficiaries has any other income chargeable under the Income-tax Act exceeding the exemption limit or is a beneficiary under any other trust ;

(ii) the trust is declared by a person by will and such trust is the only trust se declared by him ;

(iii) the trust has been created before 1st March, 1970 by a non-testamentary instrument and the Income-tax Officer is satisfied that the trust was created bonafide exclusively for the benefit of the relatives of the settlor or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance ;

(iv) the trust has been created bona fide by a person carrying on business or profession exclusively for the benefit of his employees.

The Bill seeks to provide that the aforesaid provisions will not apply in a case where the income of a discretionary trust consists of, or includes, profits and gains of business. In such cases, the entire income of the trust would be charged at the maximum marginal rate of tax, except in cases where the profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him. In such cases, the income of the discretionary trust would be charged to tax at normal rates applicable to individuals and not at the maximum marginal rate of Income-tax.

47. The proposed provisions will take effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years.

(Clauses 20 and 21)."

(146 I.T.R. Statutes pp. 166 to 168).

7. Sub-section (1A) of section 161 as it was enacted stated : "

(1A) Notwithstanding anything contained in sub-section (1), where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, of includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate:

Provided that the provisions of this sub-section shall not apply where such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance and such trust is the only trust so declared by him.

Explanation : For the purposes of this sub-section,---

'Maximum marginal rate' shall have the meaning assigned to it in Explanation 2 below sub-section (3) of section 164."

'Explanation 2: Below sub-section (3) of section 164 reads as follows:

"Explanation 2: In this section, "maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year."

18. The Bangalore Bench of the Appellate Tribunal understood the scope of the section in the case of P.S.V. Rasquinha as follows:

"7. On a plain reading of the section, we find there is no difficulty at all in holding that the income of the trust in its entirety should be taxed at the maximum marginal rate. It will be noticed that the sub-section is non obstante to sub-section (1) of Sec. 161. This section 161 (1) which gives the trustees the right of being assessed to the extent and in the same manner and to the same extent as the beneficary. But for that section a trustee would naturally be assessed like any other individual or association of persons. There is nothing in income-tax law which holds that the trustees liability will be limited to the beneficiaries liability apart from what is given in section 161(1). The general law treats the trustees as the owners of the property and, therefore, as the owners of the property, i.e., business in this case, they will have to be assessed like any other businessmen.

8. Now this right given in sub-section (1) is taken away by section (1A) because it is non obstante. We, therefore, have to see only what is the income including the profits and gains of business in the hands of the trustees. That is to be taxed at the maximum marginal rate. There is no need for apportioning this income among the beneficiaries."

We find that this view proceeded on two apparently incorrect premises. The first is the assumption that but for section 161 the trustee would be liable to tax like any other individual or association of persons. This goes against the statement of law given by Justice Chagla (extracted above) and approved by the Supreme Court namely the liability of the trustees can in no case be larger or wider than the liability of the beneficiaries. The second is that there is nothing in the Income-tax law to limit the liability to that of the beneficiary. This again is contra to the well-settled proposition that the law seeks to tax only the interest of the beneficiary though in the hands of the legal owner, viz. the trustee as representative assessee but only to the extent of the liability of the real owner (i.e.) the beneficiary.

19. Apart from the above, the other question is whether the provisions of subsection (1A) with reference to its non obstante clause actually did away with these two well-settled propositions that the charge is only on the income of the beneficiary and that it is limited to the extent of the interest of the beneficiary even though the assessment could be made on the trustee as representative assessee. This principle, we wish to say emphatically was not only not done away with, but also carefully preserved. The effect of the non obstante clause is only to effectuate the departure from the existing provision and to prevent any obstruction to the operation of the new provision with reference to the existing provision.

20. Now what is the departure that the non obstante clause has made with reference to the existing provision. Before we understand the departure made, we must know the existing provisions. Under the existing provisions without subsection (1A) if a representative assessee receives income on behalf of the beneficiaries from profits and gains of business, tax has to be charged not at the maximum marginal rate. As pointed out in the memorandum explaining the provisions of the Bill, the trustees of the private trust are originally not expected to carry on any business because implicit in the nature of business is the possibility of incurring losses and no prudent trustee would risk the trust property in a business venture. However, since tax-payers are increasingly conducting business through the medium of private trust, such arrangements are resulting in tax avoidance namely payment of registered firm's tax which would become payable if the business is carried on in partnership. This is the existing provision.

21. The departure made by insertion of sub-section (1A) is to counteract such attempts at tax avoidance by making it obligatory that where any trustee appointed in a trust is liable as a representative assessee receives income which consists of, or includes, profits and gains of business, income-tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Thus the departure made was that if the income receivable by a representative assessee consists of or includes profits and gains of business, income-tax shall be charged on the whole of the income of the representative assessee at the maximum marginal rate. In other words what sub-section (1A) provided for or seeks to achieve is to impose a higher rate of tax on the income of a representative assessee if the income received by that representative assessee includes income from profits and gains of a business. This is made clear from the wording of section (1A) when it provided that "tax shall be charged on the whole of the income in respect of which such, person is so liable at the maximum marginal rate". The expression "the whole of the income" means the income of the representative assessee in respect of which he is so liable as a trustee. That, it was the income in respect of which he is liable as a trustee is also made clear by the use of the expression "in respect of which such person is so liable". Here, the expression "in respect of which" means that income and the expression "such person" means the person referred to in clause (iv) of sub-section (1) of Section 160. So a plain reading of this section would indicate in most unambiguous terms and unequivocally that if the person referred to in clause (iv) of sub-section (1) of Section 160 (i.e.) a trustee, is liable as a representative of the assessee in respect of income of the beneficiaries and if that income includes profits and gains of business, tax shall be charged on the whole of the income at the maximum marginal rate irrespective of the fact whether the income in the hands of the representative assessee, consisted of the income from the profits and gains alone or it is made up of income from some other heads like property, dividends and interest etc. To put it differently the expression "the whole of the income" refers to that part of the income which was received on behalf of a beneficiary by the trustee and not to the whole of the income of all the beneficiaries put together. There is no warrant for the view that the expression "whole of the income" used here would encompass the aggregate incomes of all the beneficiaries in the hands of the trustees. The income of each beneficiary is his own income. How can the income of one beneficiary be clubbed with the income of another beneficiary which will be the outcome, if the interpretation of the Revenue is accepted. To construe it differently would not only be against the very object for which this provision was introduced as explained in the memorandum of Finance Bill but also to the plain meaning of the words and also to the concept of taxing the trustee in respect of the income of the beneficiaries limiting the liability of the trustee to the liability of the beneficiary in respect of which he is assessable and not to allow it to exceed the liability of the beneficiary.

22. This construction is also consistent with the object of the legislation which is to defeat the diversification of the business income of the beneficiaries by creation of private trusts, for, such income would but for the creation of the trust be part of the total income of the beneficiary and would suffer tax at the maximum marginal rate in case he reaches the highest slab of income. This is exactly the position with reference to the discretionary trust which was obtained by the amendment of Section 164. There also the reason given for imposing the maximum marginal rate in the Central Board of Direct Taxes Circular No. 421 dated 12-6-1985 was:

“1. Tghtening of provisions relating to taxation of Association of Persons from the assessment year 1985-86 onwards.

Since the existing provisions were misused by some taxpayers for tax avoidance and a large number of association of persons were formed without specifying the shares of members, the provisions were amended by the Finance Act, 1985 w.e.f. 1-4-1985 with a view to countering tax avoidance through such methods. It was provided that where the shares are indeterminate or unknown, tax would be charged on the whole of the income of the association at the maximum marginal rate."

23. The contention of the revenue that the status of the trustee should be taken as an association of persons because of the provisions of sub-section (1A) is devoid of any merit. This is because sub-section (1A) does not state anywhere that the status should be taken as 'association of persons'. It only states, when read with Explanation, that the tax imposable shall be the maximum marginal rate applicable to association of persons. Thus the object of sub-section (1A) is only to impose higher rate of tax in the circumstances mentioned therein and not to create an association of persons by imposing tax at the maximum marginal rate which happened to be the rate applicable to an association of persons. The non obstante clause did not wipe out the settled legal position that it is only the share of the beneficiary that is liable to be taxed in the hands of the trustee as representative assessee. In our considered opinion the view expressed by the Bangalore Bench did not correctly appreciate the law on the point. Therefore, the answer to the first question is that the assessments in this case have to be made only in the status of an 'individual' and cannot be made in the status of 'Association of Persons' even while making the assessment under the provisions of sub-section (1A) of section 161. Consequently, the answer to the second question is that the tax at the maximum marginal rate has to be charged only in respect of the whole of the income of each beneficiary and not on the aggregate income of all the beneficiaries in the hands of the trustee.

24. With regard to the third question, admittedly services were rendered by the trustees and beneficiaries as the Income-tax Officer did not dispute the same. In fact, evidence of work done by the three major beneficiaries was produced for verification. The reason given by the Income-tax Officer that it should be regarded as payment to self does not stand to reason because as pointed out by the Gujarat High Court in the case of K.T. Doctor the remuneration for services rendered is in a different capacity from the receipt of the share of the income as beneficiary. Moreover, the Supreme Court has pointed out in the case of Mrs. Arundhati Balkrishna v. CIT [1989] 177 ITR 275 that it is only the real income of the trust that has to be included in the total income of the beneficiary after taking into consideration the different items of permissible deductions under the Act in relation to that income. The salary paid for earning the income from business is certainly an expenditure laid out for the purpose of the business and a permissible deduction unless it is established that either it was not paid at all or that it was a make-believe. That is not the situation here. As far as a beneficiary is concerned, payment of salary to another beneficiary is as much the payment to a stranger and cannot be equated to payment to self, while in the case of the beneficiary who received salary it would anyway taxable in his hands. Hence, on this question, we agree with the learned Accountant Member that the salary paid to the beneficiaries was a permissible deduction in computing the income from business carried on by the trustee which was to be apportioned and assessed as the share of the beneficiary in the hands of the trustee as representative assessee.

25. These appeals will now be posted before the regular Bench for passing orders in conformity with the opinion of the majority of the Members who heard these appeals.

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