TaxTMI 
TaxTMI 
Direct assessment or recovery from Representative assessees : Clause 304(3) of the Income Tax Bill, 2025 Vs. Section 166 of the Income-tax Act, 1961
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....ent or compliance process. The legislative framework for this mechanism has evolved over time, with the Income-tax Act, 1961 laying down the foundational provisions and the proposed Income Tax Bill, 2025 seeking to modernize and clarify these principles. Clause 304(3) of the Income Tax Bill, 2025 and Section 166 of the Income-tax Act, 1961 both address the ability of tax authorities to assess or recover tax directly from the person ultimately entitled to the income, notwithstanding the existence of a representative assessee. These provisions ensure that tax administration is not hampered by procedural technicalities and that the government's right to collect revenue is preserved. This commentary provides a detailed analysis of Clause 3....
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....er may directly assess the person on whose behalf or for whose benefit income therein referred to is receivable, or may recover from such person the tax payable in respect of such income." Clause 304(3) is a non-obstante provision, meaning it operates notwithstanding anything contained in the chapter relating to representative assessees. It grants the AO two distinct powers: * To directly assess the person on whose behalf or for whose benefit the income is receivable; * To recover from such person the tax payable in respect of such income. The use of the phrase "Irrespective of the provisions of this Chapter" is critical. It clarifies that the AO's power to proceed directly is not fettered by the existence of a representative asse....
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....ess the person on whose behalf or for whose benefit income is receivable; * Recover tax from such person in respect of such income. The section's language is almost identical to that of Clause 304(3), with minor stylistic differences. The phrase "Nothing in the foregoing sections in this Chapter shall prevent..." serves the same function as "Irrespective of the provisions of this Chapter," making it clear that the AO's power to proceed directly is not curtailed by the existence of a representative assessee or procedural requirements under other sections. Section 166 has been interpreted by courts as an enabling provision, designed to prevent technical defenses based on the procedural structure of representative assessment. It do....
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....rectly against the beneficiary. The use of permissive language ("may directly assess" / "may recover") indicates that the AO has discretion to choose the most effective route for assessment and recovery, based on the circumstances of each case. This discretion is particularly valuable in complex cases involving multiple beneficiaries, non-residents, or situations where the representative assessee is unable to fulfill their obligations. 4. Procedural Safeguards and Limitations While both provisions empower the AO, they do not abrogate the rights of the person ultimately assessed. The beneficiary, when directly assessed, is entitled to all procedural safeguards available under the Act, including the right to be heard, to file appeals, and ....
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....ring compliance, even if the income is managed by a trustee, guardian, or agent. Beneficiaries should also be aware of their rights in the event of direct assessment, including the right to challenge the assessment, seek rectification, or appeal against any adverse order. For Representative Assessees While representative assessees are primarily responsible for compliance, Clause 304(3) and Section 166 provide a fallback for the AO in case the representative is unable or unwilling to discharge their duties. Representatives should, therefore, ensure timely compliance to avoid direct proceedings against the beneficiary, which may have reputational or legal consequences. For Tax Authorities The provisions equip tax authorities with flexibi....