Trust income assessable in trustees' hands, and depreciation from discontinued businesses cannot offset separate business profits.

Income received by trustees for a defined class of creditors was assessable in the trustees' hands, because the creditors were the real beneficiaries and Section 41(1) applied to income receivable on their behalf. The contention that the partners remained the beneficiaries was rejected, and the assessment on the trustees was upheld. Unabsorbed depreciation relating to businesses that had already ceased and whose assets were disposed of could not be carried forward to offset profits of a separate continuing saw mill business, because depreciation under Section 10(2)(vi) was confined to a business carried on and Section 24 did not apply to discontinued businesses. The depreciation set-off claim was disallowed.

---

---

Issues: (i) Whether the trustees were rightly assessed under the Indian Income-tax Act, 1922, on income received from the business carried on under the trust deed for the creditors of the firm. (ii) Whether unabsorbed depreciation relating to businesses discontinued before the year of account could be set off against the profits of the saw mill business under the Act.

Issue (i): Whether the trustees were rightly assessed under the Indian Income-tax Act, 1922, on income received from the business carried on under the trust deed for the creditors of the firm.

Analysis: The trust was created to realise the assets of the firm and to distribute the proceeds among the creditors. The income was received by the trustees on behalf of the general body of creditors, who were the real beneficiaries for the purpose of receipt of income under the trust. Section 41(1) applied because trustees receiving income on behalf of identifiable beneficiaries are assessable in the like manner as the persons on whose behalf the income is receivable. The contention that the partners remained the beneficiaries was rejected.

Conclusion: The assessment on the trustees was valid and the answer to this issue was against the assessee.

Issue (ii): Whether unabsorbed depreciation relating to businesses discontinued before the year of account could be set off against the profits of the saw mill business under the Act.

Analysis: Allowance for depreciation under Section 10(2)(vi) is available for a business that is carried on. Once the cinema and general businesses had ceased and their assets had been disposed of before the relevant year, no allowance could be claimed for those discontinued businesses. The unabsorbed depreciation of a ceased business could not be carried forward to reduce the profits of a separate continuing business. Section 24 did not assist because the earlier businesses were not in existence during the year of account.

Conclusion: The claim for set-off of unabsorbed depreciation failed and the answer to this issue was against the assessee.

Final Conclusion: The reference was answered against the assessee on both questions, so the assessment and the disallowance of the depreciation claim were upheld.

Ratio Decidendi: Income received by trustees for a class of creditors is assessable in their hands under the trust provisions, and depreciation from a business that has ceased to exist cannot be carried forward to offset profits of a separate continuing business.

---