Constructive receipt of income and beneficiary tax credit against trustees' liability under representative assessment provisions

An advance payment made in anticipation of dividend and bonus, closely linked to their later declaration and credited against a loan account, was treated as a remittance of income rather than a genuine loan; the amount was therefore taxable as received in the taxable territories. For trustees assessed under the corresponding representative liability provision, tax already paid by the beneficiaries on the same income under advance or provisional tax provisions had to be credited against the trustees' liability. The reference was answered partly against the assessees on remittance and partly in their favour on credit for tax already paid by beneficiaries.

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Issues: (i) Whether the sum of Rs. 1,50,000 was deemed to have been received by the assessee in the taxable territories within the meaning of section 14(2)(c) of the Income-tax Act, 1922. (ii) Whether the tax paid by the beneficiaries under section 18A or section 23B of the Income-tax Act, 1922 could be set off against the trustees' liability in respect of the same income.

Issue (i): Whether the sum of Rs. 1,50,000 was deemed to have been received by the assessee in the taxable territories within the meaning of section 14(2)(c) of the Income-tax Act, 1922.

Analysis: The receipt was held not to be a case of constructive receipt in the taxable territories merely because the dividend, when declared, was adjusted against the loan account. The decisive factors were the proximity of dates, the advance payment made at Ahmedabad, and the surrounding circumstances showing that the amount was paid in anticipation of dividend and bonus which had already been recommended and were shortly to become payable. The transaction was treated as an accelerated payment of income and not as a genuine loan.

Conclusion: Yes. The sum of Rs. 1,50,000 was held to be remittance of income and was taxable.

Issue (ii): Whether the tax paid by the beneficiaries under section 18A or section 23B of the Income-tax Act, 1922 could be set off against the trustees' liability in respect of the same income.

Analysis: Tax chargeable on trustees under section 41 was to be levied in the same manner and to the same amount as it would have been leviable upon the beneficiaries on whose behalf the income was receivable. Accordingly, advance tax or provisional tax already paid by the beneficiaries had to be credited against the trustees' liability for the same income.

Conclusion: Yes. The beneficiaries' payments under section 18A and section 23B were directed to be adjusted against the trustees' tax liability.

Final Conclusion: The reference was answered partly against the assessees on the remittance issue and partly in their favour on the credit for tax already paid by the beneficiaries, while the remaining question was left unanswered.

Ratio Decidendi: An advance payment made in anticipation of income, when closely connected with the later declaration and crediting of that income, may be treated as a remittance of taxable income; and tax recovered from trustees under section 41 must be reduced by tax already paid on the same income by the beneficiaries.

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