Section 160 of the Income-tax Act, 1961 defines ‘representative assessee’. Sub-section (1) to this section enumerates five categories of representative assessees, which are as follows: -
(i)
agent
of non-resident or a person treated as agent under section 163;
(ii)
guardian
or manager of a minor, lunatic or idiot;
(iii)
court
of wards, administrator-general, official trustee and any receiver or manager
appointed by Court;
(iv) trustees
appointed under an instrument in writing; and
(iv)
trustees
appointed under an oral trust (with effect from 01.04.1981).
The
classification made under section 160(1) is so in relation to the class of
income, which the representative assessees may receive or are entitled to
receive on behalf of or for the benefit of any other person. The motive of such
provision is to catch the income at the earliest point of time for taxing it,
instead of waiting until such time when the income reaches the person who is
the owner thereof.
Text of Section 160
160. Representative assessee.
(1)
For the purposes of this Act, “representative assessee” means -
(i)
in respect of the income of a
non-resident specified in [1][***] sub-section
(1) of section 9, the agent of the non-resident, including a person who is
treated as an agent under section 163;
(ii) in respect of the income of a minor, lunatic
or idiot, the guardian or manager who is entitled to receive or is in receipt
of such income on behalf of such minor, lunatic or idiot;
(iii) in respect of
income which the Court of Wards, the Administrator- General, the Official
Trustee or any receiver or manager (including any person, whatever his
designation, who in fact manages property on behalf of another) appointed by or
under any order of a court, receives or is entitled to receive, on behalf or for
the benefit of any person, such Court of Wards, Administrator-General, Official
Trustee, receiver or manager;
(iv) in respect of
income which a trustee appointed under a trust declared by a duly executed
instrument in writing whether testamentary or otherwise [including any 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 benefit of any person,
such trustee or trustees;
[2][(v) in respect of income which a trustee appointed
under an oral trust receives or is entitled to receive on behalf or for the
benefit of any person, such trustee or trustees.
Explanation 1. - A trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] shall be deemed, for the purposes of clause (iv), to be a trust declared by a duly executed instrument in writing if a statement in writing, signed by the trustee or trustees, setting out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the [1][Assessing Officer], -
(i)
where the trust has been declared before the 1st day of June, 1981,
within a period of three months from that day; and
(ii) in any other case, within three months from
the date of declaration of the trust.
Explanation
2. - For the purposes of clause (v), “oral trust” means a trust which is not
declared by a duly executed instrument in writing [including any wakf deed
which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] and
which is not deemed under Explanation 1 to be a trust declared by a duly
executed instrument in writing.]
(2)
Every representative assessee shall be deemed to be an assessee for the
purposes of this Act.
KEY NOTE
1. The expression “clause (i) of” omitted by
the Finance Act, 1976, with effect from 01.06.1976.
2. Inserted by the Finance Act, 1981, with
effect from 01.04.1981.
3. Substituted for “Income-tax Officer” by the
Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1988.
Representative assessee [Section 160]
|
Section |
In respect of |
his agent |
|
Section 160(1)(i) |
in respect of the income of a
non-resident |
his agent |
|
Section 160(1)(ii) |
in respect of the income of a
minor, lunatic or idiot |
guardian or manager |
|
Section 160(1)(iii) |
in respect of income which the
Court of Wards, the Administrator- General, the Official Trustee or any
receiver or manager appointed by or under any order of a court |
such Court of Wards,
Administrator-General, Official Trustee, receiver or manager; |
|
Section 160(1)(iv) |
in respect of income of declared
trust or Wakf |
Trustee(s) |
|
Section 160(1)(v) |
in respect of income of oral
trust |
Trustee(s) |
Who can be an Agent of a Non-Resident Indian [Section 160(i)]
For
the purposes of this Act, “representative assessee”
means -
(i) in respect of the income of a non-resident
specified in sub-section (1) of section 9, the agent of the non-resident,
including a person who is treated as an agent under section 163;
A
non-resident Indian may be assessed directly or through an agent. Section
160(1)(i) provides that “representative assessee” means in respect of the
income of a non-resident, an agent including the person who is treated as an
agent under Section 163. Agent of a non-resident Indian according to the
provisions of Section 163 includes any person in India —
(i) who is employed by or on behalf of
the non-resident Indian; or
(ii)
who
has any business connection with non-resident; or
(iii)
from
or through whom the non-resident is in receipt of any income whether directly
or indirectly; or
(iv) who is a trustee of the
non-resident; and
also
includes any other person who has acquired by means of transfer a capital asset
in India.
No
person is to be treated as an agent of a nonresident Indian unless he has had
an opportunity of being heard by the Assessing Officer as to his liability to
be treated as such. A nonresident Indian may also appoint an authorised
representative to act as his agent. Such an agent would also be entitled to
file an income tax return for and on his behalf and also for claiming refund of
income tax and carry on other formalities in the matter of income tax, etc.
A trustee is a representative assessee
for a beneficiary [Section 160(1)(iv)]
Section 160(1)(iv) provides that
for the purposes of this Act, ‘representative assessee’ means in respect of
income which a trustee appointed under a trust declared by a duly executed
instrument in writing whether testamentary or otherwise (including any 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 benefit of any person,
such trustee or trustees.
Assessment of trustees
Section
160 deals with the assessment of representative assessees. The trustee of a
private family trust is assessable as an assessee in respect of the income of
the beneficiary and he shall be responsible in his representative capacity. Tax
is 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.
However,
the Assessing Officer is not bound to make an assessment on the trustees under
section 161(1); he may assess either the trustee as representative assessee or
the person represented by him -this is expressly provided in section 166. If
the Assessing Officer once opted to proceed to assess the representative
assessee for the beneficiary’s income, the beneficiary shall not be called upon
to pay tax in respect of that income.
In
other words, section 160 prescribes that the trustees of a trust shall be
deemed to be representative of trust and they shall be assessed by the
department. However, such assessment shall be made in representative capacity
only. It shall not be merged with the personal assessment of trustees.
CBDT Clarification Circular regarding Liability and Status of Official Assignees under Income-tax Act [CBDT Circular No. 4/2019 [F.NO.225/472/2018/ITA.II], Dated 28.01.2019]
The
CBDT has issued Circular No. 04/2019 dated 28.01.2019 in which it has clarified
the entire law relating to the liability and status of Official Assignees under
section 160(1)(iii) of the Income-tax Act, 1961.
CBDT
Circular No. 4/2019 [F.NO.225/472/2018/ITA.II], Dated 28.01.2019
Subject : Section 160
of the Income-tax Act,1961 – Representative assessee - General - Clarification
regarding liability and status of official assignees under the Income-tax Act
Under
provisions of the Presidency Towns Insolvency Act, 1909 and the Provincial
Insolvency Act, 1920, where an order of Insolvency is passed against a debtor
by the concerned Court, property of the debtor gets vested with the Court
appointed Official Assignee. The Official Assignee then realizes property of
the insolvent and allocates it amongst the creditors of the insolvent.
Consequentially, Official Assignee has the responsibility to handle income-tax
matters of the estate assigned to him. In this regard, a clarification has been
sought regarding applicability of clause (iii) of section 160(1) of the
Income-tax Act, 1961 (Act) which applies on a ‘Representative Assessee’ in the
case of an Official Assignee. Further, clarity regarding status of the Official
Assignee’s i.e. their fallibility in the appropriate category of ‘persons’, as
defined in section 2(31) of the Act, has also been sought.
2.
As per provisions of section 160(1)(iii) of the Act, a ‘Representative Assessee’
amongst other situations specified therein, becomes liable in respect of any
income which the Assignee receives or is entitled to receive while managing the
property for benefit of any person. As per the two insolvency Acts, Official
Assignee manages the property of the debtor for the benefit of the creditors.
Further, the Insolvency Act, 1909, in unambiguous terms, provides that an
insolvent ceases to have an ownership interest in the estate once an order of
adjudication is made under section 17 of the Insolvency Act. Thus, it is hereby
clarified that since Official Assignee does not receive the income or manage
the property on behalf of the debtor, they cannot be considered as a ‘Representative
Assessee’ of the debtor under the Act while computing the tax liability arising
from the estate of the debtor.
3.
As property of the insolvent is vested with the Official Assignee as per
specific provisions of the Act/Law regulating functioning of the Official
Assignee’s, they have to be treated as a ‘juristic entity’ for purposes of the
Income-tax Act. Hence, it is clarified that for purpose of discharge of tax
liability under the Act, the status of Official Assignees is that of an ‘artificial
juridical person’ as prescribed in section 2(31)(vii) of the Act, not being one
of the ‘persons’ falling in sub-clauses (i) to (vi) of section 2(31) of the
Act.
4.
Therefore, Official Assignee is required to file Income-tax return
electronically in the ITR Form applicable to ‘artificial juridical person’
separately for each of the estate of the insolvent and the income shall be
taxed as per the rates applicable in a particular year to an ‘artificial
juridical person’.
5.
In view of the above position, Official Assignees would have to obtain a
separate PAN for each of the estate of the insolvent.
Term ‘individual’ used in Act does not mean only a human
being but it is wide enough to include a group of persons constituting a unit
for purposes of Act. Assessee was a private discretionary trust. During year, assessee had received donation
from its six group companies amounting to Rs. 25 crores which was credited to
balance sheet of assessee under head ‘addition to corpus’ and not routed
through profit and loss account. Joint Commissioner passed an order under
section 144A directing Assessing Officer to treat receipt of Rs. 25 crores as ‘income
from other sources’ and tax same accordingly. Assessee contended that it was a
discretionary trust and direction issued by Joint Commissioner invoking section
56(2)(vii) was erroneous as said provision applies only to individuals and HUFs.
It was noted that assessee was representative of beneficiaries of trust. Deed
of trust as well as supplemental deed showed that beneficiaries were top level
executives of assessee-group companies. Assessee derived its authority under
terms of trust deed which empowered it to receive property under trust and
maintain it for benefit of beneficiaries who were identified. Assessee received
income on behalf of beneficiaries. On facts, assessee was to be treated as a
representative of those beneficiaries under section 160(1)(vi) and, therefore,
had to be assessed as an ‘individual’. Consequently,
contribution of Rs. 25 crores received by assessee was to be assessed in hands
of assessee as ‘income from other sources’ under section 56(1). [In favour of
revenue]
(Related Assessment year : 2014-15) – [CIT,
Chennai v. Shriram Ownership Trust (2021) 430 ITR 356 : (2020) 122 taxmann.com
155 (Mad.)]
Upon death of parents, income of minor child is to be taxed in hands of grandfather by invoking section 64(1A) and Explanation (b), for period for which said minor child remained a minor -Guardian to discharge tax obligation of orphan ‘minor’
The assessee was a
Minor, when, unfortunately, both her parents viz., father and mother died in a
car accident. Her grandmother also died in the same accident. At that point of
time, the assessee was only two-and-a-half years old child and her grandfather
was her sole guardian. The Minor inherited the property of her parents and
grandmother and the income from such sources continued i.e, agricultural income
and money-lending as well as income from partnership firm business of coffee.
The Assessing Authority, assessed such taxable income in the hands of Minor, holding that section 64(1A) could not be applied, as both the parents of the minor girl had unfortunately expired and, therefore, the clubbing provisions enacted in section 64(1A) could not be invoked and, as such, the entire income earned was liable to be taxed in the hands of the assessee-Minor herself. On appeal, the Commissioner (Appeals) upheld the said Assessment Order and also negatived the contention of the assessee that reassessment proceedings under section 147/148 were not justified. On further appeal, the Tribunal allowed the appeal of the assessee holding that such income would not be taxable in the hands of the minor. On appeal by revenue to the High Court:
Held : The only question which could arise in the instant cases is, as to who is to be treated as the representative-assessee, liable to discharge the tax obligations of such Minor in the absence of both the parents, who unfortunately died in a road accident ?
The answer is obvious, simple and clear. It is to be found in section 160(1)(ii) and it is the ‘Guardian’, namely, grandfather, in the instant case, who not only filed Returns of Income and even paid tax in the first instance, but thereafter claimed exemption and also the refund of tax, as noted by the Assessing Authority. Unfortunately, these relevant provisions in Chapter XV do not appear to have been considered by any of the authorities below, namely, Assessing Authority, First Appellate Authority and even the Tribunal, which dealt with this case.
Charging provisions of Act do not exclude charge and assessment of income in hands of minor. Further, clubbing provisions in section 64(1A) are nothing but machinery provisions to obligate parent of child to discharge tax obligations in respect of income arising or accrued to minor child. Thus, where parents of minor child did not survive, section 160 (1)(ii) will stand attracted and income of minor child will be taxed in hands of representative-assessee, i.e., Guardian/grandfather, by invoking clubbing provisions in section 64(1A) and Explanation (b) thereto for period for which said minor child remained a minor. Therefore, period during which child was minor, assessment/reassessment made against her grandfather as Legal Representative was valid and now she having become major, consequential recovery action could proceed against her and her assets or business, as the case may be. [In favour of revenue] (Related Assessment years : 1995-1996 to 1999-2000) – [R.P. Sarathy v. JCIT, Salem (2019) 263 Taxman 149 : 104 taxmann.com 92 (Mad.)]
Section 160(1)(iii) applies to a case where the property is managed on behalf of another and where the official receiver held the property for and on behalf of the creditors and not on behalf of the insolvent, he could not be treated as the representative assessee of the insolvent (debtor) under section 160(1)(iii)
The assessee was
adjudged as an insolvent, consequent to which all properties owned by him
including a land, vested in the official receiver who sold the land for Rs.
3,50,000 and executed a sale deed. A notice under section 139(2) was issued by
the Assessing Officer to the Official Receiver calling upon him to file the
return for the assessment year 1981-82 on the ground that capital gains had accrued
to him. In response to notice, the official receiver filed a nil return and
took the plea that no capital gains tax could be levied on the sale of the land
as the property belonged to the insolvent who ceased to be the owner of the
land on passing of the adjudication order and that the creditors had stepped
into the shoes of the insolvent and that as the trustee of the creditors, the
official receiver was under an obligation to sell the property and distribute
the sale proceeds among the creditors. The Assessing Officer, however, assessed
the capital gains tax. On the asscssee's appeal, the Commissioner (Appeals)
upheld the order of the Assessing Officer. On second appeal, the Tribunal held
that section 160 (1) (iii) had no application to the official receiver, that by
sale of the insolvent's property no gain could be said to have arisen in the
hands of the official receiver and as the properties of the insolvent had
vested in him, he sold the same for the benefit of the creditors and
distributed the proceeds among the creditors. On reference :
Held : On passing the
order of adjudication and appointment of a receiver all the properties of the
insolvent, except those which are exempted from attachment order under the
provisions of the Code of Civil Procedure, 1908 or any other provision of law,
vest in the receiver and till the order of discharge is passed under section 41
of the Provincial Insolvency Act, 1920, the insolvent would not be entitled to
the surplus, if any, remaining after payment in full to his creditors with
interest and all the expenses of the proceeding taken thereunder. The official
receiver alone would deal with the property of the insolvent vested in him for
the benefit of the body of creditors as he is a trustee for them. He cannot
deal with property as absolute owner for the purpose of discharging his debts
or for giving away it as gift. He cannot use the property for extraneous
purposes as one would deal with his personal property. The insolvent has no
right, title or interest in the property vested in the official receiver and he
would not be a trustee for that property. Section 160(1)(iii) applies to a case where the property
is managed on behalf of another. The official receiver held the property for
and on behalf of the creditors and not on behalf of the insolvent. Therefore,
he could not be treated as representative assessee of the insolvent. Thus,
though the capital gains arising from disposal of the property were liable to
tax, yet the person liable to tax was the official receiver and not the debtor.
(Related Assessment year : 1981-82) – [CIT v. J. Narayana Murthy (1997) 228 ITR 99 : 94 Taxman 428 : 145 CTR 186 (AP)]
Where
proprietary business inherited by widow and minor children on death of
proprietor was run by widow on her behalf and on behalf of her three minor
children, section 160 could not be applied so as to assess income of minors
separately in the hands of widow as a representative assessee
In
the instant case, there was a widow and her minor sons who were engaged in the
business activity which generated income. It did not make any difference that
the widow and the minor sons did not start the business. The business was
inherited. But the fact that the business had been continued by the widow on
her own behalf as well as on behalf of the minor sons after buying the interest
of the mother went to show that there was an organised activity jointly carried
on to produce income. It was a clear case of a joint business venture of a few
individuals. The income of the business had been rightly assessed in the status
of a ‘body of individuals’.
As
regards applicability of sections 160, 161 and 166, section 161 is an enabling
provision. The charge that is imposed by section 4 may be computed and
recovered in the manner laid down in the Act including sections 160, 161 and
166. When the minors along with their mother formed a body to generate income,
levy of tax under section 4 is on that body. The mother cannot insist that the
income of the joint venture must be assessed separately on the minors and on
her even when a joint business is carried on. Accordingly, the appeals were to
be dismissed. – [Meera & Co. v. CIT (1997) 91 Taxman 219 (SC)]
Trustee is a representative assessee
The trustee, even of a discretionary trust, is, by
reason of the terms of section 160, a representative assessee. – [CIT v.
Kamalini Khatau (1994) 209 ITR 101 (SC)]
Administrator-General can be treated as representative assessee only if he has received the income
Section 160 of the Income-tax Act, 1961
[corresponding to section 41 of the Indian Income-tax Act, 1922] - The fact
that the Administrator-General is expressly mentioned in section 160 does not
conclude the matter as to whether the provision applies to him. The other
condition prescribed in the provision that the income must be received by him
on behalf of a person or persons must be fulfilled before section 160 becomes applicable.
The position of an Administrator-General appointed de bonis non is in no
way different from that of an executor vis-a-vis the income he receives from
the estate
One R died leaving an will by which certain
legacies were left to specified persons and institutions residue being given to
five sons. State Government appointed administrator. Administration to estate was not completed
within accounting period. Since residue to be paid to sons legacies were to be paid
first, income received by administrator could not be on behalf of five sons of
deceased. Section 41 could be applied only whether administrator was entitled
to received income on behalf of a person or persons while in instant case this
condition was not fulfilled and so section 41 of 1922 Act would not be
applicable. It was to be held that administration received income on his behalf
and not on behalf of five sons of deceased and he was to be annexed at maximum
rate. [In favour of the revenue] (Related Assessment years : 1950-51 and 1951-52)
– [Administrator-General of West Bengal for the Estate of Raja P.N. Tagore
v. CIT (1965) 56 ITR 34 (SC)]
In
his capacity as agent of non-resident, H would be a representative assessee
within meaning of section 160 right from date on which he acted as agent of
non-resident and purchased that land and as such would be liable to file return
under section 139
Section
163 does not define an agent but only provides as to who would be included in
the term of the agent in relation to a non-resident. Therefore, to find out the
definition of the term ‘agent’, the provisions of the Indian Contract Act,
1872, have to be looked. Section 182 of the Indian Contract Act defines the
agent as a person employed to do any act for another or to represent another in
dealing with third person. For the appointment of an agent, it is not necessary
that there must be a written authority. In the instant case, H, when he
purchased the land on 15.09.1966 in the name of M, a non resident, obviously
acted as the agent of the latter and was, therefore, his agent on the said date
within the meaning of section 163. So the order passed on 21.03.1970 by the ITO
did not clothe him with the capacity of an agent of the non-resident even
though by that order he was treated as agent of the non-resident in the
capacity of the agent of the non-resident. He would be a representative
assessee within the meaning of section 160 right from the date on which he
acted as agent of the non-resident and purchased the land in his name. H was,
therefore, representative assessee in respect of the income of M, a
non-resident, during the accounting year as well as the assessment year and as
such was liable to file the return under section 139 within the prescribed
period. [In favour of the revenue] – [Hazoora
Singh v. CIT (1986) 160 ITR 746 : 25 Taxman 211 (P&H]
Managers
are appointed to a business at the specific request of the parties, such
persons could not be treated as appointed by or under an order of the Court
within the meaning of section 160(1)(iii).
Section 160
of the Income-tax Act, 1961 [Correspondence to section 41 of the Indian
Income-tax Act, 1922] - Where, under an order of the Court, managers are
appointed to a business at the specific request of the parties, such persons
could not be treated as appointed by or under an order of the Court within the
meaning of section 160(1)(iii). This position is not altered even if one of the
parties is a minor.
On death of assessee, his first wife and her nephew
took charge of business and conducted same in partnership which was stated to
consist of heirs of deceased. Later on, his minor son filed a suit for
declaration that partnership was null and void which was allowed by High Court.
Later a suit for partition of assets of deceased was filed by first wife
wherein it was held that business should be continued with M and K as managing
agents. In reference, applicant contended that section 41 would be applicable
and manager should be deemed to have been appointed by or under order of court.
It was found that one of parties was minor. An order passed on terms agreed upon between
parties would still remain an agreement between parties and not an order of
Court within contemplation of section 41 and therefore, managers of business
could not be said to be appointed by or under order of court within meaning of
section 41. – [A. Jainulabdeen Sahib v. CIT (1944) 12 ITR 285 (Mad.)]
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