TRUSTEES OF THE SIR CURRIMBHOY EBRAHIM BARONETCY TRUST Vs. COMMISSIONER OF INCOME-TAX, BOMBAY

JUDGEMENT

(1.) The question in this case, as it finally came before the High Court of Judicature at Bombay is whether the appellants, who are a body of trustees incorporated by an Act of the Indian Legislature, are liable to be assessed to income-tax and super-tax (which in this respect stand upon the same footing) in respect of the income of the trust or whether as regards the whole or any part of it they are not so liable on the ground that they are not beneficially interested. Certain complications, arising out of previous practice, which affected the case in its earlier stages, were got rid of by arrangement and need not now be noticed. The question so propounded was answered in the affirmative by the High Court in a judgment dated 18 August 1931. This is an appeal by the trustees, an incorporated body. The Act incorporating them (Act No. 4 of 1913) is described in its title as an Act for settling certain properties belonging to Sir Currimbhoy Ebrahim, Baronet, so as to accompany and support the title and dignity of a Baronet and for other purposes connected therewith. By S. 2 of this Act the appellants were incorporated as trustees for executing the trusts, powers and purposes of the Act and by S. 5 certain freehold and leasehold hereditaments specified in schedules to the Act were vested in the corporation upon trust to permit the Baronet for the time being to use and occupy certain parts of the properties, rent free, and as to the rest to demise the same subject to certain conditions. By S. 6 the corporation was to pay out of the income from the properties all rates and taxes and sundry other outgoings. By S. 7 the corporation was required to form two funds, called the Sinking Fund and the Repair Fund, and to carry annually thereto respectively, out of the income of the properties, certain sums calculated on percentages of capital sums there specified. By S. 8 the residue of the income was to be paid to the Baronet for the time being, if of full age, for his own absolute use and benefit. S. 29 provided that the actual management of the properties including the collection of rents and the carrying out of repairs should be in the hands of the Baronet for the time being, subject nevertheless to the control and supervision of the corporation. The present Baronet, the third holder of the title, succeeded before the commencement of the financial year (1928-9) to which this case relates, being then of full age. Of the total income of the trust roughly 75 per cent was paid to the Baronet, about 10 per cent having been carried to the Sinking Fund and Repair Fund and the remaining 15 per cent having been absorbed by rates, taxes and other outgoings.

(2.) The taxing Act under which the question in this case arises is the Income-tax Act, 1922, as subsequently amended. By S. 2 of that Act "assessee" is defined as meaning a person by whom income-tax is payable" and "person" by virtue of the General Clauses Act, 1897, S.3 (39) "includes any company or association or body of individuals whether incorporated or not." Chap. 1 of the Act, containing Ss. 3 and 4, is headed "Charge of Income-tax." S. 3, as amended, is as follows: "Where any Act of the Indian Legislature enacts that income-tax shall be charged for any year at any rate or rates applicable to the total income of an assessee, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of all income, profits and gains of the previous year of every individual, Hindu undivided family, company, firm and other association of individuals."

(3.) By S. 4 it is provided that the Act should "apply to all income, profits or gains as described or comprised in S. 6." Chapter 3 of the Act, containing Ss. 6-17, is headed "Taxable Income." S. 6 is as follows: "Save as otherwise provided by this Act, the following heads of income, profits and gains, shall be chargeable to income-tax in the manner hereinafter appearing, namely, (i) salaries, (ii) interest on securities, (iii) property, (iv) business, (v) professional earings, (vi) other sources." Section 7 deals with "salaries." Ss. 8 and 9 deal with "interest on securities" and "property," "which are the heads with which this case is concerned. These two sections, so far as material, are as follows: " Section 8. The tax shall be payable by an assessee under, the head 'interest on securities' in respect of the interest receivable by him on any security of the Government of India or of a local Government, or on debentures, etc. Section 9. The tax shall be payable by an assessee under the head 'Property' in respect of the bona fide annual value of property consisting of any building or lands appurtenant thereto of which he is the owner . . ." Provisos to S. 8 relieve the assessee from income tax on certain securities issued tax free, but by S. 16 these provisos do not apply in the computation of the total income of an assessee. By virtue of S. 14 (2) and S. 16 the position is the same as regards dividends and shares of profits received from companies or firms whose profits have been taxed. S. 22 (2) provides for a return of total and S. 23 (1) for assessment of the total income of an assessee and determination of the amount payable on the basis of such return. Provisions follow for the verification and, if necessary, correction of the figures returned. Ch. 9 of the Act is headed "Super-tax." The first two sections in the chapter, namely, Ss. 55 and 56, are (omitting a proviso to S. 55 immaterial for present purposes) as follows : " Section 55. In addition to the income-tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income of the previous year of any individual, Hindu undivided family, company, unregistered firm or other association of individuals, not being a registered firm, an additional duty of income-tax (in this Act referred to as super tax) at the rate or rates laid down for that year by Act of the Indian Legislature. " Section 56. Subject to the provisions of this Chapter, the total income of any individual, Hindu undivided family, company, unregistered firm or other association of individuals shall, for the purposes of super-tax, be the total income as assessed for the purposes of income-tax, and where an assessment of total income has become final and conclusive for the purposes of income-tax for any year, the assessment shall also be final and conclusive for the purposes of super-tax for the same year."