Chandurkar, J.:— This reference which arises out of three separate appeals disposed of by the Appellate Tribunal in respect of the liabilities of the trustees on three different trusts, the terms of which were identical, raises the following question for decision of this court at the instance of the revenue:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of determining the tax payable by the assessee-trustees in terms of section 114 read with section 161 and section 164 of the Income-tax Act, 1961, on the undisbursed capital gains added to the trust corpus, the normal trust income payable to the beneficiary and separately charged to tax in her hands could not be taken into account?”

2. The assessment year in question in all the three cases is 1966-67 and the assessees are the trustees under three separate trusts, all dated October 19, 1953, referred to briefly as the Gargi Trust, Rohini Trust and Hemnalini Trust. Under all the three trusts, there was a sole beneficiary, the beneficiary under the Gargi Trust being Gargiben Bhagubhai Mafatlal. In the case of the Gargi Trust, the income of the trust amounting to Rs. 92,788 has been assessed in the hands of Gargiben. The terms of the trust deed, however, did not permit the capital gains to be disbursed to the beneficiary but the capital gains were to be added to the corpus of the trust in the year in question. The capital gains amounting to Rs. 26,640 arose as a result of the sale of some shares. The ITO while determining the tax payable by the trustees on the amount of the capital gains determined the total income of the trustees at Rs. 1,19,428 which included the amount of Rs. 92,788 which was already brought to tax in the hands of Gargiben. Thus, while determining the tax payable on Rs. 26,640, the ITO took the total income of the assessee to be Rs. 1,19,428 and determined the average rate of tax by reference to Rs. 92,788.

3. Similarly, in the case of the trustees of Rohini Trust, the total income in the relevant year was Rs. 1,19,430 made up of the normal income of Rs. 92,790, which was brought to tax in the hands of the sole beneficiary, Rohiniben, and the capital gains of Rs. 26,640. The ITO while determining the tax payable in respect of the capital gains of Rs. 26,640 determined the average rate of tax by reference to Rs. 92,790. In the case of the third trust, the normal income was Rs. 92,680 and the capital gains was Rs. 26,720. However, the rate of tax for taxing the amount of capital gains was determined at Rs. 92,680 which was already separately brought to tax in the hands of the sole beneficiary, Smt. Hem-naliniben.

4. These orders of the ITO were upheld by the AAC while dismissing three separate appeals filed by the trustees. When the matter was taken to the Tribunal, the Tribunal took the view that the trustees were liable to be assessed as an association of persons only in respect of the amount of capital gains but not in respect of any other income which was allocated to an identifiable beneficiary. The Tribunal also took the view that the amount of normal trust income paid to the beneficiary had no relevance to the assessment of the trustees as an association of persons in regard to the capital gains added to the trust corpus. Accordingly, the Tribunal took the view that the income of such association of persons, i.e, the trustees, comprised only of capital gains and nothing else and apart from the capital gains income, no other income was includible in the total income of the trustees as representing association of persons. In other words, according to the Tribunal, for the purpose of determining the average rate of income-tax in terms of s. 114, the income other than capital gains was “nil” in these cases. The Tribunal, therefore, directed that the capital gains should be taxed on the basis that the capital gains was the only income of the trustees. It is this view of the Tribunal which is now put in issue in the question referred

5. The learned counsel appearing on behalf of the revenue has tried to support the view taken by the ITO and the AAC on the basis that when the total income of the trustees has to he considered only, their assessable income need not be looked into and even the income which was passed on to’ the beneficiary did not for the purpose of determination of the rate of tax cease to be the total income of the trustees. The learned counsel contended that the trustees had, in fact, earned income which was only passed on to the beneficiary and, therefore, that income would necessarily form part of their total income. Shri Kolah, appearing on behalf of the assessees, has relied on the provisions of ss. 161 and 166 of the I.T Act, 1961, and according to the learned counsel, it is now a well-established proposition that the I.T authorities had option either to assess the trustees or the beneficiary, and once this option was exercised and the income of the trust is taxed in the hands of the beneficiary for whose benefit the trust was created, that income cannot, for any purpose whatsoever, be considered as the income of the trustees. The learned counsel contended that the controversy really stands concluded by a decision of this court in Trustees of Chaturbhuj Raghavji Trust v. CIT, [1963] 50 ITR 693 and by, a further detailed discussion by the Gujarat High Court in Panna Sanjay Trust v. CIT, [1969] 74 ITR 396.

6. Under s. 160(1) of the I.T Act, 1961, a trustee or trustees are liable to be assessed as a representative assessee and s. 161(1) expressly provides that in the case of such a representative assessee, though he is liable to be assessed in his own name in respect of the trust income, the assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall 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. Therefore, where the trustee receives income from the trust properties on behalf of the beneficiary, then the assessment which is made in respect of that income is so made that the tax is recovered from him in like manner and to the same extent as the tax would be leviable upon and recoverable from the beneficiary. We are not concerned with s. 164(1) because that provided for charging of the tax where the shares of the beneficiaries are unknown or where the income received by the trustees is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown. It is provided under s. 164(1) that in such a case, tax shall be charged as if the relevant income or part of the relevant income were the total income of an association of persons, or at the rate of 65 per cent., whichever course would be more beneficial to the revenue. In respect of the amount which is made over to the beneficiary, s. 164(1) will not apply. It will, however, apply in a case, where in respect of a particular income it is not possible to ascertain the beneficiary or his share. We need only refer then to the provisions of s. 166 of the I.T Act, 1961, which enables the ITO to make direct assessment on the beneficiary. It provides as follows:

“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.”

7. Section 166, therefore, clearly provides that nothing in the provisions Of Chap. XV which commences with s. 159 shall prevent direct assessment being made on the person on whose behalf or for whose benefit the income referred to in the earlier provisions is receivable. In the case of income of a trust, therefore, it is perfectly permissible for the ITO to bring the income, which is received by the trustee on behalf of the beneficiary to tax, in the hands of the beneficiary himself. In the instant case, the income handed over to the beneficiary has been admittedly brought to tax in the hands of the beneficiary. There can hardly be any doubt that the mode of assessment provided under ss. 161 and 166 is really alternative to each other and once the ITO has brought to tax the income in the hands of either the trustee or the beneficiary, the same income cannot be brought to tax in the hands of the other person.

8. In the decision in the case of the Trustees of Chaturbhuj Raghavji Trust, [1963] 50 ITR 693 (Bom), the Division Bench of this court has pointed out with reference to the provisions of s. 41 of the Indian I.T Act, 1922, which corresponds to the provisions of ss. 160 and 161 of the I.T Act, 1961, that s. 41 provided for two alternative methods, namely, either to tax the income in the hands of the trustees or to tax it directly in the hands of the person on whose behalf the income was receivable under the trust; and one of them having been availed of by the income-tax department in making the direct assessment, the other alternative of taxing the income in the hands of the trustees was no longer available to the department.

9. Now, once the income which is taxed in the hands of the beneficiary is excluded from chargeability to tax in the hands of the trustees it is difficult to see how that income can be taken into consideration for computation of the total income for the purposes of s. 114 of the I.T Act, 1961. That income was clearly liable to be excluded from the total income of the trustees for the purpose of chargeability to tax under s. 164 of the I.T Act, 1961, and it could not by any stretch of imagination become a part of the total income of the trustees. As pointed out by this court in Commissioner Of Income-Tax Central, Bombay v. N.M Raiji…Assessee., [1949] 17 ITR 180 (Bom), the scheme of the I.T Act is that wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion also operates for the purpose of computing the total income and not only is that sum not liable to tax but it is also not to form part of the total income for the purpose of determining the rate. In this respect, the scheme of the 1961 Act is not different from that of the 1922 Act. This question was exhaustively considered by the Gujarat High Court in the case of Panna Sanjay Trust, [1969] 74 ITR 396 and the Division Bench, after referring to the decision of this court in N.M Raiji's case, [1949] 17 ITR 180, has observed as follows (p. 403):

“The scheme of the present Income-tax Act, so far as this aspect of the question is concerned, is admittedly the same as the scheme of the old Income-tax Act and these observations of the Bombay High Court (reference was to N.M Raiji's case, [1949] 17 ITR 180 (Bom), though made in the context of the old Income-tax Act would have equal validity under the present Income-tax Act. Wherever any income is excluded from charge-ability to tax either expressly or by necessary implication, arising from the scheme of the Act or its provisions, exclusion operates in the computation of the total income not only for the purpose of liability to tax but also for the purpose of determination of rate. If the intention of the legislature is to exclude such income from the computation of the total income only for the purpose of chargeability to tax and not for the purpose of determination of rate, the legislature makes a specific provision in that behalf and unless such specific provision is found in the statute, exclusion of such income from the total income for the purpose of chargeability to tax must be held to carry with it exclusion from total income for the purpose of determination of rate.”

10. These observations in our view succinctly state the law with regard to the question as to whether when income is excluded from the total income for the purpose of chargeability to tax it must necessarily be excluded from the total income for the purpose of determination of rate. There does not appear to be any provision in the I.T Act which enables the ITO to include income, which is already brought to tax in the hands of the beneficiary, as a part of the total income of the trustees for the purpose of determining the rate of tax in respect of the other income of the trustees. In the instant case, the only other income of the trustees was the one resulting from capital gains. The income which was already taxed in the hands of the beneficiary was not, therefore, liable to be taken into account for determining the total income of the trustees for the purpose of determining the rate at which the income or the capital gains was liable to be taxed.

11. In this view of the matter, the question referred to us is answered in the affirmative and in favour of the assessee. The revenue to pay the costs of this reference.