# C. R. NAGAPPA v. THE COMMISSIONER OF INCOME-TAX, MYSORE

- **Citation:** [1969] 1 S.C.R. 979
- **Court:** Supreme Court of India
- **Decided:** 1968-09-04
- **Bench:** J.C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-r-nagappa-v-the-commissioner-of-income-tax-mysore-4545
- **Pages:** 9

## Headnote

Income-tax Act, 1961, s. 161(1) and (2)-Scope of-Whether trust
income must be assessed in the hands of the trustee as 'representative
assessee'-Or can be assessed in settlor's hands under s. 64(v) or in the
beneficiary's ha·nds.
The appellant settled certain properties for the benefit of his minor
children under several deeds of trust and vested the properties in four
trustees of whom he was one. Under each deed of trust a portion of the
income of the tntSt was to be utilized immediateiy for the benefit of the
beneficiaries and the balance accumulated. In the course of the appellant's
assessment to income~tax for the year 1962-63, the income arising from
the trust properties and used for the immediate benefit of the beneficiaries
was included in the appellant's total income. The Commissioner directed
under s. 263 of the Act that the income for the deferred benefit of the
minor beneficiaries be also included in the appellant"s total income.
It was contended on behalf of the appellant that the Tncome-tax Officer
was bound to as·sess the income under each deed of trust sepa'rately in the
hands of the trustees as "representative ass·.essew" and was inLompetent
in view of the express enactment of s. 161(2) to assess the income in the
hands of the app·ellant or of the beneficiaries; that notwith&.landing the
express direction in ·s. 64(v) of the Act to incluJe the income under the
trust in the total income of the settlor. the Income-tax: Office'r \Vas obliged
to assess the income used or accumulated for the benefit of minors in the
hands of the trustees; and that the assessments on the minor beneficiaries
for the year 1962-63 having been completed there was a bar to the assessment of the income in the hands of the appellant for the same year. The
Income-tax Appellate Tribunal rejected the appellant's contentions and the
High Court', upon a 1reference, also decided i1.gainst him.
On appeal to
this Conrt,
•
HELD. dismissing the appeal :
It is implicit in the terms of s. 161( 1) that the Income-tax Offi'*'r
may assess a representative asses·see as regards income in respect of \\:hich
he is a representative assessee, but he is not bound 1·0 do 'SO.
He may
assess either the percentage assessee or the person represented by him.
The contention that since the trustees were assess:!.ble in re·spect of the
income of the beneficiaries under s. 161(1), tfiat income could not by
virtue of sub-s. (2) of s. 161 be assessed in the hands of the beneficiary
is contrary to the plain terms of s. 166 .. Sub-section (2) of s. 161, which
was presumably intended to remove a conflict of judicial opinion, does
not purport to deny th·e Income-tax Officer the option to as:sess the income
in the hands of the person represented by l"he representative assessce : it
merely enacts that wh-en a representative assessee is assessed to tax in
exercise of the option of the revenue, he shall be assessed under Ch. X\'
and sha11 not in rcsoect of that income be assessed under any other provision of the Act. [982 E-F; 983 A-B; 984 F-G]
By the express injunction in s. 64(v) income which accrues from
the assets settled by the appellant upon the trustees· for the be.nefit of his
••
•
•
••
•
• 980
SUPRD1E COURT REPORTS
(1969) J S.CR
•
minor children \\'as liable to be included 1n h:..; total incorl1e.
Section
A
161 ( 1 ) predic<1tes 1-hc .zxistcncc of incon1~ liable to tax : where inrome
fron1 a trust i<> made exigiblc to tax in the hand .. o~ the se-ttlor. it cannot
he bi'ou.cht 10 tax in the hands of the bencficiarv or the trusrec, for the
income is alr...:ady charged to tax in the
hand~, o! the sctllor.
If the
income cannot be brought to tax under suh-5.
~I) of "· 16 l, there is no
scope for the opplicalion of suh·s. (2). [984 D-FJ
Although in the present ca~c. the rninors \\'Cre as,.csscd to t1x. for
8
thi.:
ass·~sn1c111 vear 1962-63 thar <.1S'\cssn1cnt
\Vtl~ no! :iffcct !he validitv
of !he inclu'Sion ·of the tru'\t incon1c in the aS"C:i:-.na:n! 1nadc on the appellant unde

## Text

'
A
B
c
•
D
E
F
. .
G
H
C. R. NAGAPPA
v.
THE COMMISSIONER OF INCOME-TAX, MYSORE
September 4, 1968
[J.C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.]
Income-tax Act, 1961, s. 161(1) and (2)-Scope of-Whether trust
income must be assessed in the hands of the trustee as 'representative
assessee'-Or can be assessed in settlor's hands under s. 64(v) or in the
beneficiary's ha·nds.
The appellant settled certain properties for the benefit of his minor
children under several deeds of trust and vested the properties in four
trustees of whom he was one. Under each deed of trust a portion of the
income of the tntSt was to be utilized immediateiy for the benefit of the
beneficiaries and the balance accumulated. In the course of the appellant's
assessment to income~tax for the year 1962-63, the income arising from
the trust properties and used for the immediate benefit of the beneficiaries
was included in the appellant's total income. The Commissioner directed
under s. 263 of the Act that the income for the deferred benefit of the
minor beneficiaries be also included in the appellant"s total income.
It was contended on behalf of the appellant that the Tncome-tax Officer
was bound to as·sess the income under each deed of trust sepa'rately in the
hands of the trustees as "representative ass·.essew" and was inLompetent
in view of the express enactment of s. 161(2) to assess the income in the
hands of the app·ellant or of the beneficiaries; that notwith&.landing the
express direction in ·s. 64(v) of the Act to incluJe the income under the
trust in the total income of the settlor. the Income-tax: Office'r \Vas obliged
to assess the income used or accumulated for the benefit of minors in the
hands of the trustees; and that the assessments on the minor beneficiaries
for the year 1962-63 having been completed there was a bar to the assessment of the income in the hands of the appellant for the same year. The
Income-tax Appellate Tribunal rejected the appellant's contentions and the
High Court', upon a 1reference, also decided i1.gainst him.
On appeal to
this Conrt,
•
HELD. dismissing the appeal :
It is implicit in the terms of s. 161( 1) that the Income-tax Offi'*'r
may assess a representative asses·see as regards income in respect of \\:hich
he is a representative assessee, but he is not bound 1·0 do 'SO.
He may
assess either the percentage assessee or the person represented by him.
The contention that since the trustees were assess:!.ble in re·spect of the
income of the beneficiaries under s. 161(1), tfiat income could not by
virtue of sub-s. (2) of s. 161 be assessed in the hands of the beneficiary
is contrary to the plain terms of s. 166 .. Sub-section (2) of s. 161, which
was presumably intended to remove a conflict of judicial opinion, does
not purport to deny th·e Income-tax Officer the option to as:sess the income
in the hands of the person represented by l"he representative assessce : it
merely enacts that wh-en a representative assessee is assessed to tax in
exercise of the option of the revenue, he shall be assessed under Ch. X\'
and sha11 not in rcsoect of that income be assessed under any other provision of the Act. [982 E-F; 983 A-B; 984 F-G]
By the express injunction in s. 64(v) income which accrues from
the assets settled by the appellant upon the trustees· for the be.nefit of his
••
•
•
••
•
• 980
SUPRD1E COURT REPORTS
(1969) J S.CR
•
minor children \\'as liable to be included 1n h:..; total incorl1e.
Section
A
161 ( 1 ) predic<1tes 1-hc .zxistcncc of incon1~ liable to tax : where inrome
fron1 a trust i<> made exigiblc to tax in the hand .. o~ the se-ttlor. it cannot
he bi'ou.cht 10 tax in the hands of the bencficiarv or the trusrec, for the
income is alr...:ady charged to tax in the
hand~, o! the sctllor.
If the
income cannot be brought to tax under suh-5.
~I) of "· 16 l, there is no
scope for the opplicalion of suh·s. (2). [984 D-FJ
Although in the present ca~c. the rninors \\'Cre as,.csscd to t1x. for
8
thi.:
ass·~sn1c111 vear 1962-63 thar <.1S'\cssn1cnt
\Vtl~ no! :iffcct !he validitv
of !he inclu'Sion ·of the tru'\t incon1c in the aS"C:i:-.na:n! 1nadc on the appellant under s. 64(v).
c.1sc l;n\' referred to.
CIVIL APPELLATE JUR!SDIC no:<
1967.
Civil Appeal No. 1374 of
Appeals by special leave frnm the judgment an<l order dated
December 15, 1966 of the Mysore High Court in J.T.R.C. "lo. 7
of 1966.
K. Sri11irasa11 and R. ·copa/akrishna11, for the appellant.
T. A. Ramac/1a11dra11, R. N. Sachther and II. D. Sharma, for
the respondent.
The Judgment of the Court was delivered by
Shah. J. C. R. Nagappa executed on April 14, 1955, seven
separate deeds of trust settling specific properties for the benefit
of his minor children.
Gnder each deed Nagappa settled certain
properties for the benefit of his named minor child and vested the
properties in four trustees-!'iagapra. his two wives and a married daughter.
Under each deed of trust a portion of the income
arising <>ut of the trust property was to be utilised immediately
for the benefit of the beneficiary and the balance was to be accumulated for his or her benefit and to he handed over to the beneficiary at a future date specified in the deed.
In the proceeding for assesm1ent for the year 1962-63, the
5th Income-tax Officer, City Circle II, Bangalore. included in the
total income of Nagappa the income arising from the trust properties ·and used for the immediate benefit of the beneficiaries. but not
c
I>
the income directed to be accumulated.
The Commissioner in
G
exercise <>f the power under s. 263 of the Income-tax Act, 196 1
directed that the income for the deferred benefit of the minor
beneficiaries ht' also included in the total income of Nagappa. Jn
appeal against that order to the Income-tax Appellate Tribunal,
Nagappa contended that the income from trust properties was liable
to be assessed under s. 161 (I) only in the hands <>f the trustees,
II
and not in the hands of the settlor. The Tribunal rejected that contcnti<>n.
At the instance of Nagappa. the Tribunal referred two •
questions for the opinion of tbe High Court of Mysore :
•
•
•
•
A
B
c
D
E
F
G
H
NAGAPPA V. C.I.T. (Shah, J.)
" ( 1) Whether having regard to the provisions of
sub-s. (2) of s. 161, s. 64(v) of the lncome-t~x Act
was applicable to the assessee's case for computmg the
assessee's income for the assessment year 1962-63 ?
(2) Whether the assessments on the minor beneficiaries for the assessment year 1962-63 are a bar for
assessing the income (assessed in the hands
of
the
minor beneficiaries)
in the hands of the assessee for
the same assessment year 1962-63 ?"
•
981
The High Court of Mysore recorded answers to the questions.
as follows :
"(l) Section 64(v) of the Income-tax Act, 1961,
was rightly applied to the assessee's case for computing his income for the assessment year 1962-63.
Subsection (2) of s. 161 of the Act does not makes. 64(v)
inapplicable to the case of the assessee.
(2) The assessments on the min.or beneficiaries for
the assessment year 1962-63, though
in
themselves
illegal in view of the above answer do not in law
operate as a bar for the application of s. 64(v) to the
case of the assessee, the illegality of the assessments on
the minors being open to correction otherwise."
Nagappa has appealed against the order passed by the High
Court.
Counsel for Nagappa contended that the Income-tax Officer
was bound to· assess the income under each deed of trust separately in the hands of the trustees as "representative assessees"
and was incompetent in view of the express enactment of sub-s.
(2) of s. 161 to assess the income in the hands of Nagappa or of
the beneficiaries.
Counsel argued that notwithstanding the express direction in s. 64(v) of the Act to include the income under
the trust in the conditions specified therein in the total income of
the settlor, the Income-tax Officer is powerless to resort to that
provision and is obliged to assess the income used or accumulated
for the benefit of minors in the hands of the trustees.
Section 160 of the Income-tax Act defines
"representative
assessee".
Sub-section (1) of s. 160 insofar as the definition is
relevant provides :
"For the purposes of this Act 'representative assessee' means0
(iv) in respect of income which a trustee appointed
under a trust declared by a duly executed instrument
in writing whether testamentary or otherwise (includL!Sup. Cl/69-16
••
•
'
••
•
•
982
SUPREME COIJRT REPORTS
[ 1969] 1 s.c.R.
ingany wakf deed which is valid under the Mussalman
Wakf Validating Act, 1913 ( 6 of 1913) receives or is
entitled to receive on behalf or for the boncfit of any
person, such trustee or trustees."
By su b-s. ( 2) of s. 160 it is provided that every representative
assessee shall be deemed to be an assessee for the purposes of the
·Act.
Section 161 deals with the liability of a representative
assessee.
It provides :
"( 1) Every representative assessce, as regards the
income in respect of which he
is
a representative
assessce, shall be 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 shall be liable to assessment in his own name
in respect of that income; but any such assessment shall
be deemed to be made upon him in his representative
capacity only, and the tax shall, subject to the other
provisions contained in this Chapter, be levied upon
and recovered from him in like manner and to the same
extent as it would be leviable upon and recoverable
from the person represented by him.
(2) Where any person is, in respect of any income,
assessable under this Chapter in the capacity of a representative assessee, he shall not, in respect of that income,
be assessed under any other provision of this Act."
It is implicit in the terms of sub-s. (I) that the Income-tax Officer
may assess a representative assessee as regards income in respect of which he is a representative assessee, but he is not bound
to do so.
He may assess either the representative assessee or
the person represented by him.
That is expressly so enacted in
s. 166 which states :
"Nothing in the foregoing section in this Chapter
shall prevent either the direct assessment of the person
on whose behalf or for whose benefit income therein
referred to is receivable, or . the recovery from such
person of the tax payable in respect of such income."
The Income-tax Officer may therefore assess the person represent-.
ed in respect of the income of the trust property and the appropriate provisions of the Income-tax Act relating to the computation of the total income and the manner in which the income is
to he computed will apply to that assessment.
The Income-tax
Officer may in appropriate cases assess the representative assessee
in respect of that income and limited to that extent, and tax may
be levied and recovered from him to the same extent as may be
leviablc and recoverable from the person represented by him.
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
NAGAPPA v. C.J.T. (Shah, J.)
983
The contention raised by counsel for Nagappa that since the
trustees 'were assessable in respect of the income of the beneficiaries under s. 161 ( 1), that income could not by virtue of. sub-s.
(2) of s. 161 be assessed in the hands of the beneficiary is contrary to the plain terms of s. 166. Sub-section (2) of s. 161
does not purport to deny the Income-tax Officer the option to
assess the income in the hands of the person represented by the
representative assessee : it merely enacts that when a representative assessee is assessed to tax in exercise of the option of the
nwenue, he shall be assessed under Ch. XV and shall not in respect of that income be assessed under any other provision of the
Act.
We will presently state the reasons why the rule was so
enacted by the Parliament.
But on the plain word used by the
Parliament the plea raised by counsel that the representative
assessee alone may be assessed as regards income in respect of
which he is a representative assessee cannot be accepted.
We may now examine whether the income under the deeds
of trust could not be included in the total income of Nagappa.
By s. 4 of the Act the charge of income-tax is imposed in respect of the total income of the previous year of every person, and
by s. 5 the scope of total income is determined.
Chapter IV
deals with compuiation of total income of an assessee under
different heads and by Ch. V income of other persons in certain
conditions is liable to be included in the assessee's total income.
Section 64, which falls in Ch. V, provides :
"In ·computing the total income of any individual,
there shall be included all such income as arises directly
or indirectly-
(i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business
in which such individual is a partner;
(ii) to a minor child of such individual from the
.admission of the minor to the benefits of partnership
in a firm in which such individual is a partner;
(iii) subject to the provisions of clause (i) of section 27 to the spouse of such individual from assets
transferred directly or indirectly to the spouse by such
individual otherwise than for adequate consideration or
'n connection with an agreement to live apart;
(iv) subject to the provisions of clause (i) of section 27, to a minor child, not being a married daughter
of such individual, from assets transferred directly or
• indirectly to the minor child by such individual otherwise than for adequate consideration; and
••
•
•
. .
• •
•
•
984
..
SUPREME COURT REPORTS
(1969] i S.C.R.
(v) to any person or association of persons from assets
transferred otherwise than for adequate consideration
to the person or association of persons by such individual, to the extent to which the income
from
such
assets is for the immediate or deferred benefit of his or
her
spouse or minor child
(not being a married
daughter) or both.
Explanation.-
"
It is clear that in each of the five cases income which in truth
is not the income of the asscssee is directed in the special conditions prescribed to be included in the total income of the asscssce.
Where an individual has tr::nsfcrred assets without adequate consideration to another person or association of persons, the income
from the assets intended foe the benefit immediate or deferred of
the spouse or minor child of such individual is, by cl. (v), liable
to be included the income of the individual.
There is no doubt
that the word "transferred" includes settled under a trust.
By the express injunction in s. 64(v) income which accrues
from the assets settled by 1'agappa upon the trustees
for
the
benefit of his minor children was liable to be included in his
total income.
The income to the extent to which it is liable to
be included in the total income of Nagappa could not again be
brought for the purpose of assessment to tax in· the total income
of the minor children or of the trustees to whom it is transferred.
Section 161 ( l) predicates the existence of income liable to tax :
where income from a trust is made exigible Ill tax in the hands
of the settlor, it cannot be brought to· tax in the hands of the
beneficiary or the trustee, for the income is already charged to tax
in the hands of the settlor. If the income cannot be brought to
tax uncler sub-s. (I) of s. 161, there is no scope for the application of sub-s. (2).
Sub-section (2) of s. 161 was presumably intended to remove
the conflict of judicial opinion which arose in the interpretation
of the analogous provisions of ss. 40 & 41 of the Indian Jncometax Act of 1922. In Saifudin A/imohamed and A11r. v. Commissioner uf lucome-tax llombay City(') the Bombay High Court
expressed the opinion (which was not necessary for the ultimate
decision of the reference) that s. 41 conferred an option upon the
Income-tax Officer either to <!sscss the income as the income of the
beneficiary or as the income of the trustee.
The Court observed
at p. 24 7 in dealing with the case in which the trustees appointed
by the Civil Court in a suit were carrying on the business on
behalf of two minors :
" ...... it was open to the department to have assessed the income of the guardians under Section I 0 on
•
---··---
(!) 25 l.T.R. 237.
A
B
c
I>
E
F
G
H
.A
B
c
D
F
G
H
•
NAGAPPA v. C.I.T. (Shah, J.)
the basis that the particular business was carried on
by the guardians in their own right, and the taxing department could have taken up the stand that they had
no concern with what the guardians did wtih the profits after they had paid the tax on the income from the
business; or it was open to the department to proceed
against the guardians under Section 41 and to tax in
their hands only that income which they had received
on behalf of the minors."
985.
It was apparently assumed that it was open to the Income-tax·
Officer either to assess and tax the guardians and if they were
owners of the business and of the income accruing therefrom, or
to tax them as trustees under s. 41.
In so assuming the Court
exalted ss. 40 & 41 into quasi-charging sections.
The observation was plainly obiter, for the Income-tax Department had assessed the income in the hands of the guardians as trustees under
s. 41.
In a later judgment of the same High Court, the Court reversed the earlier opinion : Commissioner of Income-tax Ahmedabad
v. Balwantrai Jethalal Vaidya(').
The Court held in that case
that the liability of trustees to income-tax is co-extensive with that
of the beneficiaries and cannot in any case be a larger or wider
liability. If the assessment is made upon a trustee, his liability
to pay tax must be determined in accordance with s. 41 of the
Income-tax Act. It was observed in that case that s. 41 gives no
option to the Taxing Department to treat the income received by
the trustee on behalf of the beneficiary as his own income or to
treat it as the income of the trustee on behalf of the beneficiary.
It was further observed :
"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 embodied in sub-section (2) of section 41,
and that option is that the Department may assess the
beneficiaries instead of the trustees, or having assessed
the trustees it may proceed to recover the tax from the
beneficiaries.
But on principle the contention of the
Department cannot be accepted that, when a trustee is
being assessed to tax, his burden which will ultimately
fali upon the beneficiaries should be increased and whether that burden should be increased or not should be
left to the option of the Department.
The basic idea
underlying section 41, and which is in conformity with
principle, is that the liability of the tmstees should be
•
co-extensive with that of the beneficiaries
and in no
(1) 34 l.T.R.187 .
••
•
•
•
••
•
•
•
986
,.
SUPREME COURT REPORTS
[1969] l S.C.R.
sense a wider or a larger liability. Therefore, it is clear
that every case of an assessment against a trustee must
fall under section 41, and it is equally clear that, even
tho11gh a trustee is being assessed, the assessment must
proceed in the manner laid down in Chapter III."
The earlier judgment of the Bombay High Court was followed by the Madras High Court in V. Ramaswamy Iyengar and
Anr. v. Comm1:uioner of Income-tax Madras(').
The principle
underlying the judgment in Balwantrai Jetha/a/ Vaidya's case(2 )
was approved in Birendra
Kumar Datta
v.
Commissioner of
Income-tax, Calcutta('); and A. Razzak
v.
Commissioner of
Income-tax, West Bengal(').
In our opinion the observations made in Saifudin A /imohameds case(') (set out earlier herein) were incorrect.
The Legislature while enacting the new Act, to avoid doubts has
given
effect to the observations made by Chagla, C.J., in Balwantrai
Jetha/a/ Vaidya's case(') and has enacted that where the income
is assessable under Cb. XV in the bands of a person in the capacity of a representative assessee it is not liable
to be assessed
under any other provision of the Act that is, the tax is not liable
to be levied under any other provi,ion of the Act.
In our view Chagla, C.J., was right in observing in Ba/wantrai
Jethala/'s Vaidya's caser2), in dealing with the scheme of s. 41
of the Income-tax Act, 1922, that-
". . . . . . it is clear that every case of an assessment against a trustee must fall undei;, section 41, and
it is equally clear that, even though a trustee is being
assessed, the assessment must proceed in the manner
laid down in Chapter HI.
.
Section 41 only
comes into play after the income has been computed in
accordance with Chapter III.
Then the question of
payment of tax arises and it is at that stage that section
41 issues a mandate on the Taxing Department that,
when they arc dealing with the income
of a trustee,
they must levy the tax and recover it in the manner
laid down in section 41."
The same considerations
must apply
in the interpretation of
s. 161 (2) of the Income-tax Act, 1961.
Sub-section (2) of s. 161 merely enacts that when income
is assessed in the hand' of a representative assessee in his own
name, the assessment shalJ be deemed to be made upon him in the
--------
(1) 40 1.T.R. 3'7.
(2l
)4 I.T.R. 187.
(3) 42 I.T.R. 6(,J.
14)
48 I.T.R. 27~.
(5l 25 I.T.R. 237,
A
B
c
D
E
F
G
A
B
c
•
NAGAPPA V. C.I. T. (Shah, /.)
987•
representative capacity only and tax shall be levied and recovered
in the manner provided in sub-s. (1).
It is true that in this case for the assessment year 1962-63
the minors were assessed to tax, but the assessment will not affect
the validity of the inclusion of the trust income in the assessment
made on Nagappa under s. 64(v). It was conceded before the
High Court on behalf of the Revenue that the assessment of the
minor beneficiaries in respect of the income could not stand, in
view of the assessment of N agappa under s. 64 ( v). In our view
that concession was rightly made, and we have no doubt that all
the assessments made against the minor beneficiaries will be
annulled and the tax, 'if any, recovered will be refunded.
In the view we have taken, this appeal must fail and is dismissed with costs.
R.K.P.S.
Appeal dismissed.
'
• •
•
•