Section 166 — Direct Assessment or Recovery Not Barred
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part D of Chapter XV (Representative assessees — Miscellaneous provisions). The 'option' provision.
Subject: Nothing in the foregoing sections prevents either the direct assessment of the person on whose behalf income is receivable, or the recovery from that person of the tax payable in respect of that income.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. A clarificatory provision preserving the direct route
Section 166 makes explicit what is implicit in the representative-assessee scheme: the existence of a representative assessee does not bar the Revenue from assessing, or recovering tax from, the person actually beneficially entitled to the income. It is clarificatory — it confers no independent charging power — but it is the textual foundation of the 'option' doctrine: the Revenue may proceed against the representative (under section 161) or against the person represented (the beneficiary), as it elects. What it may not do is tax the same income twice; the option is alternative, not cumulative (and CBDT Circular No. 157 confirms there is to be no double taxation).
2. The option doctrine: assess the trustee or the beneficiary
The leading authority is Kamalini Khatau, where the Supreme Court (reversing the Gujarat High Court) held that the Revenue has, under section 161(1) read with section 166, the option to assess and recover from either the trustees or the beneficiary of a discretionary trust where the income is distributed to and received by the beneficiary in the year. Section 166 confers no charging power; it makes clear that sections 160–165 do not bar a direct assessment of the beneficiary, whose received income is part of his total income chargeable under section 4. The option doctrine had earlier been stated in Jyotendrasinhji and rests on the representative-capacity analysis in C.R. Nagappa.
3. The limit: 'received', not merely 'receivable'
The reach of section 166 over a discretionary trust is confined to income actually received by the beneficiary. Where the trustees have not exercised their discretion to distribute and the income has not reached the beneficiary, it cannot be taxed in his hands under section 166 on a mere presumption (H.H. Maharaja, applying Kamalini Khatau). The option to assess the beneficiary therefore arises only when, and to the extent that, income is distributed and received.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
166. 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. Remedies against property in cases of representative assessees.
C. AUTHORITIES
Section 166 has a well-developed 'option' line. The direct authorities are grouped first; the cognate option/representative-capacity authorities follow. All citations are web-verified, with the reversed High-Court decision expressly flagged.
Cluster A — The option doctrine and direct assessment of the beneficiary
CIT v. Kamalini Khatau
Citation: (1994) 209 ITR 101 (SC)
Facts: The assessee was beneficiary of nine discretionary trusts; income was distributed to and received by her in the accounting year; whether the Revenue could assess her directly or only the trustees under section 164.
Held: The Revenue has an option under section 161(1) read with section 166 to assess and recover from either the trustees or the beneficiary of a discretionary trust where the income is distributed to and received by the beneficiary; section 166 is clarificatory, conferring no charging power but making clear that sections 160–165 do not bar a direct assessment of the beneficiary.
Relevance: The leading authority on section 166 — establishes the option and the clarificatory character of the section.
CIT v. Kamalini Khatau (Gujarat Full Bench, reversed)
Citation: (1978) 112 ITR 652 (Guj)(FB)
Facts: The same matter below — whether section 166 permitted direct assessment of the beneficiary of a discretionary trust.
Held: The majority held that no part of the trust income was 'receivable' on behalf of any beneficiary, so section 164 applied and section 166 did not; the option was denied. THIS MAJORITY VIEW WAS REVERSED by the Supreme Court (209 ITR 101).
Relevance: Cited only as the reversed decision; valuable for the dissent and the 'receivable' reasoning the Supreme Court overrode.
H.H. Maharaja v. ACIT
Citation: Gujarat High Court (2008)
Facts: The Revenue sought to tax the income of UK discretionary trusts in the beneficiary-Maharaja's hands under section 166, although the trustee had not distributed and the income was retained (and taxed in the UK).
Held: Section 166 can be invoked only where income is actually received by the assessee; following Kamalini Khatau, undistributed/un-received income of a discretionary trust cannot be taxed in the beneficiary's hands on a mere presumption, nor taxed twice.
Relevance: Important application limiting section 166 to income actually received.
Cluster B — Cognate option / representative-capacity authorities
Jyotendrasinhji v. S.I. Tripathi
Citation: (1993) 201 ITR 611 (SC)
Facts: Discretionary/revocable trusts; taxability in the trustees' versus the beneficiary's hands (sections 61, 63, 164(1), 166).
Held: It is implicit in section 161(1) and expressly enacted in section 166 that the officer may assess either the representative assessee (trustee) or the person represented (beneficiary); he is not bound to assess only the trustee.
Relevance: Squarely states the option doctrine that section 166 embodies; relied on in Kamalini Khatau.
C.R. Nagappa v. CIT
Citation: (1969) 73 ITR 626 (SC)
Facts: Construction of section 161(2) — the manner of assessing a representative assessee in his own name.
Held: An assessment on a representative assessee is deemed made on him in his representative capacity only, and tax is levied and recovered in the manner provided in section 161(1), as if it were an assessment of the actual recipient; the Department may proceed against the representative or, where permissible, the beneficiary.
Relevance: Cognate foundation for the option/representative-capacity principle that section 166 preserves.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XV — LIABILITY IN SPECIAL CASES
Section 166 — Direct Assessment or Recovery Not Barred
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part D of Chapter XV (Representative assessees — Miscellaneous provisions). The 'option' provision.
Subject: Nothing in the foregoing sections prevents either the direct assessment of the person on whose behalf income is receivable, or the recovery from that person of the tax payable in respect of that income.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. A clarificatory provision preserving the direct route
Section 166 makes explicit what is implicit in the representative-assessee scheme: the existence of a representative assessee does not bar the Revenue from assessing, or recovering tax from, the person actually beneficially entitled to the income. It is clarificatory — it confers no independent charging power — but it is the textual foundation of the 'option' doctrine: the Revenue may proceed against the representative (under section 161) or against the person represented (the beneficiary), as it elects. What it may not do is tax the same income twice; the option is alternative, not cumulative (and CBDT Circular No. 157 confirms there is to be no double taxation).
2. The option doctrine: assess the trustee or the beneficiary
The leading authority is Kamalini Khatau, where the Supreme Court (reversing the Gujarat High Court) held that the Revenue has, under section 161(1) read with section 166, the option to assess and recover from either the trustees or the beneficiary of a discretionary trust where the income is distributed to and received by the beneficiary in the year. Section 166 confers no charging power; it makes clear that sections 160–165 do not bar a direct assessment of the beneficiary, whose received income is part of his total income chargeable under section 4. The option doctrine had earlier been stated in Jyotendrasinhji and rests on the representative-capacity analysis in C.R. Nagappa.
3. The limit: 'received', not merely 'receivable'
The reach of section 166 over a discretionary trust is confined to income actually received by the beneficiary. Where the trustees have not exercised their discretion to distribute and the income has not reached the beneficiary, it cannot be taxed in his hands under section 166 on a mere presumption (H.H. Maharaja, applying Kamalini Khatau). The option to assess the beneficiary therefore arises only when, and to the extent that, income is distributed and received.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
166. 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. Remedies against property in cases of representative assessees.
C. AUTHORITIES
Section 166 has a well-developed 'option' line. The direct authorities are grouped first; the cognate option/representative-capacity authorities follow. All citations are web-verified, with the reversed High-Court decision expressly flagged.
Cluster A — The option doctrine and direct assessment of the beneficiary
CIT v. Kamalini Khatau
Citation: (1994) 209 ITR 101 (SC)
Facts: The assessee was beneficiary of nine discretionary trusts; income was distributed to and received by her in the accounting year; whether the Revenue could assess her directly or only the trustees under section 164.
Held: The Revenue has an option under section 161(1) read with section 166 to assess and recover from either the trustees or the beneficiary of a discretionary trust where the income is distributed to and received by the beneficiary; section 166 is clarificatory, conferring no charging power but making clear that sections 160–165 do not bar a direct assessment of the beneficiary.
Relevance: The leading authority on section 166 — establishes the option and the clarificatory character of the section.
CIT v. Kamalini Khatau (Gujarat Full Bench, reversed)
Citation: (1978) 112 ITR 652 (Guj)(FB)
Facts: The same matter below — whether section 166 permitted direct assessment of the beneficiary of a discretionary trust.
Held: The majority held that no part of the trust income was 'receivable' on behalf of any beneficiary, so section 164 applied and section 166 did not; the option was denied. THIS MAJORITY VIEW WAS REVERSED by the Supreme Court (209 ITR 101).
Relevance: Cited only as the reversed decision; valuable for the dissent and the 'receivable' reasoning the Supreme Court overrode.
H.H. Maharaja v. ACIT
Citation: Gujarat High Court (2008)
Facts: The Revenue sought to tax the income of UK discretionary trusts in the beneficiary-Maharaja's hands under section 166, although the trustee had not distributed and the income was retained (and taxed in the UK).
Held: Section 166 can be invoked only where income is actually received by the assessee; following Kamalini Khatau, undistributed/un-received income of a discretionary trust cannot be taxed in the beneficiary's hands on a mere presumption, nor taxed twice.
Relevance: Important application limiting section 166 to income actually received.
Cluster B — Cognate option / representative-capacity authorities
Jyotendrasinhji v. S.I. Tripathi
Citation: (1993) 201 ITR 611 (SC)
Facts: Discretionary/revocable trusts; taxability in the trustees' versus the beneficiary's hands (sections 61, 63, 164(1), 166).
Held: It is implicit in section 161(1) and expressly enacted in section 166 that the officer may assess either the representative assessee (trustee) or the person represented (beneficiary); he is not bound to assess only the trustee.
Relevance: Squarely states the option doctrine that section 166 embodies; relied on in Kamalini Khatau.
C.R. Nagappa v. CIT
Citation: (1969) 73 ITR 626 (SC)
Facts: Construction of section 161(2) — the manner of assessing a representative assessee in his own name.
Held: An assessment on a representative assessee is deemed made on him in his representative capacity only, and tax is levied and recovered in the manner provided in section 161(1), as if it were an assessment of the actual recipient; the Department may proceed against the representative or, where permissible, the beneficiary.
Relevance: Cognate foundation for the option/representative-capacity principle that section 166 preserves.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.