Law:

Section:

Section 160, read with sections 22, 28(1) and 56 Income-tax Act, 1961 [Corresponding to section 41, read with sections 9, 10 and 12 of Indian Income-tax Act, 1922] - Trust or trustee - Assessment of - Whether when assessee carries on business or is owner of property or owns shares and receives dividend, if he is a trustee and if he is being assessed as trustee, then section 41 must come into play and his liability to pay tax must be determined according to provision of section 41 - Held, yes FACTS The assessees were trustees under a scheme framed by the District Court. They carried on business of a dispensary and the business made profits in the relevant assessment years. As trustees they also were possessed of certain property which fetched income and they were also the registered owners of shares which brought in dividend income. In instant reference the question that arose was whether it was obligatory upon the Department to tax them with regard to these different kinds of income under sections 9, 10 and 12, read with section 41 of the 1922 Act or it was open to the Department to contend that at its option it could tax the trustees under section 9, 10 and 12 without regard to the provisions of section 41 of 1922 Act. On reference: HELD The legislature in the special case of trustees, has provided that instead of the tax being recovered from the beneficiaries to whom in law the income belongs and who ordinarily would be liable to pay the tax, it should in this particular case be recovered from the trustees. But the Legislature has made it clear that the liability of the trustees should not in any case be larger or wider than the liability of the beneficiaries. It will also be noticed that section 41 is mandatory in its language. Therefore, if a person makes the return of his income as a trustee, the assessment upon his income would be in accordance with the provision laid down in chapter III of the Act, but his liability to pay tax as a trustee must be determined according to section 41. If the assessment is upon a trustee, the tax has to be levied and recovered in the manner provided in section 41. The only option that the Legislature gives is the option…

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