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

CIVIL APPEAL No. 1374/1967Supreme Court[1969] 1 S.C.R. 97904 September 1968Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER A B9 pages
AI SummaryDismissed

What were the facts?

The appellant, C. R. Nagappa, settled properties for the benefit of his minor children through seven deeds of trust, appointing himself and three others as trustees. A portion of the trust income was to be utilized immediately for the beneficiaries, and the balance was to be accumulated. For the assessment year 1962-63, the Income-tax Officer included the income used for immediate benefit in Nagappa's total income but not the accumulated income. The Commissioner, under Section 263, directed that the accumulated income also be included in Nagappa's total income. The appellant contended that the income should be assessed in the hands of the trustees as representative assessees under Section 161(1) and (2), and not in his hands under Section 64(v). The Income-tax Appellate Tribunal and the Mysore High Court ruled against the appellant.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal. Regarding the first issue, the Court held that Section 161(1) implies that the Income-tax Officer *may* assess a representative assessee but is not bound to do so; he can assess either the representative assessee or the person represented. Section 161(2) does not deny the Income-tax Officer the option to assess the income in the hands of the person represented. It merely states that if a representative assessee is assessed, it must be under Chapter XV and not under any other provision. The Court emphasized that Section 64(v) expressly mandates the inclusion of income from assets settled by the settlor for the benefit of minor children in the settlor's total income. If income is made exigible to tax in the hands of the settlor, it cannot be brought to tax in the hands of the beneficiary or trustee. Therefore, Section 64(v) was applicable. Regarding the second issue, the Court held that although the minors were assessed for the assessment year 1962-63, this assessment did not affect the validity of including the trust income in the assessment made on the appellant under Section 64(v). The Court noted that the Revenue conceded before the High Court that the assessments on the minor beneficiaries could not stand in view of the assessment on the appellant under Section 64(v), and the Supreme Court agreed, stating that such assessments would be annulled and any tax recovered refunded.

What were the issues?

1. Whether, in light of Section 161(2) of the Income-tax Act, 1961, Section 64(v) was applicable for computing the assessee's income for the assessment year 1962-63? Assessee's contention: The Income-tax Officer was bound to assess the trust income in the hands of the trustees as representative assessees under Section 161(1) and (2), and was incompetent to assess it in the settlor's (appellant's) hands under Section 64(v), despite the express direction in Section 64(v). Revenue's contention: Not recorded in the judgment. 2. Whether the assessments on the minor beneficiaries for the assessment year 1962-63 barred the assessment of the same income in the hands of the assessee (appellant) for the same year? Assessee's contention: The completion of assessments on the minor beneficiaries created a bar to assessing the income in the appellant's hands for the same year. Revenue's contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 161(1),Section 161(2),Section 64(v),Section 263

AI-generated summary — verify with the full judgment below

' 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 Office

The order continues below.

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