Trustees' tax liability must follow the mandatory beneficiary-based recovery scheme, not a wider assessment approach.

Income received by trustees from trust property, business or shares is not to be taxed by ignoring the special scheme for trustees. Section 3 is the charging provision, but sections 9, 10 and 12 govern computation under the relevant heads, while section 41 requires tax to be levied and recovered from trustees only in the like manner and to the same amount as from the beneficiaries. The trustees' liability cannot exceed that of the beneficiaries, and the tax authority cannot bypass section 41 once the assessee is assessed in the character of a trustee. Earlier statements suggesting a departmental option were treated as obiter and not accepted as correct law.

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Issues: Whether income arising from trust property, business and shares was assessable in the hands of the trustees as an association of persons under sections 3, 9, 10 and 12 of the Indian Income-tax Act, 1922, or whether section 41 required the tax to be levied upon and recovered from the trustees only in the like manner and to the same amount as from the beneficiaries.

Analysis: Section 3 is the charging provision, while sections 9, 10 and 12 govern computation under the relevant heads of income. Section 41, which deals with trustees receiving income on behalf of beneficiaries, operates at the stage of levy and recovery and imposes a mandatory vicarious liability. The liability of the trustees cannot be wider than that of the beneficiaries, and the Department has no option to ignore section 41 once the assessee is assessed in the character of a trustee. The assessment must still be computed under Chapter III, but the mode of recovery and the extent of liability are controlled by section 41. Earlier observations suggesting an option in the Department were treated as obiter and not accepted as a correct statement of law.

Conclusion: Section 41 was held to be mandatory, and the trustees could not be taxed outside that section merely by applying sections 9, 10 and 12. The question was answered in favour of the assessee.

Ratio Decidendi: Where income is assessed in the hands of trustees, the tax must be levied and recovered in accordance with the special mandatory scheme applicable to trustees, and the taxing authority cannot enlarge the trustees' liability beyond that of the beneficiaries by bypassing that scheme.

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