Law: Income Tax Act (XI of 1922)

Section: 41

Income tax Act (XI of 1922)-----   ----S. 41(1), proviso (i) Trust---Specified part of income to be utilised for scholarships to beneficiaries at discretion of trustees Further provision giving discretion to trustees within limit to pay allowances to poor beneficiaries---how assessed Scope of S. 41(1).   A trust was created by the Nizam of Hyderabad for the benefit of certain descendants of the Nizam's family. Clauses 3 and 4 of the trust deed provided certain specific monthly allowances and pensions to specified beneficiaries. Clause 6 directed the trustees to spend every year out of the income of the trust fund H. S. Rs. 50,000 for such educational scholarship to the Beneficiaries as the trustees in their absolute discretion thought proper. Under clause 7 the trustees had an absolute discretion to spend such sum not exceeding Rs. 25,000 a year out of the balance of the income towards payment of increased monthly allowances to any beneficiaries or their issue in poor circumstances. The questions were whether the trustees were assessable at the maximum rate under the first proviso to section 41(1) of the Income tax Act, 1922, in regard to the amounts dealt with by clauses 6 and 7, and whether clauses 6 and 7 were separate trusts to be taxed separately   Held (i) that the first part of the first proviso to section 41(1) of the Income tax Act, 1922, applied as under clause 6 and 7 of the trust deed the amounts were not specifically receivable on behalf of any specified person. Even assuming that the beneficiaries were specified, their individual shares were indeterminate and therefore the second part of the proviso to section 41(1) applied. Tax had to be levied on the trustees under the proviso at the maximum rate;   (ii) that the trust was one and clauses 6 and 7 provided only for different portions of the income being spent in different ways. The amounts of Rs. 50,000 and Rs. 25,000 were to be taxed together and not separately.   Section 41 of the Income tax Act, 1922, is a special provision which prescribes that the authority shall assess the income received by a trustee or trustees who are entitled to income on behalf of others.…