Circular No. 157 — Section 164/166 l Assessment of Trust Where Share of Beneficiaries Unknown

What this is

Circular No. 157 was issued by the Central Board of Direct Taxes on 26 December 1974. Its subject is Section 164/166 l Assessment of Trust Where Share of Beneficiaries Unknown.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Reiterates that the same income cannot be assessed both in the hands of the trustee and in the hands of the beneficiary. Section 41 of the 1922 Act, and the corresponding provisions of the 1961 Act including section 166, give the department an option to tax either the representative assessee or the beneficial owner, not both. The Board notes that despite Instruction No. 45/78/66/ITJ(5) dated 24 February 1967 instances of such double assessment had come to notice. The Income-tax Officer must keep the point in view when making the first assessment, of either the trust or the beneficiary, and choose the course beneficial to the revenue; once the option is exercised for an assessment year, the same income cannot be assessed in the hands of the other person for that year.

Why it was issued

Instances of the same income being assessed both in the trustees' and the beneficiaries' hands had come to the Board's notice, despite the earlier instruction.

Who it reaches

Trustees of discretionary trusts assessed under sections 164 and 166
Beneficiaries assessed on trust income
Assessing Officers choosing whom to assess

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.41	s.38, s.66
s.164	s.307
s.166	s.304

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

SECTION 164/166 l ASSESSMENT OF TRUST WHERE SHARE OF BENEFICIARIES UNKNOWN
910. Assessment of discretionary trusts under section 164/166 - Correct procedure therefor
CLARIFICATION 1
1. Attention is invited to Board’s Instruction No. 45/78/66/ITJ(5), dated 24-2-1967 [printed here as Clarification 2] on the subject of assessment made under section 41(2) of the 1922 Act/section 166 of the 1961 Act. In spite of the clear instructions to the effect that neither section 41 which give an option to the department to tax either the representative assessee or the beneficial owner of the income nor the parallel provisions of the 1961 Act contemplated assessment of the same income both in the hands of the trustees and the beneficiaries, instances have come to the notice of the Board of such double assessment.
2. According to the Scheme of the 1961 Act, even as it was under the 1922 Act, the general principle is to charge all income only once. The Board desire to reiterate the earlier instructions in this regard. In order that there is no loss of revenue, the Income-tax Officer should keep this point in view at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to the revenue. Having exercised his option once, it will not be open to the Income-tax Officer to assess the same income for that assessment year in the hands of the other person (i.e., the beneficiary or the trustee).
Circular : No. 157 [F.No. 228/8/73-IT (A-II)], dated 26-12-1974.

What to watch

The option is exercised at the stage of the initial assessment and is spent once exercised for that year.
It binds year by year, so an option exercised for one assessment year does not settle another.
The instruction is aimed at double assessment of the same income; it does not decide the quantum or rate under section 164.
It reiterates Instruction No. 45/78/66/ITJ(5) dated 24 February 1967, which is printed with it.

Where you meet it

Where a beneficiary is assessed on trust income that the trustee has already been assessed on, or the other way about, and the second assessment is challenged.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 12/2022 — Guidelines for removal of difficulties under sub section 2 of section 194R of the income tax act 1961 16 June 2022
Circular No. 671 — 368. Whether, where deposit made by an assessee for obtaining new telephone connection under ‘Tatkal Telephone Deposit S 27 October 1993
Circular No. 576 — Section 80 l Loss - Submission of Return for 31 August 1990
Circular No. 523 — Section 80 l Loss - Submission of Return for 5 October 1988
Circular No. 137 — 393. Whether, in computing capital gains on sale of motor car to which proviso to section 43(1) applies for the purposes 13 June 1974
Circular No. 63 — 884. Assessment of existing banks and their shareholders and corresponding new banks in the context of nationalisation a 16 August 1971

← Circular No. 158 · Circular No. 156 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.