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1934 Supreme(SC) 14
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD BLANESBURGH, LORD MERRIVALE, AND SIR SIDNEY ROWLATT.
TRUSTEES OF THE SIR CURRIMBHOY EBRAHIM BARONETCY TRUST - Appellant
Versus
COMMISSIONER OF INCOME-TAX BOMBAY - Respondents
On appeal from the High Court at Bombay.
Decided On : Feb. 26. 1934.
Solicitors for appellants:T. L. Wilson & Co. Solicitor for respondent: Solicitor, India Office
Incorporated trustees are liable for income-tax and super-tax if they are the legal owners of the property or the persons by whom the income is receivable, regardless of whether they are beneficially interested in the income or are required to pay it to a beneficiary.
Headnote:(A) Indian Income-tax Act, 1922 - Sections 2, 3, 8, 9, 55, 56 - General Clauses Act, 1897 - Section 3(39) - Taxability of incorporated trustees - Whether trustees of a trust created by a special Act are liable to be assessed for income-tax and super-tax on trust income - Definition of "person" includes incorporated bodies - Trustees as "owners" of property and recipients of interest - Liability of trustees to be assessed regardless of beneficial interest in the residue of income.
(B) Assessment of Trustees - The existence of specific provisions for the assessment of guardians or trustees of incapacitated or non-resident persons does not exclude the general liability of other trustees to be assessed in cases where they are the legal owners of the property or the persons by whom the income is receivable.
(C) Double Taxation and Graduation - Potential for double taxation or issues regarding the graduation of tax rates based on total income does not invalidate an assessment made in accordance with the statutory provisions, nor does it disturb the liability of the legal owner to be assessed.
Facts of the case:
An incorporated body of trustees held properties under a special Act. The income from these properties was utilized to maintain sinking and repair funds, pay outgoings, and the residue was paid to a beneficiary. The revenue authorities assessed the trustees for income-tax and super-tax on the total income. The trustees challenged the assessment, contending that as they were merely trustees and not beneficially interested in the income, they were not liable to be assessed.
Findings of Court:
The incorporated trustees are "persons" within the meaning of the law and are the legal owners of the property and the recipients of the interest. The beneficiary only has a right to the residue after certain liabilities are met and does not possess a right to the property or interest itself that would make the income "receivable" by the beneficiary instead of the trustees.
Issues: Whether incorporated trustees are liable to be assessed for income-tax and super-tax in respect of trust income, or whether they are exempt on the ground that they are not beneficially interested in such income.
Ratio Decidendi: The court held that for the purposes of the taxing statute, legal ownership and the right to receive income are the determining factors. Since the trustees were the legal owners of the property and the interest was receivable by them, they were the correct assessees. The obligation to apply income in certain ways or to pay the residue to a beneficiary does not prevent the income from being chargeable in the hands of the legal recipients/owners.
Result: Appeal dismissed.
Legal Category Hierarchy
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taxation
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income tax
- taxability of trustees
- super-tax
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income tax
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property law
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trusts
- incorporated trustees
- beneficial interest
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trusts
Judgement
Appeal (No. 97 of 1932) from a judgment of the High-Court upon a case stated under s. 66 of the
Law. Rep. 61 Ind. App. 209 ( 1933- 1934) Trustees of the Sir Currimbhoy v. Commnr. of I.T. Bombay 35
Indian Income-tax Act, 1922 .
The question for determination was whether under the above Act the appellants, who were a corporation constituted by Act IV. of 1913 to be trustees of certain properties for the purpose of that Act, were liable to be assessed either for income-tax or super-tax for the year 1929-30 in respect of income from properties vested in them as such trustees.
The matter arose upon an assessment to super-tax, but the question was finally submitted in the reference both as to income-tax and super-tax, and had been so dealt with.
The facts and the material provisions appear from the judgment of the Judicial Committee.
The judgment of the High Court, delivered by Beaumont C.J., and concurred in by Rangnekar J., answered the question adversely to the appellants. The learned Chief Justice was of opinion that under the special Act the trustees were a taxable unit, and that the Commissioner was entitled under s. 3 of the Act of 1922 to assess and charge them, there being nothing in that Act or in the special Act to prevent him from doing so. The case is reported at 33 Bom. L. Rptr. 1549.
1934. Jan. 15, 16, 18. Wilfrid Greene K.C., Sir Thomas Strangman, and Khambatta for the appellants. It is conceded that under the General Clauses Act, 1897, s. 3, sub-s. 39, the word " person " in s. 2 of the Indian Income-tax Act, 1922 , includes the appellants. Being, however, merely trustees of the properties vested in them they were not liable to be assessed or charged under the Act. That is supported by the observations of Viscount Cave in Williams v. Singer. ([ 1921] 1 A. C. 65.) The special provisions of s. 38, sub-s. 2, and, more particularly, of s. 40 are unnecessary if the Act makes trustees ordinarily liable to assessment. On that point Hotz Trustees of Simla v. Income-tax Commissioner (( 1930) I. L. R. 11 Lah. 724.) was wrongly decided. The assessment of trustees is incompatible with the provisions of the Indian Finance Act by which the rate of tax is graduated according to the assessees total income ; it would moreover result in double taxation. In any case the appellants were not chargeable in respect of the proportion of the income which they paid over to the baronet; the sum so paid over was not income of the appellants Bejoy Singh Dudhuria v. Income-tax Commissioner . ((( 1933) L. R. 60 I. A. 196.))
Dunne K.C. and R. P. Hills for the respondent. The system of law in India does not recognize a distinction between legal and equitable ownership ; when property is vested in trustees they alone are to be regarded as the owners Chhatra Kumari Devi v. Mohan Bikram Shah (( 1931) L. R. 58 1. A. 279.) ; Indian Trusts Act, 1882, ss. 3, 55, 66. The appellants, and only the appellants, were owners within the meaning of s. 9 of the Act of 1922 of the immovable properties ; they were also the persons by whom the interest from securities was receivable within the meaning of 8. 8. The baronet had merely a right to receive the balance of income. Sects. 38 and 40 are machinery provisions dealing with special cases and do not affect the general question ; the minors, lunatics, etc., referred to in s. 40, are those who are owners of property. The observations of Viscount Cave in Williams v. Singer ([ 1921] I.A. C. 65.), were based upon the terms of the English Acts and are not applicable. Bejoy Singh Dudhuria’s case (( 1933) L. R. 60 I. A. 196.) turned on the rights in a Hindu joint family ; it was not a case of trustee and beneficiary, but of an estate charged under a decree with payment of maintenance. Although this case is not to be determined on the basis of the English income-tax Acts, principles laid down under them are relevant. It is well established that an obligation to apply income in certain ways does not prevent it f
