Trustee business income treated as earned income, so no special surcharge applied to the profit share.

Income from a business carried on by trustees was treated as earned income where it fell under the head of profits and gains of business, profession or vocation, even though the trustees had no beneficial interest in it. On that footing, the 40 per cent share payable to the thavazies was not assessable as unearned income in the trustees' hands and was not liable to special surcharge, because the surcharge under the relevant Finance Acts applied only to unearned income. Section 41 did not change that result.

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Issues: Whether the 40 per cent share of business profits payable to the two thavazies was assessable as unearned income in the hands of the trustees and liable to special surcharge.

Analysis: The trustees were directed under the will to carry on the business, but they had no beneficial interest in the income. The income was chargeable under the head "profits and gains of business, profession or vocation" as business carried on by the trustees, and therefore fell within the statutory concept of earned income under section 2(6AA) of the Indian Income-tax Act, 1922. Since the special surcharge under the relevant Finance Acts applied only to unearned income, it could not be levied on this share of income. Section 41 did not alter that position.

Conclusion: The amount was not assessable as unearned income and was not subject to special surcharge, in favour of the trustees.

Ratio Decidendi: Income from a business carried on by trustees is earned income where it is chargeable under the business head, even if the trustees have no beneficial interest in it; such income is not liable to a special surcharge confined to unearned income.

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