Law:

Section:

Section 161 [As it stood prior to 1-4-1985], of the Income-tax Act, 1961 - Trustees - Assessees were trustees of a trust, and under deed of trust settlor had given to trustees a power to carry on business - Under deed of trust, income of trust including its business income was required to be distributed amongst specified beneficiaries in shares which were determinate - Whether, in view of section 161(1), income of trust, whether it was business income or any other income, would have to be treated as if it were distributed to beneficiaries and, thus, tax on share of each beneficiary would have to be separately calculated as if it formed a part of beneficiary's income - Held, yes Section 4 of the Income-tax Act, 1961 - Association of persons - Assessability of - Whether on basis of facts mentioned under heading 'trustees' beneficiaries could be assessed in status of AOP when they had not come together with common purpose of earning income - Held, no FACTS The assessees were the trustees of a trust, in which, under the deed of trust, the settlor had given to the trustees a power to carry on business. Under the deed of trust, the income of the trust, including its business income, was required to be distributed amongst specified beneficiaries in shares which were determinate. The revenue contended that the beneficiaries must be looked upon as an AOP and, hence, the entire income coming to the beneficiaries must be taken as one unit. HELD In the present case, the shares of the beneficiaries in the trust income were known and determinate. There could, therefore, be no question of section 164 being attracted. Looking to section 161(1), the income of the trust, whether it was business income or any other income would therefore, have to be treated as if it were distributed to the beneficiaries. Tax on the share of each beneficiary would have to be separately calculated as if it formed apart of the beneficiary's income. Tax payable by the trustees will be the sum total of tax so calculated on the share of each beneficiary. In fact under section 166 the revenue had the option to assess the beneficiary directly. This did not make any difference to the quantum of tax which…

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