Representative assessment limits tax liability to the extent of the beneficiaries, even where receivers are assessed as an association of persons.

Representative assessment under section 41 of the Indian Income-tax Act, 1922 and section 161 of the Income-tax Act, 1961 is a machinery provision: the representative assessee may be assessed in that capacity, but the tax can be levied and recovered only to the same extent as it could from the persons represented. Where receivers carry on the business of a dissolved or disrupted firm on behalf of beneficial owners, the business profits may be brought to assessment in the status of an association of persons. The substantive tax burden, however, remains co-extensive with the liability of the beneficiaries or other represented persons and cannot be enlarged by the representative form of assessment.

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Issues: Whether, where receivers carried on the business of a dissolved or disrupted firm on behalf of the persons beneficially entitled, the assessment was to be made in the status of an association of persons while the tax liability was to be determined only to the same extent and in the like manner as in the hands of the beneficiaries or represented persons under section 41 of the Indian Income-tax Act, 1922 for the earlier years and section 161 of the Income-tax Act, 1961 for the later years.

Analysis: The relevant provisions dealing with representative assessees show that the assessment may be made on the representative in a representative capacity, but the tax is to be levied and recovered only to the same extent as it would be from the persons represented. The provisions are machinery provisions for collection and recovery and do not enlarge the substantive liability. The business in question was carried on through receivers on behalf of the persons having beneficial interests, and the principle applied in the earlier decisions on representative assessment supported the view that there could be one assessment for the profits of the business, but the burden of tax could not exceed the liability of the beneficiaries or represented persons.

Conclusion: Yes. The assessment could be made in the status of an association of persons, but the tax liability had to be determined only to the same extent and in the like manner as in the hands of the beneficiaries or represented persons under section 41 of the Indian Income-tax Act, 1922 and section 161 of the Income-tax Act, 1961.

Ratio Decidendi: Section 161 of the Income-tax Act, 1961, like section 41 of the Indian Income-tax Act, 1922, is a machinery provision for representative assessment under which the tax payable by the representative assessee is co-extensive with, and cannot exceed, the liability of the person represented.

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