Beneficiaries' independent investment income cannot be taxed in a trust's hands under Section 60 or constructive receipt.

Income earned by beneficiaries from investments made in their own right could not be assessed in the hands of the trust under Section 60 of the Income-tax Act, 1961, because the beneficiaries were not acting as agents of the trust and the income arose from their own subsequent investments. The doctrine of constructive receipt also failed on the same factual basis, as the interest was not income received by or on behalf of the trustees. Both issues were answered in favour of the assessee, and the reference was disposed of accordingly.

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Issues: (i) Whether Section 60 of the Income-tax Act, 1961 applied to include the interest income in the hands of the assessee trust. (ii) Whether the interest income earned by the beneficiaries could be taxed in the hands of the assessee trust on the principle of constructive receipt.

Issue (i): Whether Section 60 of the Income-tax Act, 1961 applied to include the interest income in the hands of the assessee trust.

Analysis: The beneficiaries had made the investments in their own right and not as agents of the trust. The interest accrued to them by reason of their subsequent investments and not by virtue of the original loan transaction. On these facts, the provision dealing with transfer of income without transfer of assets was not attracted.

Conclusion: Section 60 of the Income-tax Act, 1961 was not applicable, and the finding was in favour of the assessee.

Issue (ii): Whether the interest income earned by the beneficiaries could be taxed in the hands of the assessee trust on the principle of constructive receipt.

Analysis: Since the investments were made by the beneficiaries in their own right, the resulting income could not be treated as income received by or on behalf of the trustees. The doctrine of constructive receipt could therefore not be invoked to bring the beneficiaries' interest income into the trust's hands.

Conclusion: The principle of constructive receipt did not apply, and the issue was decided in favour of the assessee.

Final Conclusion: Both referred questions were answered in the affirmative in favour of the assessee, with the reference disposed of accordingly.

Ratio Decidendi: Income earned by beneficiaries from investments made in their own right cannot be assessed in the hands of the trust either under Section 60 of the Income-tax Act, 1961 or on the principle of constructive receipt.

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