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TMI Blog1971 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... re " A ", whereunder he had transferred the United Kingdom Government Securities of the face value of pound 1,80,000 to the Grindlays Bank, London, as trustee to be held in trust in accordance with the terms and conditions set out therein. As there is no dispute that these Government securities were transferred to the bank and also regarding the provisions contained therein for distribution of the income accruing from the securities, it is not necessary for us to set out the various clauses in the trust deed. By clause (2) the trustee was directed to divide the trust property into two equal parts. By clause (3) the trustee, after meeting all outstanding and contingent liabilities, was required to pay the balance income to all or any of the children of the settlor other than his eldest son, living at the respective dates of payment in equal shares. Similarly, under clause (4) the trustee, after meeting all outstanding and contingent liabilities, was directed to pay the balance income to the eldest son of the settlor, Tikka Harmohinder Singh of Faridkot, during his life. Clauses 3(b) and 4(c) provided that at the termination of the period of distribution, the bank shall stand possess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6075 and 8423-8425, all of 1961-62, regarding the assessment years 1957-58 to 1960-61 respectively. The Appellate Tribunal agreed with the view of the Income-tax Officer and the Appellate Assistant Commissioner that the inclusion of the minor daughter's income under section 16(3)(b) was correct. The order of the Appellate Tribunal for all the assessment years is dated August 7, 1962, though a separate order has been passed in respect of the assessment year 1960-61. From the narration of the above facts, it will be seen that the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal have all held that the income received by the minor daughter of the assessee under the trust deed has to be included under section 16(3)(b) of the Act in the total taxable income of the assessee for each of the assessment years. We have earlier referred to the fact that the appellant owned two houses in New Delhi, both known as Faridkot House, one at Lytton Road and the other in Diplomatic Enclave, during the accounting year ending April 12, 1960. The assessee claimed reduction of the annual letting value in respect of both these houses on the ground that they were used a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Appellate Tribunal, accordingly, referred, for the opinion of the High Court, the following two questions of law : " (1) Whether, on the facts and in the circumstances of the case, the amounts of Rs. 15,570, Rs. 15,570, Rs. 12,446 and Rs. 10,310 received by the assessee's minor daughter, Rajkumari Maheepinder Kaur, in the assessment years 1957-58, 1958-59, 1959-60 and 1960-61 under the terms of the trust deed dated the 1st April, 1955, have been rightly included in the hands of the assessee under section 16(3)(b) of the Indian Income-tax Act, 1922 ? (2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to the reduction of the annual letting value of the Faridkot House in Diplomatic Enclave, New Delhi, by Rs. 1,800 under the first proviso to section 9(2) of the Income-tax Act, 1922, notwithstanding the fact that the annual letting value of the Faridkot House situated at Lytton Road, New Delhi, is already reduced by Rs. 1,800 ? " The High Court, by its judgment and order under attack, has answered the first question in the affirmative and the second in the negative. The answers in respect of both the questions given by the High Court are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the counsel for the assessee and the revenue, it is necessary to refer to the relevant provisions of the Act in respect of the two points arising for consideration, one relating to the amounts received by the minor daughter and the other relating to an allowance in respect of a second residential house. Though the relevant provision in respect of the first aspect is only clause (b) of section 16(3), it is desirable to quote all the provisions of section 16(3), which run as follows : " 16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included-- (a) so much of the income of a wife or minor child of such individual as arises directly or indirectly-- (i) from the membership of the wife in a firm of which her husband is a partner ; (ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner ; (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart ; or (iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us only two contentions, namely, (1) the assets of pound 1,80,000 covered by the trust deed not having been transferred to the wife or minor daughter in question, but to the Grindlays Bank, as trustee, section 16(3)(b) of the Act has no application ; and (2) even if section 16(3)(b) of the Act applies, what is to be included in computing the total income of the assessee is not the income that has been received by the minor daughter under the trust deed, but only so much of the income of any person or association of persons (in this case the trustee) to whom the assets have been transferred for the benefit of the wife or the minor child. The counsel referred to the decisions of this court in Commissioner of Income-tax v. Manilal Dhanji, Commissioner of Income-tax v. Keshavlal Lallubhai Patel and Commissioner of Income-tax v. Prem Bhai Parekh and urged that section 16(3) of the Act created an artificial income and had to be construed strictly. That is, according to the learned counsel, the wordings of section 16(3)(b) have to be construed strictly and literally. On the basis of such a strict and literal construction, the counsel urged that the two propositions urged by him ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wife or the minor child. Nor does the said clause require that the corpus of the property, so transferred to any person or association of persons, should ultimately vest in the wife or the minor child. Mr. Puri quite frankly admitted that there is no decision to support his contention. On the other hand, we find that there is a decision of the Bombay High Court in Commissioner of Income-tax v. Sir Mahomed Yusuf Ismail, which is against the contention advanced by Mr. Puri. In that decision one of the questions that arose for consideration was whether the income received by the wife of the assessee under a deed of wakf can be included in the assessment of the husband under section 16(3)(b). The assessee therein had executed a deed of a wakf. Under the terms of the said deed, the assessee's wife was to get 21% of the income accruing from the property which was the subject of the wakf deed. It was contended that, as no part of the assets or the corpus had been transferred to the wife, the income received by the latter cannot be included in the taxable income of her husband, the assessee. A Division Bench of the Bombay High Court rejected this contention and held that, as assets had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed directly or indirectly to the wife by the husband otherwise than for adequate consideration (vide sub-section (3)(a)(iii)). Again, so much of the income of any person or association of persons, as arises from assets transferred, otherwise than for adequate consideration, to the person or association, by the husband, for the benefit of his wife has to be included in the husband's taxable income (vide sub-section (3)(b)). The same sub-section (3) of section 16 of the Act provides for the income, from the assets transferred by a father to his minor child, to be included in the total income of the father, if the assets have been transferred, directly or indirectly to the minor child, not being a married daughter, otherwise than for adequate consideration (vide sub-section (3)(a)(iv)). Again, so much of the income of any person or association of persons, as arises from assets transferred, otherwise than for adequate consideration, to the person or association, by the father, for the benefit of his minor child has to be included in the father's taxable income (vide sub-section (3)(b)). The above is the scheme of section 16(3) of the Act. It must also be noted that under section 16(3)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke the one before us, and that, under such circumstances, what is to be included in the total income of the assessee is the share of the income that has accrued to or has been received by the assessee's wife or minor child, or both. The first decision is Tulsidas Kilachand v. Commissioner of Income-tax. In this case A, the husband, had created a trust in respect of certain shares, owned by him in two companies. Under the said trust, the wife of A was to receive the income. A sum of Rs. 30,404 was received by the wife, as dividend income, in respect of the shares regarding which a trust had been created. This amount was added to the taxable income of the husband under section 16(3)(b). This court held that, as the transfer of the shares by way of trust, had been effected and as there was a provision for payment of the income accruing from the shares to the wife, and as the latter had received the dividend income during the relevant accounting year, that amount had been rightly included by the revenue in the taxable income of the husband. This court further held that such a case falls squarely within the special rules concerning the wife and the minor child as laid down in section 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing value of Faridkot House in Diplomatic Enclave, New Delhi, we have already pointed out that the said claim has been rejected by the revenue, as well as by the High Court. It is admitted by the revenue, as well as the assessee, that the claim of the appellant in this regard in respect of the residential house in Lytton Road, New Delhi, has been allowed by the revenue. The question regarding the house in Diplomatic Enclave arises only for the assessment year 1960-61. The Income-tax Officer has not given any reason for rejecting the claim of the assessee. The Appellate Assistant Commissioner has held that as the appellant has been granted the usual allowance in respect of Faridkot House in Lytton Road, he is not entitled to any further allowance in respect of another house. In fact, the officer has said that both the houses have to be treated as one unit for purposes of computing the annual letting value. But there is one finding, in the order of the Appellate Assistant Commissioner, which is to be noted, namely, that the houses in Lytton Road and Diplomatic Enclave are used and occupied by the assessee for residential purposes. The Income-tax Appellate Tribunal has not differed fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulty in supporting the order of the High Court, answering question No. 2 in the negative and against the appellant. But he attempted to argue that the question, whether the assessee is actually occupying the house in Diplomatic Enclave also for purposes of his own residence, has not been investigated. We are not inclined to accept this contention of Mr. Sen. We have already referred to the finding of the Appellate Assistant Commissioner to the effect that both the houses--one in Lytton Road and the other in Diplomatic Enclave--are used and occupied by the appellant for purposes of his own residence. This finding has not been disturbed either by the Appellate Tribunal or by the High Court. If so, a proper construction of the first proviso to sub-section (2) read with its second proviso clearly supports the contention of Mr. Puri that the view of the revenue and the High Court that the assessee can claim allowance only for one residential house is erroneous. To conclude, we are in agreement with the view of the High Court when it answered the question No. 1 in the affirmative and against the assessee. But, we answer the question No. 2 in the affirmative in favour of the assessee. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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