TRUSTEES OF SAHEBZADAS OF SARF E KHAS TRUST Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under s. 66 (1) of the Indian IT Act. The facts which give rise to this case are as follows :

(2.) ON 14th June, 1950, a trust called Sahebzadas of Sarf-e-khas Trust was created by H. E. H. the Nizam of Hyderabad. Securities of the face value of Rs. 2,50,00,000 were transferred to the trust. The relevant portion of the deed of trust was as follows :

(3.) IT is argued for the assessee that the expression "entitled to receive on behalf of any person" in cl. (1) means "entitled to receive on behalf of any specified or named person or persons" because under this cause, the tax shall be levied upon and recoverable from such trustee in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profit or gains are receivable. IT is common ground that the word "person" in cl. (1) of s. 41 includes "persons". We have to refer to the decision in CIT vs. Balwantrai Jethalal Vaidya (1958) 34 ITR 187 (Bom), where it is pointed out that the object of s. 41 is to assess either the beneficiaries or the trustee and the liability of the trustee is co-extensive with that of the beneficiaries and cannot in the case be a larger or wider liability. In the present case, the Department assessed income- tax under the first part of the first proviso to s. 41, cl. (1). The argument of Sri Rajah Ayyar is as follows : the beneficiaries are not specified, i.e., it cannot be said who the beneficiaries are, as under the deed of trust it is left to the discretion of the trustees to nominate them. So, it cannot be said that the trustees are entitled : to receive the income on behalf of any specified person within the meaning of s. 41, cl. (1). The first proviso to s. 41 (1) refers to "such income" i.e., the income referred to in cl. (1), which is the income the trustee is entitled to receive on behalf of any specified persons or persons. Therefore, neither s. 41, cl. (1) nor the first proviso is applicable to this case. IT follows that this income can be assessed only in the ordinary manner under the other provisions of the Act. Sec. 41 of the Act is a special provision which prescribes that the authority shall assess the income received by a trustee or trustees who are entitled to receive the income on behalf of others. The section is not confined to income which a trustee is entitled to receive on behalf of a specified beneficiary or specified beneficiaries. The expression "such income" in the first proviso to s. 41, cl. (1), refers to income which the trustee is entitled to receive as a trustee whether the beneficiaries are specified or not and is not confined to income which he is entitled to receive on behalf of any specified person or persons. As pointed out in the decisions referred to above, s. 41 is mandatory and the assessment of the income returned of a trustee can only be made in accordance with these special provisions laid down in that section. For these reasons, we are unable to accept the contention that the tax in this case cannot be levied under s. 41 of the Act.