Trust income already assessed in the beneficiary's hands cannot be taxed again on trustees under section 41

Trust income paid to a beneficiary was held not to be assessable again in the hands of the trustees once the same amount had already been validly assessed in the beneficiary's hands under section 41(2) of the Income-tax Act, 1922. The income was not treated as diverted at source by an overriding title, and it was not an admissible charge on the trust property under section 9(1)(iv). The operative principle is that section 41 allowed alternative modes of assessment, but the same income could not be taxed twice after assessment and recovery from the beneficiary.

---

---

Issues: Whether the sum of Rs. 25,000 payable to the beneficiary under the trust was assessable in the hands of the trustees when it had already been assessed in the beneficiary's hands.

Analysis: The amount payable to the beneficiary was not treated as diverted at source by an overriding title, because the trust income first came to the trustees and was then applied in accordance with the trust deed. The amount also was not an admissible charge on the trust property under section 9(1)(iv). The decisive consideration was that section 41 of the Income-tax Act, 1922 provided alternative modes of assessment, either in the hands of the trustees or directly in the hands of the person on whose behalf the income was receivable. The beneficiary had already been validly assessed on the very amount under section 41(2), and the department had recovered tax from her. Once that course was adopted, the same amount could not again be assessed in the hands of the trustees.

Conclusion: The sum of Rs. 25,000 was not assessable again in the hands of the assessee-trustees.

Ratio Decidendi: Where trust income has already been validly assessed in the hands of the beneficiary under section 41(2), the same income cannot be assessed again in the hands of the trustees under section 41(1).

---