ORDER
T.V. Rajagopala Rao, Judicial Member
1. These are assessees’ appeals arising out of separate but common orders dated 15-6-1987 passed by the Appellate Assistant Commissioner, ‘D’ Range, Madras in the case of each of these four assessees. The only common question involved in these appeals is that while making direct assessments against the beneficiaries under a trust, exemption under Sections 80G, SOL and SOT should be granted separately in the case of each of these assessees apart from granting the exemptions under those very sections in the hands of the trust. The assessees arc brothers and sister and arc sons and daughter of late Shri S.N. Subramanian, who died on 2-11-1978, leaving behind his widow, Smt. Leelavathi and these assessees, who are his children to succeed him to his properties. Shri S.N. Subramanian died on 2-11-1978. After his death, on 17-11-1978 a trust deed was executed by Shri V.T. Shankar, son of Thiruvengadaswamy Mudaliar. Shri V.T. Shankar was the grandfather (mother’s father) of the assessees. A copy of the trust deed dated 17-11-1978 was furnished to me. The validity of the trust deed was never disputed either before this Tribunal or before any of the lower authorities, Therefore it is sufficient for our present purposes to consider the broad aspects of the terms of the trust deed so far as they are relevant for our purposes in these appeals. It is stated that the trust was created with a view to respect the desire of late Shri S.N. Subramanian at the time of his death that the interest of his minor children should be adequately safeguarded by the creation of a trust with a view to administer and augment the properties of the minors. The trust created should be called as ‘S.N. Subramanian Family Trust’. An amount of Rs. 5,000 was contributed by the founder of the trust towards its corpus. Smt. Leelavathi, the widow and mother of the children assessees, who were minors by the date of the trust deed, was appointed as the sole managing trustee to administer the trust. It is stated that the income of the trust should be apportioned at the end of each accounting year into four equal shares and each of the minor assessees herein should be given one such share. It is stated that the properties of the trust shall be the sum of Rs. 5,000 earmarked by the author towards corpus and also the properties which the minors obtained by succession including the liability to discharge out of the said properties. The object of the trust is stated to be the welfare, maintenance, education and advancement of the beneficiaries and to secure that end to acquire properties both movable and immovable, slocks and shares, debentures, annuities and securities of every other kind and dispose of the same and also reinvest and recall and vary all such investments. It is further stilted that the trust should maintain books of accounts and the profit and loss determined, every year, shall be divided between the beneficiaries equally. The powers of the trustee were separately mentioned in the trust deed. The trustee shall be at liberty to keep the trust property or apply the trust funds for acquisition of any kind of property whatsoever including movable and immovable, actionable claims, securities, shares, stocks, bullion, jewellery or any other form of property. So also the trustee had given powers to invest the funds of the trust in any movable or immovable properly and she was also given the power to sell or vary such investments according to her discretion from time to time. The trustee was also given full power in her absolute discretion to sell the whole or any part of the property of the trust in order to attain the objects of the trust. She was also given absolute powers either to mortgage, lease or create any charge on the properties of the trust for obtaining the objects of the trust. The trustee was also given powers to lend the trust moneys on interest with or without securities to such person or persons of her choice. The trustee was directed to determine at the end of each year the net profit or loss based on commercial and accounting principles and further determine the share of each of the beneficiaries. The trust was to remain in force up to the date when the last of the beneficiaries under the trust attains majority and there after the trust shall get duly extinguished. On the extinguishment of the trust, the trust property together with all accumulated income, if any, shall be duly distributed or divided among the beneficiaries equally.
2. For the assessment year 1983-84 each of these assessees admitted their income share in the net profit derived by the trust by filing their returns all on 26-7-1984. Master S. Vijayakumar, the assessee in ITA No. 2135 (Mds.)/1987 besides having l/4th interest in the net profit derived by the trust, derived business income from a hotel, Venkateswara Rice Mills and SLNS Bus Service. Admittedly the whole of the income thus disclosed by each of these assessees, except in the case of Vijayakumar, represent their share of interest as beneficiary under the trust M/s. S.N. Subramanian Family Trust. In the accounting year in question the trust derived income from its own business, the share income and also derived income from ‘capital gains’ as well as ‘other sources’. The trust derived a total income of Rs. 2,58,311 for which the break up is as under :-
Business (own) Rs. 1,71,822
Business (share) Rs. 41,811
Capital gains Rs. 23,000
Bank interest Rs. 21,678
Rs. 2,58,311
A donation of Rs. 3,500 was paid. Section 80G deduction of Rs. 1,750 was claimed. Under Section 80T while submitting their returns each of these assessees claimed an amount of Rs. 5,300 as exempt. So also under Section 80L each of these assessees claimed on amount of Rs. 5,420 as exempt from their respective incomes. In the annexure to the grounds of appeal filed before the Appellate Assistant Commissioner the assessee set out the income of the trust and how the deductions have been claimed by each of the beneficiaries. A copy of that annexure is provided to us. The contention of the assessee is that since the assessment was purposely chosen to be made against each of these assessees, who are beneficiaries under the trust, under Section 166, each of the beneficiaries must be considered as the assessee, in his or her case, because Section 166 is specific and categorical in this leganl Section 166 is as under:
Nothing in the foregoing sections 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.
Shri K. Srinivasan, the learned counsel for the assessees submitted that Sections 80G, 80L and 80T were all exemptions contemplated under Chapter VIA of the Income-tax Act. Under Section 80A(1) it is clearly slated that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of Chapter VIA, the deductions specified in Sections 80C to SOU. The deduction shall not in any case exceed the gross total income. Therefore, since a direct assessment can be made against each of the beneficiary under me trust, in a case where the beneficiaries are known and identifiable and their beneficial interest is also specific and ascertainable, each of the beneficiaries must be entitled to separate exemptions under Sections 80G, 80L and 80T. The learned counsel for the assessees relied upon the Allahabad High Court decision in CIT v. Smt. Shakuntala Banerjee [1979] 120 ITR 837. The facts of that case together with the decision rendered by the Allahabad High Court are found to be fairly and correctly stated in the head note of the decision, which are as follows : “The settler had created a trust vesting Government securities of the face value of Rs. 1 lakh in the Imperial Bank of India as trustee with a direction that the trustee should pay the net income of the trust fund to the settler during his lifetime and upon his death to the assessee and another person in equal shares. In pursuance of the trust deed, the assessee received interest from the bank and her claim for deduction of Rs. 3,000 under Section 80L of the Income-tax Act, 1961, and also for the credit of the tax deduction by the bank at source was disallowed by the ITO on the ground that the assessee was not the owner of the securities from which she received the interest income. On appeal, the AAC allowed the deductions claimed by the assessee. On further appeal by the revenue, the Tribunal upheld the claim of the assessee. On reference: Held, that all that was required to entitle the deduction under Section 80L was that the gross total income of an assessee should include income by way of interest on the securities of the type mentioned in Clause (i) of Sub-section (1), viz., interest on any security of the Central Government or a State Government. The fact that the income was received by the assessee as a beneficiary under the trust deed and not as the owner of the securities was not relevant for purposes of granting relief under Section 80L. Therefore, the assessee was entitled to the deduction of Rs. 3,000.” On the other hand the contention of the learned departmental representative is that the deductions under Sections 80G, 80L and 80T are allowable only once and that too while computing the income of the trust. After computing the taxable income of the trust the said income would be distributed among its beneficiaries. Section 166 of the Income-tax Act, under which a direct assessment against each of the beneficiaries under the trust is possible, comes into play only after the income under each of the heads of income was determined, as per the provisions of the Income-tax Act and does not come into play until then. The deductions under Chapter VIA are to be allowed from the gross total income while arriving at the total income of the assessee. It is contended by the learned departmental representative that deductions under Chapter VIA would be allowable only while arriving at the total income of the assessee. Till the total income is ascertained and till the tax on that total income is determined, the beneficiaries under the trust would not come into the picture, since their liability is confined to what is stated in Section 166 of Income-tax Act. Therefore the exemptions under Chapter VIA can be claimed only by the person against whom the assessment can be made. The departmental representative argued that the capital gains can be brought to tax only in the hands of the legal owner of the property, on the sale of which the capital gains arose. In the facts of this case the departmental representative submits that the trustee only can be assessed with capital gains tax and, therefore, the exemption under Section 80T can be claimed only by the trustee and not by the beneficiaries.
3. Now let me examine the rival contentions advanced before me. Firstly let me consider whether there was any scope to assess the capital gains in the hands of the beneficiaries under the trust. Admittedly the property sold belonged to the trust. A trustee is the legal owner of the trust properties. He is entitled to sell the trust properties, provided the trust deed gives him the power to do so. I have already extracted the terms of the trust deed and I find that sufficient authority was given to the trustee, under the terms of the trust deed, to sell the trust properties and realise the sale proceeds. Section 37 of the Indian Trusts Act (Act II of 1882) is as follows: “Where the trustee is empowered to sell any trust property, he may sell the same subject to prior charges or not, and either together or in lots, by public auction or private contract, and either at one time or several times, unless the instrument of trust otherwise directs.” Therefore from the above section it may be seen that the trustee alone would be the legal owner of the property and he is entitled to sell the property because in the facts and circumstances of the case the trustee is given full authority to sell the property and realise the sale proceeds. On the basis of the authority of the Honble Supreme Court in James Anderson v. CIT [1960] 39 ITR 123, in Chaturvedi & Pithisaria’s Income-tax law, Third Edition, Vol. 2, at page 1677 the legal position as to in whose hands the capital gains arise is explained as follows: “If, however, the administrator under a will sells the capital assets for the purpose of distributing the sale proceeds amongst the legatees, and the sale brings in capital gains, the clause has no application and the capital gains so brought in shall be taxable in the hands of the administrator because under this clause assets are required to be transferred in specie and not in the form of their sale proceeds.” Their Lordships were considering the analogous position in the Indian Income-tax Act, 1922, analogous to Section 47(iii) of the Income-tax Act, 1961 in that decision. Having regard to all the above I am of the opinion that the resultant capital gains can be taxed only in the hands of the trustee, since he realises the whole of the sale proceeds. No doubt, each of these assessees have l/4th interest in the benefits of the trust. But simply because they are entitled to l/4th interest in the benefits of the trust and simply because the net capital gains on the sale of the property go to constitute part of the benefits of the trust the accrued capital gains on the sale of the property would not maintain its independent identity but would merge in the income of the trust. After the total income of the trust is ascertained, the income derived by the trust under several heads under Section 14 of the Income-tax Act, would no longer maintain their identity but all would converge into the ‘total income’ of the trust. An income which arises in the hands of a particular person cannot be split up and different parts of such income cannot be assessed in the hands of different persons. In CIT v. Alfred Herbert(India)(P.)Ltd. [1986] 159 ITR 583 the Calcutta High Court as per their decision, found in the head note, held the following general principle: “The Income-tax Act, 1961, does not postulate that income can be split up and different parts of such income can be assessed in the hands of different persons.” In Kanji Mal & Sons v. CIT [1982] 138 ITR 391 (Delhi), at page 416, in a bid to find out the true scope and meaning of Section 124(7) of the Income-tax Act, their Lordships of the Delhi High Court held as follows : “In order to appreciate the true scope of the section it has to be remembered that under Section 143 of the Act as well as the other provisions of the Act the business of the ITO is not to determine the income accruing, arising or received within any particular area but to determine the total income of an assessee, an expression which has been defined as the total of the income, profits and gains derived by the assessee computed and calculated in the manner provided by the Act. There is no provision in the Act which would enable the ITO to assess an assessee in regard to a part of his total income.” I feel that both the Calcutta High Court as well as the Delhi High Court had correctly laid down the principle that part income only cannot be assessed in the hands of any assessee. The question, is can the capital gains resulted on the sale of the trust property be divided equally among the beneficiaries of the trust and can a part or a share in the capital gains be divided, allotted and can be assessed in different hands of the beneficiaries.
According to Shri K. Srinivasan, the learned counsel for the assesses, the plain language used in Sections 161(1) and 166 would clearly show that a direct assessment can be made against each of the beneficiaries, with regard to his beneficial interest derived from the trust and it is enough if such beneficial interest in the trust derived by each of the beneficiaries would include income in the nature of capital gains to entitle each of the beneficiaries to claim exemption under Section 80T and the ratio of the Allahabad High Court decision cited by him in Smt. Shakuntala Banerjee’s case (supra) supports his contention. On the other hand the learned departmental representative contended that the word ‘assessment’ convey different meanings and one of the meanings conveged by that expression is determination of the amount of tax payable. The word ‘assessment’ occurring in Section 166 should be given only the said meaning of the ‘determination of the amount of tax payable’ and not the meaning of either ‘computation of income’ or ‘conveying the whole procedure laid down in the Act for imposing liability on the taxpayer’. Thus the argument of the learned departmental representative was that the word ‘assessment’ should be taken to have different meanings when it was used in different sections of the Income-tax Act. It is used in a wide sense in some sections and in a restricted sense in some other sections. He brought to my knowledge the following passage found in The Law of Income-tax by A.C. Sanipath Iyengar, 8th Edn., Volume 1 at page 210: “As pointed out by the Privy Council in CIT v. Khemchand Ramdas [1938] 6 ITR 414 the word is used in the Act as sometimes meaning the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability on the taxpayer. In some sections, it is used in a wide sense and in some sections in a restricted sense.” While interpreting the words direct assessment’ occurring in Section 166 of the Income-tax Act, it is only the meaning given to that expression, in a restricted sense which should be taken to have been intended by the Legislature. Sections 161(1) and 166 as far as relevant for our purposes read as follows:
161(1) Every representative assessee, as regards the income in respect of which he is a representative assessee, 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.
166. Nothing in the foregoing sections 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.
Now the question is whether the words ‘direct assessment’ occurring in Section 166 should bear a wider meaning as canvassed by Shri K. Srinivasan, or a restricted meaning as canvassed by the learned departmental representative. The present Section 166 of the Income-tax Act is found out to be analogous to Section 41(2) of the Income-tax Act, 1922. So also the latter portion of Section 161 is found to be analogous to Section 41(1) of the Income-tax Act, 1922. The scope of the erstwhile Section 41 of the Income-tax Act, 1922 was considered by the Bombay High Court in its authoritative judgment in CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187. Tracing out the procedure in which a trustee should be assessed, the Bombay High Court at page 194 of the reported decision held as follows:
Now it will be noticed that this section deals with levy and recovery of tax, Section 3 having charged a particular income to tax and sections 6 to 12 having dealt with computation of income. Section 41 deals with the liability to pay tax and the person from whom the tax is to be recovered. It should also be noticed that Section 41 imposes a vicarious liability upon the trustees and that liability is co-extensive with the liability of the beneficiaries. In other words, the Legislature in the special case of trustees, has provided that instead of the tax being recovered from the beneficiaries to whom in law the income belongs and who ordinarily would be liable to pay the tax, it should in this particular case be recovered from the trustees. But the Legislature has made it clear that the liability of the trustees should not in any case be larger or wider than the liability of the beneficiaries. It will also be noticed that Section 41 is mandatory in its language….The basic idea underlying Section 41, and which is in conformity with principle, is that the liability of the trustees should be co-extensive with that of the beneficiaries and in no 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 though a trustee is being assessed, the assessment must proceed in the manner laid down in Chapter III. In other words, even though the income to be assessed is the income of a trustee, the income must be put under one of the heads mentioned in Chapter III and the provisions laid down with regard to the computation of that income in Chapter III must be carried out. 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 to the Taxing Department that, when they are dealing with the income of a trustee, they must levy the tax and recover in the manner laid down in Section 41. Therefore, there is no inconsistency between the provisions of Sections 9, 10 and 12 and the provisions of Section 41.
The above authority would make it very clear that in order to finalise an assessment against a trust the income of the trust, whether it is derived from house property, business or other sources, should all be treated as if the said income belongs to the trustee and the computation of income under each of the heads should also be gone through and ultimately the total income should be determined in the hands of the trustee. It is only at the stage of payment of tax the liability should be determined either under Section 161 or Section 166, whichever the case may be. If the assessment is to be completed against the trustee, Section 161 would apply and if the assessment is to be completed against the beneficiary, the provisions of Section 166 would apply and the tax liability would be determined according to those respective provisions. The decision of the Bombay High Court in 34 ITR 187, cited supra, was approvedly quoted by the Supreme Court in CIT v. H.E.H. Mir Osman AH Bahadur [1966] 59 ITR 666. After quoting Section 41 (1) & (2) of the Income-tax Act, 1922 their Lordships stated the following at page 682 of the reported decision:
Under this section the revenue has the option to levy or collect tax from the trustee or the beneficiary; the tax can be levied upon and recoverable from the trustee in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable. In short, it imposes a vicarious liability on the trustee. The expression ‘all the provisions of this Act shall apply accordingly” indicates that there is no distinction in the matter of assessability of the income in the hands of a trustee or the beneficiary, as the case may be.
[Emphasis supplied]
Indeed, Section 41 of the Act comes into play only after the income is computed in accordance with Chapter III of the Act. In the case of income from securities Section 8 applies and under the second proviso thereto, the income-tax payable on the interest receivable on any security of the State Government issued income-tax free shall be payable by the State Government. No tax on interest on such securities is payable by the assessee. After ascertaining the income and after giving the exemptions, the income-tax authority has the option to assess the beneficiary directly or, in respect of the same income the trustee on behalf of the beneficiary.
[Emphasis supplied]
This construction finds support in the decision of the Bombay High Court in Balwantrai Jethalal Vaidya’s case (supra). If that be the scope of the assessment under Section 41 of the Act, we find it difficult to appreciate the contention that the interest on securities in the hands of the trustee becomes an income other than such interest in the hands of the beneficiary. The interest retains its character whether the assessment is made on the trustee or the beneficiary.
Therefore, as can be seen from the abovesaid authorities they are unanimous in saying that Section 166 which is analogous to Section 41(2) of the Indian Income-tax Act, 1922 comes into play only after the total income is determined and at the time of determining the tax payable on the total income. Both the authorities are affirmative on the position that the question of liability of a beneficiary would arise only under Section 166 and not until the total income is computed. Chapter VIA deductions should be allowed while determining the total income or in the process of finding out the total income. According to the above two authorities till the completion of the total income, the beneficiary would not come into the picture at all. The total income would be arrived at on the assumption that it belongs to the trustee. When according to law the beneficiary under trust had no locus standi till after ascertaining the total income, a fortiori he is not entitled to claim the exemption under Chapter VIA, since Chapter VIA deductions should be granted while arriving at the total income. In view of the above two decisions as to the correct stage at which Section 41(2) of the Income-tax Act, 1922 or Section 166 of the Income-tax Act, 1961 would come into play in the assessment proceedings, I have to hold that the words ‘direct assessment’ occurring in Section 166 of the Income-tax Act are intended to convey only a meaning in a restricted sense ‘of determining the amount of tax payable’ but not in a wider sense of conveying the whole procedure laid down in the Act for imposing the liability on the tax payer”. The interpretation sought to be put by the learned departmental representative against these words should be preferred as against the interpretation sought to be put by the learned counsel for the assessee in a wider sense.
4. As regards Section 80G deduction, the present assessees, who are only beneficiaries under the trust, are not entitled to claim it for they are not the persons who made the donation and admittedly it was the trustee who made the donation. Section 80G(2) makes the position very clear. According to the said provision, the exemption is available only as regards the sums paid by the assessee in the previous year as donations to the institutions enumerated in the said section. The assessees who are only beneficiaries under the trust did not pay the donations and therefore each of them would not be entitled to a separate deduction under Section 80G.
5. The trust got an amount of Rs. 21,678 towards bank interest, which is brought to tax under the head other sources. The question is whether each of the beneficiaries are entitled to claim exemptions under section 80L. In view of what I held with regard to Section 80T, for the same reasons each of the assessees is also not entitled to deduction under Section 80L, since the stage at which 80L exemption can be claimed is only before computation of total income and in the assessment proceedings relating to income of the trust, the beneficiary would enter into the picture of assessment proceedings only after the total income is ascertained, since at that stage only Section 166 begins to operate. In this case, though these assessees had filed their returns, the Income-tax Officer had chosen to compute the total income of the trust, in the first instance, and he had also given deductions, under Sections 80L and 80T while computing the total income in the hands of the trust and then the trust income is apportioned among the beneficiaries. Each of the beneficiaries was allotted I/4th of the total income thus determined. The Income-tax Officer made this position very clear in his assessment order dated 25-3-1985 passed in the case of S. Vijayakumar. He had determined the total income of the trust at Rs. 2,76,920. The total income was divided in the names of each of these four beneficiaries and each of them was taken to have held income of Rs. 69,230 and on that basis the tax was determined. Regarding the grant of exemption under Sections 80L and 80T the Income-tax Officer stated as follows in his assessment order: “While computing the income of the beneficiaries of the trust the assesses has claimed deductions under Sections 80L and SOT in respect of each beneficiary, this is not correct. The income of the trust is computed and thereafter that income was apportioned among the beneficiaries. Deductions under Sections 8OL and 80T have to be given in computing the income of the assessee. In this case the income of the trust is computed and then it is apportioned among the beneficiaries. As such the deductions under Sections 80G, 80L & 80T are deducted in computing the income of the trust”. I find that the method of computation of total income adopted by the Income-tax Officer is quite in consonance with both the Bombay High Court and the Supreme Court decisions cited above. Since the Allahabad High Court while deciding the case in Smt. Shakuntala Banerjee (supra) did not take note of either the Bombay High Court decision in Balwantrai Jethalal Vaidya’s case (supra) or the Hon’ble Supreme Court decision in H.E.H. Mir Osman Ali Bahadur’s case (supra) or followed their ratio. Hence I hold that I need not follow the ratio of Smt. Shakuntala Benerjee’s case (supra), since it was decided against the ratio of Balwantrai Jethalal Vaidya’s case (supra) and H.E.H. Mir Osman Ali Bahadur’s case (supra).
6. In the result I find that the exemptions claimed by each of these assessees cannot be obtained by them and hence their appeals are dismissed.