IT Act 2025
(Section 304)
IT Act 2025
(Section 304)
Liability of representative assessee.
304. (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 for this purpose,––
(a) the representative assessee shall be liable to assessment in his own name in respect of that income and any such assessment shall be deemed to be made upon him in his representative capacity only; and
(b) the tax on such income shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from the representative assessee in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him.
(2) If any person, in respect of any income is assessable under this Chapter in the capacity of a representative assessee, then he shall not, in respect of that income, be assessed under any other provisions of this Act.
(3) Irrespective of the provisions of this Chapter, the Assessing Officer may directly assess the person on whose behalf or for whose benefit income therein referred to is receivable, or may recover from such person the tax payable in respect of such income.
(4) If only part of the income of a trust is chargeable under this Act, then the proportion of income receivable by a beneficiary from such trust derived from the chargeable part shall be determined as follows:—
A x C,
B
Where,—
A = the chargeable part of the income of the trust;
B = the whole income of the trust; and
C = the income receivable by the beneficiary from the trust.
(5) The Assessing Officer shall have the same remedies in the same manner against all property of any kind vested in or under the control or management of any representative assessee as he would have against the property of any person liable to pay any tax, whether the demand is raised against the representative assessee or against the beneficiary direct.
Analysis
Section 304 – Liability of Representative Assessee
1. Objective of Section 304: The main purpose of this section is to:
i. Ensure that when income is managed or received by someone other than the real owner (like a trustee, guardian, or agent), tax can still be levied and recovered smoothly.
Clarify that the representative assessee stands in the shoes of the actual assessee, but only in relation to the specific income they manage.
Provide a framework for assessment, recovery, and enforcement of tax obligations on such income.
This prevents tax evasion where the real owner is inaccessible or legally incapable of direct compliance, such as minors, non-residents, or trust beneficiaries.
2. Sub-section (1): Duties and Liabilities of Representative Assessee:
Text: “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.”
Key Points:
i. The representative assessee is treated as if the income were his own.
This fiction applies only to the specific income managed by him.
Two important consequences:
(a) Assessment in Own Name – Representative Capacity:
i. The assessment will be made in the name of the representative assessee, but clearly tagged as being in a representative capacity.
This prevents confusion and protects the representative from being treated as personally liable beyond the specific income managed.
Example: If a trustee manages ₹20 lakhs of trust income, the AO issues the notice to the trustee in their own name but explicitly mentions that it is “as trustee of XYZ Trust.”
(b) Tax Recovery:
i. Tax will be levied and recovered from the representative assessee in the same manner and to the same extent as it would be from the person actually entitled to the income.
This includes:
a. Payment of advance tax,
Compliance with return filing,
Liability for penalties and interest (limited to that income).
3. Sub-section (2): Avoidance of Double Assessment:
Text: “If any person, in respect of any income is assessable under this Chapter in the capacity of a representative assessee, then he shall not, in respect of that income, be assessed under any other provisions of this Act.”
Implication:
( ) The same income cannot be taxed twice:
i. Once in the hands of the representative assessee, and
ii. Again in the hands of the actual beneficiary.
(i) Ensures fairness and prevents overlapping assessments.
(ii) Example: A guardian is assessed for a minor’s rental income. The minor cannot be separately assessed for the same rental income.
4. Sub-section (3): Direct Assessment by AO:
Text: “Irrespective of the provisions of this Chapter, the Assessing Officer may directly assess the person on whose behalf or for whose benefit income therein referred to is receivable, or may recover from such person the tax payable in respect of such income.”
Key Features:
(i) AO’s discretion: Even if a representative assessee exists, the AO can directly assess the real owner/beneficiary or recover tax directly from them.
(ii) This acts as a safety mechanism where the representative may be uncooperative or unavailable.
(iii) Example: If a trustee refuses to cooperate, the AO may directly issue assessment proceedings to the beneficiary.
5. Sub-section (4): Apportionment of Trust Income:
Formula: Beneficiary′s Chargeable Income= A×CB Beneficiary’s Chargeable Income = \frac{A \times C}{B}Beneficiary′s Chargeable Income=BA×C
Where:
A = Chargeable part of the trust’s total income,
B = Total income of the trust,
C = Beneficiary’s entitlement from the trust.
Purpose:
Used when only part of the trust income is taxable.
Ensures fair and proportionate taxation for each beneficiary.
Example:
Total trust income (B) = ₹10,00,000
Chargeable income (A) = ₹6,00,000
Beneficiary’s entitlement (C) = ₹2,00,000
Beneficiary’s chargeable income = (6,00,000 × 2,00,000) ÷ 10,00,000 = ₹1,20,000
This ensures that beneficiaries are taxed only for the taxable portion of trust income.
6. Sub-section (5): Remedies for Recovery:
Text: “The AO shall have the same remedies in the same manner against all property of any kind vested in or under the control or management of any representative assessee as he would have against the property of any person liable to pay any tax.”
Implications:
(i) The AO has full enforcement powers:
i. Can attach and recover tax dues from the trust property or estate under control of the representative assessee.
ii. This applies regardless of whether the demand was raised:
a. Against the representative assessee, or
b. Directly against the beneficiary.
(ii) Strengthens recovery, reducing risk of evasion.
(iii) Example: If a trust fails to pay tax, the AO can seize trust-owned assets without needing to first pursue the beneficiaries individually.
7. Relationship Between Sections 303 and 304:
Aspect Section 303 Section 304
Focus Defines who is a representative assessee Lays out liabilities and procedures for assessment
Scope Identifies categories like agents, Explains tax enforcement,
guardians, trustees recovery, and AO powers
Key Purpose Identification Implementation
These two sections work together: Section 303 identifies who, Section 304 explains how taxation occurs.
8. Practical Workflow for AOs:
Step Action
1. Identification Determine who is a representative assessee (Section 303).
2. Issue Notices Serve notices in the representative’s name, mentioning capacity (Section 304(1)(a)).
3. Assessment Assess tax on income managed by the representative assessee.
4. Consider Direct Assessment If necessary, directly assess or recover tax from the beneficiary (Section 304(3)).
5. Recovery Use trust property or estate assets for recovery (Section 304(5)).
9. Safeguards for Taxpayers:
Safeguard Description
Limited Liability Representative assessee is liable only for the specific income managed, not their personal income.
No Double Taxation Section 304(2) prevents taxation of the same income twice.
Clear Apportionment Section 304(4) ensures accurate division of trust income.
10. Illustrative Example:
(i) Scenario:
i. A trust earns total income of ₹12 lakhs.
Out of this, ₹8 lakhs is taxable, and the rest is exempt.
There are two beneficiaries, each entitled to ₹6 lakhs.
(ii) Step-by-step:
i. Identify chargeable portion:
A = ₹8,00,000
B = ₹12,00,000
C = ₹6,00,000
Calculate taxable share:
Chargeable income=8,00,000×6,00,00012,00,000=₹4,00,000\text{Chargeable income} = \frac{8,00,000 × 6,00,000}{12,00,000} = ₹4,00,000Chargeable income=12,00,0008,00,000×6,00,000=₹4,00,000
Tax process:
AO issues notice to trustee.
Trustee is assessed and pays tax on behalf of beneficiaries.
No separate assessment is made for the beneficiaries.
11. Comparison with Old Income-tax Act, 1961:
Old Provision New Provision (2025 Bill) Improvement
Section 161-164 Section 304 Consolidated into a single, clear section
Vague language on trust Clear mathematical formula
apportionment provided in Section 304(4)
No explicit mention of Sub-section (3) explicitly grants this power
AO’s power to directly assess
12. Key Takeaways:
(i) Section 304 empowers the AO to assess and recover tax efficiently when income is managed by trustees, guardians, agents, or other intermediaries.
(ii) It protects the integrity of the tax system by preventing:
i. Double taxation,
ii. Misuse of trusts for tax evasion,
iii. Delays in recovery due to procedural issues.
(iii) Representative assessees act as a bridge between the real income earner and the tax department, with clearly defined rights and obligations.
13. Conclusion: Section 304 is a comprehensive provision that balances the interests of revenue authorities and taxpayers:
i. For taxpayers, it provides safeguards against overreach, such as double assessment and unlimited liability.
For AOs, it provides clear tools for assessment, apportionment, and recovery.
When read together with Section 303, it forms a complete mechanism for taxing income managed through intermediaries, ensuring smooth administration and preventing revenue leakage.