COMMISSIONER OF INCOME TAX, GUJARAT, AHMEDABAD versus SMT. KAMALTNI KHATAU

Citation: [1994] 3 S.C.R. 942 · Decided: 09-05-1994 · Supreme Court of India · Bench: M.N. VENKATACHALIAH, S.C. AGRAWAL, S.P. BHARUCHA

Judgment (excerpt)

A 
COMMISSIONER OF INCOME TAX, GUJARAT, AHMEDABAD 
v. 
SMT. KAMALTNI KHATAU 
MAY 9, 1994 
B 
[M.N. VENKATACHALTAH, CJ., S.P. BHARUCHA AND 
S.C. AGRAWAL, JJ.J 
Income Tax Act 1961-Sections 4, 5, 160, 161, 162, 163, 164, 165, and 
166-Beneficiary of discretionary trust-Held, revenue has the option to assess 
C and recover tax from either the trnstee or the beneficiaries in respect of such 
income as has been distributed and received by the beneficiarie.1 in the course 
of the accounting year. 
The Respondent-assessee was a beneficiary in respect of six: trusts. 
Each of the six trusts gave a discretion to the Trustees to accumulate the 
D net income of the Trust and at their discretion pay the same to the named 
beneficiaries. During the accounting year relevant to the Assessment Years 
19~9-70, the assessee recovered a total amount of Rs. 18,000 from the six 
tru~s, in pursuance of resolution of the trustees to distribute the same 
fro0: out of the income of the six trusts for the accounting year. 
E 
Before the Income Tax Officer the assessee contended that the said 
amount of Rs. 18,000 was not liable to be taxed in her hands, but was 
taxable only in the hands of the trustees in view of Section 164 of the 
Income Tax Ad 1961. The Income Tax Officer however taxedx the amount 
in her hands, relying upon Section 166 of the Income Tax Act. On appeal 
F 
by the assessee the Appellate Assistant Commissioner affirmed the ITO's 
view. In second Appeal by the assessee, the Income Tax Appellate Tribunal 
held that no part of the income of the six trusts was recoverable on behalf 
of or for the benefit of the beneficiaries and therefore Section 164 and not 
G 
Section 166 \\'as attracted. 
On a reference at the instance of the Revenue the Gujarat High 
Court by a majority upheld the view of the Tribunal. The Revenue appealed 
to the Supreme Court. The (}Uestion for determination was whether the 
Revenue had an option to assess and recover tax front either the trustees 
or the beneficiaries of a discretionary trust when the income thereof was 
H distributed and received by the beneficiaries in the accounting year. 
942 
J. 
, 
C.I.T. v. SMT. KAMALINI 
943 
,., 
Allowing the appeal, this Court 
A 
...... 
HELD : 1. It is settled law that a representative asS',ssee may be 
... 
assessed in respect of income received by him as such and tax recovered 
from him thereon only under and in the manner provided by the statutory 
provisions dealing with representative asscssee. A trustee may, therefore, 
B 
be assessed in respect of the income of the trust and tax recovered from 
him thereon only under and in the manner provided by Sections 160 and 
\ 
166 of the Income Tax Act. The question is whether Section 164 is a code 
'> 
in itself dealing with all matters relating to a discretionary trust. [960-C-E] 
2. Even the trustee of a discretionary trust is, by reason of the terms 
of Section 160, a representative assessee. Section 161(1) sets out the c 
liability of a representative assessee. Its first part makes him subject, as 
regards the income in respect of which he is a representative assessee, to 
the same duties, responsibilities and liabilities as if the income were 
income received by or accruing to or in favour of him beneficially, and he 
is made liable to assessment in hi~ own name in respect thereof. The D 
., 
second part affords protection to the representative assessee; it states that 
> 
such assessment shall be deemed to be made upon him only in his 
representative capacity and also that tax may be levied upon and recovered 
from him only in like manner and to the same extent as it would be leviable 
upon and rtcoverab;e from the person represented by him. Section 161(2) E 
gives the representative assessee a further measure of protection by 
making it explicit that "he shall not in respect of that income be assessed 
under any other provisions of this Act". This is of significance for "any 
other provision of this Act" must plainly mean by provision of the Act other 
than Section 161. [960-F-H, 961-A] 
F 
.I· 
' 
3. Section 164 does not' give any of the protections given by Section 
161. It does not create a charge on the income of a discretionary trust. 
Section 164 harks back to Section 161 when it refers to "persons .................. 
liable as representative assessees." Section 164 sets out only how such tax 
can be charged when the income is not distributed and the income is G 
distributed. Section 164 cannot be 

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