MRS. ARUNDHATI BALKRISHNA versus COMMISSIONER OF INCOME TAX

Citation: [1989] 1 S.C.R. 865 · Decided: 01-03-1989 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

Judgment (excerpt)

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MRS. ARUNDHATI BALKRISHNA 
A 
v. 
COMMISSIONER OF INCOME TAX 
MARCH 1, 1989 
~ 
[R.S. PATHAK, CJ AND RANGANATH MISRA, J.J 
B 
Income Tax Act, 1961-S. 161( 1) read withs. 166--Computation 
"'-i 
of assessee's income derived from a Trust-Real income of Trust to be 
included in the total income of assessee after taking into consideration 
different items of permissible deductions in relation to that income. 
The appellant was an assessee who derived income from a Trust. c 
1 
For assessment years 1964-65 and 196(i-67 the Income Tax Officer dis-
allowed deduction of two amounts claimed as interest paid by the Trust 
for amounts withdrawn from an Estate Account for investment on the 
ground that a portion of the amounts withdrawn from the Estate 
Account bad been utilized for personal expenditure by the assessee. The 
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appellants appeals to the Assistant Commissioner having been rejected, 
she preferred second appeals to the Appellate Tribunal raising an addi· 
tional question in respect of the assessment year 1964-65 that she was 
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liable to tax on the net income only received by her from the Trust and 
not on income determined in accordance with the provisions of the. 
Income Tax Act in the case of the Trust. The Tribunal dismissed the 
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appeals but at the instance of the appellant referred the two questions of 
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law arising therein to the High Court which answered both of them 
against the assessee. 
t-
Dismissing the appeals, 
f 
F 
HELD: It is not the income shown in the books of account of the 
Trust actually paid to the assessee after deduction of the outgoings from 
the income received in the bands of the Trust, but the real income of the 
Trust bas to be included in the total income of the assessee after taking 
into consideration the different items of permissible deductions in rela-
lion to that income. l869E-F] 
G 
~-
It is apparent from s. 161(1) of the Income Tax Act, 1961 that a 
representative assessee, that is to say a trustee, as regards the income in 
respect of which he is a representative assessee, is subject 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 
H 
865 
A 
B 
c 
D 
866 
SUPREME COURT REPORTS 
I 1989] 1 S.C.R. 
liable to assessment in bis own name in respect of that income; but any 
such assessment is dee1111ed to be made upon him in his representative 
capacity only, and the tax is levied upon and recovered from him in like 
manner and to the same extent as it would be leviable upon and recover-
able from the person represented by him. And s. 166 of the Act clarities 
that the provisions relating to the liability of a representative assessee 
will not prevent either the direct assessment of the person on whose 
behalf or for whose benefit income is receivable, or the recovery from 
such person of the tax payable in respect of such income. The Income 
Tax Officer has the option to proceed either against the trustee or 
against the beneficiary, but in either case the income to be assessed 
must be in the same figure. What the trustee receives as the income 
pertaining to the beneficiary is received by him under an obligation to 
pass on that income to the beneficiary. However, in most cases adminis-
tration charges and expenses have to be met out of the Trust's income 
and it is only the net income which reaches the beneficiary. If the 
income had to pass directly to the beneficiary and not under trust 
through a trustee, the beneficiary would have equally to meet those 
outgoings, leaving a net income in his hands which for the purposes of 
the Income Tax Act would have been computed after reducing the gross 
income by the deductions admissible under the Act. l868H; 869A·EI 
(ii) The High Court was right in deciding the question relating to 
the disallowance of part of the interest claimed as a deduction against 
E ~the assessee. l868FI 
Padmavati Jaikrishna v. Addi. Commissioner of Income-Tax, 
Gujarat, 11987] 166 I.T.R. 176, referred to. 
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 80 -i 
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& 81 of 1975. 
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From the Judgment and Order dated 26/27.8.1974 of the Gujarat 
High Court in LT. Reference Nos. 7 and 29 of 1973. 
S.C. Patel for the Appellant. 
Dr. V. Gauri Shanker and Ms. A. Subhashini for the Res· 
pondent. 
The Judgment of the Court was delivered by 
H 
PATHAK, CJ. The appellant is an assessee who derives income 
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MRS. ARUNDHATI v. C.l.T. [PATHAK, CJ.[

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