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CA Final · Indirect Tax Laws · Liability to Pay in Certain Cases

Prakash, a trustee, carried on a trading business under a trust for a minor beneficiary, Neha. The trustee's registration continued until the trust terminated on 31 December when Neha attained majority. In February, tax for the period up to 31 December was determined against the trustee. Which statement is correct?

Neha is liable. If a trustee carrying on business for a beneficiary has the trust terminated, the beneficiary must pay the tax, interest or penalty due from the trustee up to termination, even if determined afterwards.

  1. APrakash alone remains liable because the demand was determined after the trust ended
  2. BThe liability is extinguished on termination of the trust
  3. CNeha, the beneficiary, is liable to pay the tax due from the trustee up to the termination of the trustCorrect
  4. DNeha is liable only for periods after 31 December

Explanation

Where a trustee carries on business under a trust for a beneficiary and the trust terminates, the beneficiary is liable to pay tax, interest or penalty due from the trustee up to the time of termination. This applies whether it was determined before or after termination. So the demand determined in February falls on Neha.

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