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2015 (11) TMI 398 - SUPREME COURT

2015 (11) TMI 398 - SUPREME COURT - [2015] 376 ITR 450 (SC) - Trusts for the benefit of two minor children - provisions of section 64(1)(iii) invoked - the Assessing Officer included the said income in the income of the assessee and taxed as such - Held that:- No doubt two minor children of the appellant were the beneficiaries under the two trusts. It is also not in dispute that the said trustees were the partners in the firm and had their shares in the income as partners in the said firm. Howev .....

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l they attain majority and the money was to be handed over to them only on attaining the majority which would mean that the income was available to these persons when they cease to be the minors. This very question came up before this court in almost identical circumstances in the case of CIT v. M. R. Doshi [1994 (9) TMI 3 - SUPREME Court] wherein held as in this case the deferment of the benefit is beyond the period of minority of the assessee's three sons, since the assets are to be received b .....

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or" children. Thus High Court [2003 (10) TMI 33 - UTTARANCHAL High Court ] does not lay down the correct proposition of law. - Civil Appeal No. 675 of 2005. - Dated:- 14-7-2015 - A. K. SIKRI and N. V. RAMANA, JJ. Rohit Sthalekar, Avi Tandon and Kamlendra Mishra, Advocates, for the appellant. Arijit Prasad and Mrs. Anil Katiyar, Advocates, for the respondent. JUDGMENT The judgment of the court was delivered by 1. A. K. Sikri J.-The facts in brief, which give rise to the present appeal filed .....

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of Anuj Family Trust for the benefit of master Anuj, minor son of the appellant, Kapoor Chand. Both these trustees became partners in the partnership firm. The said partnership firm earned profits in the year 1980- 81 with which we are concerned in the present appeal and share of the two trusts was given to them. 3. Since these trusts were for the benefit of two minor children of the appellant, invoking the provisions of section 64(1)(iii) of the Income-tax Act, 1961 (for short "the Act), .....

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racted. It would be relevant to mention here that one of the important terms of both the trust deeds was that income so earned by the trusts shall not be received by two minors during their minority and will be spent for their benefits only once they attain the majority. Another fundamental clause in both the trust deeds was that in case any of the beneficiaries dies before attaining majority, his/her share would be given to the other sibling. 5. The Department challenged the aforesaid order of .....

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he Tribunal. Undeterred, the appellant approached this court by filing special leave petition and leave was granted. This is how the present appeal has come up for final hearing. 6. Before we take note of the contention advanced by the learned counsel for the appellant challenging the correctness of the impugned judgment, it would be apposite to reproduce the relevant provisions of the Act. Section 64(1)(iii) as well as Explanation 2A thereof read as under : "64. (1) In computing the total .....

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emed to be income arising indirectly to the minor child from the admission of the minor to the benefits of partnership in a firm." 7. It is clear from a plain reading of the aforesaid section that while computing the total income of any individual the income of a minor child of such individual from the admission of the minor to the benefits of partnership in a firm is to be included as the income of the said individual. Explanation 2A clarifies that if the minor child is a beneficiary under .....

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e as partners in the said firm. However, the entire controversy revolves around the question as to whether it could be treated as income of a "minor child". This controversy has arisen because of the reason that the income that had been earned by the trustees was not available to the two minor children till attaining the age of majority. As pointed out above, this was one of the conditions contained in the trust deeds that the income so generated by the trust, shall not be given to or .....

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draprasad N. Mafatlal v. CIT [1977] 109 ITR 602 (Bom) interpreted the provisions of section 64(1)(v) of the Act in the following manner (page 4 of 211 ITR) : "Section 64(1)(v) requires, in the computation of the total income of an assessee, the inclusion of such income as arises to the assessee from assets transferred, otherwise than for adequate consideration, to the extent to which the income from such assets is for the immediate or deferred benefit of, inter alia, his minor children. The .....

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, on going through the said judgment of the High Court of Bombay we find that there is a very detailed discussion while interpreting the provision mentioned therein. In this case, the Bench comprising Tulzapurkar and Desai JJ. (as their Lordships then were) wrote separate but concurring opinion. Justice Desai in his opinion gave three reasons for coming to the conclusion that the income which is not to be given or spent for the benefit of the child so long as he is minor, his income cannot be tr .....

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e child it cannot be fairly regarded and accepted as a benefit even deferred for the minor child. (ii) In order to attract the provision, the minor child must have a direct benefit of the interest in the income and the assets transferred to the trustees. Where the trust contains a stipulation that the income is to be accumulated and added to the corpus it cannot be held that the child has any direct benefit in that income. (iii) Benefit, if any, receivable by the child must be certain and vested .....

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n, viz., as "minor" children. 11. Learned counsel appearing for the respondent submitted that the aforesaid stipulation in the trust deeds is devised mainly to have the income escaped in the hands of the individuals and it was precisely the reason because of which Explanation 2A was inserted by the Finance Act, 1979. In support, he has produced memo corresponding the provision in the Finance Bill, 1979, and referred to paragraph 55 thereof which reads as under See [1979] 116 ITR (St.) .....

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