Trust business income assessable on trustee at maximum marginal rate under section 161(1A), not only beneficiaries.

Section 161(1A) of the Income-tax Act governs trust income that includes business profits and requires tax on the whole of such income at the maximum marginal rate, notwithstanding section 161(1). The provision makes the trustee, as representative assessee, the person liable to assessment; the beneficiaries are not the sole assessable entities for such business income. The Tribunal's view that assessment could be made only in the hands of the beneficiaries was therefore incorrect, and the trust's business income was assessable in the hands of the trustee under section 161(1A).

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Issues: Whether business income of a trust falling within section 161(1A) of the Income-tax Act, 1961 was to be assessed only in the hands of the beneficiaries or in the hands of the trustee as representative assessee at the maximum marginal rate.

Analysis: Section 161(1A), introduced with effect from 1 April 1985, specifically governs cases where the income receivable by a person mentioned in section 160(1)(iv) consists of or includes profits and gains of business. The provision states that tax shall be charged on the whole of such income at the maximum marginal rate notwithstanding section 161(1). The statutory language makes it clear that the person liable to assessment is the trustee referred to in section 161(1)(iv), and not the beneficiaries. On that construction, the Tribunal's view that assessment could be made only in the hands of the beneficiaries was incorrect.

Conclusion: The business income of the trust was assessable in the hands of the trustee under section 161(1A) at the maximum marginal rate, and not only in the hands of the beneficiaries. The reference was answered in favour of the Revenue and against the assessee.

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