Case ID: 5998

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

Summary:
The appellant was an assessee who derived income from a Trust. For assessment years 1964 65 and 1966 67 the Income Tax Officer disallowed deduction of two mounts claimed as interest paid by the Trust for amounts withdrawn from an Estate Account for investment on the ground that a portion of the amounts withdrawn from the Estate Account had been utilized for personal expenditure by the assessee. The appellants appeals to the Assistant Commissioner having been rejected	 she preferred second appeals to the Appellate Tribunal raising an additional question in respect of the assessment year 1964 65 that she was liable to tax on the net income only received by her from the Trust and not on income determined in accordance with the provisions of the Income Tax Act in the case of the Trust. The Tribunal dis missed the appeals but at the instance of the appellant referred the two questions of law arising therein to the High Court which answered both of them against the assessee. Dismissing the appeals	 HELD: It is not the income shown in the books of account of the Trust actually paid to the assessee after deduction of the outgoings from the income received in the hands of the Trust	 but the real income of the Trust has to be in cluded in the total income of the assessee after taking into consideration the different items of permissible deductions in relation to that income. [869E F] It is apparent from section 161(1) of the Income Tax Act	 1961 that a representative assessee	 that is to say a trus tee	 as regards the income In respect of which he is a representative assessee	 is subject to the same duties	 responsibilities and liabilities as if the income were income received by or accruing to or in favour of him bene ficially	 and he is 866 liable to assessment in his own name in respect of that income; but any such assessment is deemed to be made upon him in his representative capacity only	 and the tax is levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. And section 166 of the Act clarifies that the provisions relating to the liability of a representative assessee will not prevent either the direct assessment of the person on whose behalf or for whose bene fit income is receivable	 or the recovery from such person of the tax payable in respect of such income. The Income Tax Officer has the option to proceed either against the trustee or against the beneficiary	 but in either case the income to be assessed must be in the same figure. What the trustee receives as the income pertaining to the beneficiary is received by him under an obligation to pass on that income to the beneficiary. However	 in most cases administration charges and expenses have to be met out of the Trust 's income and it is only the net income which reaches the beneficiary. If the income had	 to pass directly to the beneficiary and not under trust through a trustee	 the beneficiary would have equally to meet those outgoings	 leaving a net income in his hands which for the purposes of the Income Tax Act would have been computed after reducing the gross income by the deductions admissible under the Act. [868H; 869A E] (ii) The High Court was right in deciding the question relating to the disallowance of part of the interest claimed as a deduction against the assessee. [868F] Padmavati Jaikrishna vs Addl. Commissioner of Income Tax	 Gujarat	 	 referred to.