1962 (10) TMI 69 - HC - Income Tax

Court rules payment to beneficiary assessable as trust income, not subject to maximum tax rate

The court ruled in favor of the assessee, determining that the amount paid by the trustees to the beneficiary was assessable as income of the trust as it ... - Issues:1. Whether the amount paid by the trustees to the beneficiary is assessable as income of the trust.2. Whether the amount paid to the beneficiary can be considered as a charge under section 9(1)(iv).3. Whether the tax on the amount paid to the beneficiary should be levied at the maximum rate under section 41(1).4. Whether the amount already taxed in the hands of the beneficiary can be taxed again in the hands of the trustees.Analysis:1. The court examined whether the amount paid by the trustees to the beneficiary could be considered income diverted at the source by an overriding title. The court determined that the income did not proceed in a different channel to a person other than the trustees, as the trustees held the legal title to the trust property. Therefore, the income was not diverted by an overriding title and was assessable as income of the trust.2. The contention that the amount paid to the beneficiary could be treated as a charge under section 9(1)(iv) was dismissed by the court. It was clarified that no charge was created on any part of the trust property for the amount payable to the beneficiary. The payment was made in accordance with the trust deed's directions and did not constitute a charge on any specific part of the trust property.3. The court deliberated on whether the tax on the amount paid to the beneficiary should be levied at the maximum rate under section 41(1). The revenue argued that the entire income was properly charged at the maximum rate, while the assessee contended that the tax should be levied at the rate applicable to the beneficiary's income. The court did not delve into a detailed discussion on this issue as it found in favor of the last contention raised by the assessee.4. The court addressed the issue of whether the amount already taxed in the hands of the beneficiary could be taxed again in the hands of the trustees. It was established that the beneficiary had disclosed the amount in her return and was directly assessed by the income-tax authorities. Since one of the alternative methods under section 41 had been availed of by directly assessing the beneficiary, the court ruled that the tax authorities were not entitled to tax the amount again in the hands of the trustees.In conclusion, the court ruled in favor of the assessee, holding that the amount already taxed in the hands of the beneficiary could not be taxed again in the hands of the trustees. The court answered the referred question in the negative and awarded costs to the assessee from the Commissioner.