Business income of a private trust taxable at maximum marginal rate under section 161(1A), not as an association of persons

A private trust carrying on business was held not to be assessable as an association of persons on the facts found. For the assessment year 1985-86, section 161(1A) of the Income-tax Act applied because it had been inserted with effect from 1 April 1985 and governs representative assessees whose income consists of or includes business profits. The provision required tax on the whole of such income at the maximum marginal rate, subject only to the stated exception. An earlier Bombay decision did not assist because it concerned a period before section 161(1A) was introduced.

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Issues: Whether a private trust carrying on business is assessable as an association of persons, and whether income from such business received by a representative assessee is chargeable at the maximum marginal rate under section 161(1A).

Analysis: Section 161(1A) of the Income-tax Act, 1961, introduced with effect from 1 April 1985, provides that where income for which a representative assessee is liable consists of or includes business profits, tax is to be charged on the whole of such income at the maximum marginal rate, subject only to the stated exception. The assessment year in question being 1985-86, the provision applied. The earlier Bombay decision relied on was rendered for a period prior to the insertion of section 161(1A) and did not govern the present assessment year.

Conclusion: The income derived by the trust from its business was liable to tax at the maximum marginal rate under section 161(1A), and the trust could not be treated as an association of persons on the facts found.

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