Trust loss allocation to beneficiary requires prior lawful computation of the trust's income or loss before any claim is allowed.

A beneficiary of a determinate trust cannot claim a proportionate share of trust loss in the individual return unless the trust's income or loss is first computed and verified in accordance with law. Direct assessment of the beneficiary does not dispense with lawful determination of the trust's result, so the claimed loss was not allowable on the existing record. Because the appellate order accepted the claim without finding the trust computation correct or quantified, without remand verification, the matter was set aside and restored to the Assessing Officer for fresh adjudication after proper examination of the trust's income or loss.

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Issues: (i) Whether a beneficiary of a determinate trust can claim a proportionate share of the trust's loss in the individual return without the trust's income or loss first being determined in accordance with law. (ii) Whether the allowance of such claim without verification of the trust's computation warranted setting aside the appellate order and remand to the Assessing Officer.

Issue (i): Whether a beneficiary of a determinate trust can claim a proportionate share of the trust's loss in the individual return without the trust's income or loss first being determined in accordance with law.

Analysis: The provisions governing representative assessees treat a trustee receiving income for the benefit of beneficiaries as assessable in a representative capacity, and permit direct assessment of the beneficiary. However, the right to direct assessment does not dispense with the prior computation and verification of the trust's income or loss in accordance with the Act. A beneficiary's entitlement to a share of loss can arise only after the trust's loss is first determined on a lawful and verifiable basis.

Conclusion: No. The beneficiary could not claim the proportionate trust loss without the trust's income or loss first being computed and determined in accordance with law.

Issue (ii): Whether the allowance of such claim without verification of the trust's computation warranted setting aside the appellate order and remand to the Assessing Officer.

Analysis: The appellate order allowed the claim on the premise that the trust was determinate, but no finding was recorded on the correctness or quantification of the alleged losses, no remand report was called for, and no independent verification of the trust computation was brought on record. In these circumstances, the matter required fresh examination by the Assessing Officer after affording opportunity to the assessee.

Conclusion: Yes. The appellate order was set aside and the matter was restored to the Assessing Officer for fresh adjudication in accordance with law.

Final Conclusion: The dispute was not finally decided on the merits of the loss claim and was sent back for fresh determination after verification of the trust's income or loss.

Ratio Decidendi: Direct assessment of a beneficiary of a trust does not obviate the need to first compute and verify the trust's income or loss in accordance with law before any proportionate loss can be allowed in the beneficiary's hands.

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