Trust income with indeterminate beneficiary shares can be assessed as a whole and taxed at the maximum rate.

Trust income receivable by a trustee for beneficiaries may be assessed as a single composite income where the properties and business are trust assets and the statute is not confined to any particular source of income. On that basis, assessment of the whole trust income in one assessment was valid. Where the beneficiaries' shares are indeterminate or contingent, the proviso to section 41(1) requires taxation at the maximum rate. The court held that discretionary payments and variable entitlements made the shares unascertainable, and the maximum rate was correctly applied.

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Issues: (i) Whether the whole income of the trust could be assessed in one assessment in the hands of the trustee. (ii) Whether the tax on such trust income was correctly levied at the maximum rate under the proviso to section 41(1).

Issue (i): Whether the whole income of the trust could be assessed in one assessment in the hands of the trustee.

Analysis: The properties and business in the trustee's hands were trust properties and not joint family properties. Section 41(1) applied to income, profits and gains receivable by trustees on behalf of beneficiaries, without confining the assessment to any particular source of income. As the trust income comprised business income, income from securities and income from immovable properties, all forming part of the trust fund, the statute authorised a single assessment of the trust income as a whole.

Conclusion: The assessment of the whole income of the trust in one assessment was valid in law.

Issue (ii): Whether the tax on such trust income was correctly levied at the maximum rate under the proviso to section 41(1).

Analysis: The beneficiaries' shares were not fixed or ascertainable. Several beneficiaries could receive payments at the trustee's discretion, and the amounts payable to some beneficiaries varied according to contingencies. Where the individual shares of the persons on whose behalf the income was receivable were indeterminate, the proviso to section 41(1) required levy and recovery at the maximum rate. The reference to section 25A did not assist, because the property was trust property and the beneficiaries were not entitled as a Hindu undivided family.

Conclusion: The tax was correctly levied at the maximum rate.

Final Conclusion: The reference was answered against the assessee, upholding both the single composite assessment of the trust income and the application of the maximum rate of tax.

Ratio Decidendi: Where trust income is receivable by a trustee for beneficiaries whose shares are indeterminate, section 41(1) authorises assessment of the trust income as a whole and mandates taxation at the maximum rate.

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