TMI Blog1969 (5) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ears (Major) 2. Bardhaan Baid ... 19 years (Major) 3. Surendra Kumar Baid ... 12 years (Minor) 4. Mahendra Kumar Baid ... 8 years (Minor) 5. Narendra Kumar Baid ... 6 years (Minor) 6. Rabindra Kuma Baid ... 4 years (Minor) By four several identical deeds of trust, all dated and executed on the 15th January, 1958, the assessee transferred unto his two major sons Kharag Singh Baid and Bardhaman Baid, 1/6th part of the share of furniture, goods, chattels, effects and machinery in and upon the said premises as mentioned in the said deeds for each of his four minor sons. The trustees were directed to collect the rents, issues and profits of the trust property and, in the first instance, to pay all rates and taxes, land revenue, collection charges, cost and expenses of repairs and maintenance of the property, legal expenses for collection of rents and all other outgoings whatsoever concerning the same and to hold the balance of the net income of the trust property in trust for the benefit and absolute use of each of his four sons. The trust deed which has been annexed in the paper book is an incorrect one. By consent of the parties a copy of the correct trust deed has been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utgoings until the youngest son attained the age of 18 years and as no part of such income was utilised for the benefit of the minor beneficiaries, the provisions of section 16(3)(b) were not applicable to this case. The Appellate Assistant Commissioner referred to clauses (2) and (4) of the trust deeds and came to the conclusion that the trusts were for the benefit of the minor children of the assessee and held that the income from the trust was, therefore, properly included in the assessee's total income under the provisions of section 16(3)(b) of the Indian Income tax Act, 1922. There was a further appeal to the Tribunal. It was contended on behalf of the assessee before the Tribunal that during the accounting years under appeal, no benefits were derived by the minors from the trust as the whole of the trust income was accumulated by the trustees and nothing was advanced for the maintenance and education of the minors in terms of Clause (4) of the trust deed. The Tribunal was of the opinion that under clauses (2) and (4) of the trust deeds under consideration, the minors acquired beneficial interest in the income during the relevant years and the income of the trustees were co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corpus and a minor daughter of the assessee was to receive the income of the corpus increased by the addition of the interest when she attained the age of 18 on 1st February, 1959. She was to receive the income during her lifetime and after her death the corpus was to go to other persons. The income derived from the trust fund amounted to Rs. 410 in the relevant year of account, 1953-54, and the taxing authorities had included this amount in the total income of the assessee purporting to act under section 16(3)(b) or section 16(3)(a)(iv) of the Indian Income-tax Act, 1922. The propriety of such inclusion was challenged in reference and the High Court of Bombay held against the department and in favour of the assessee. The appeal went to the Supreme Court therefrom. In its judgment the Supreme Court observed at page 882 of the report: "On a closer scrutiny, however, it seems to us that clause (b) must be read in the context of the scheme of section 16 and the two clauses (a) and (b) of sub-section (3) thereof must be read together. So read, the only reasonable interpretation appears to be the one which the High Court accepted, namely, that the scheme of the section requires that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the income for the benefit and absolute use of the beneficiaries until they attained the age of 18 and on the attainment of the age of 18 of the youngest son of the settlor the accumulated income of the trust property in the hands of the trustees, after the disbursements of such sums as contemplated by clause (4), and the expenses mentioned in clause (1), should be handed over to the respective beneficiary along with the trust property for the absolute use and benefit of the said beneficiary. Therefore, the beneficiary has a right to the accumulation of the income year by year arising from the trust funds until the beneficiary attains the age of 18 and then the minor would have the trust income which arises during his minority. The question is, can that right be described as beneficial interest or benefit arising to the minor in the relevant year of account under section 16(3)(b) of the Act. Then there is clause (4) of the trust deed under which the beneficiary has a right to claim maintenance from the trustees if such maintenance is required or moneys to be spent for the advancement of education or benefit of the beneficiary, if such moneys are required, though such moneys t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on In re Vestey's Settlement, and on In re Bryant, and also on section 49 of the Indian Trusts Act. We are unable to accept the contentions made on behalf of the assessee. The clauses in the instant deed of trust, specially clause (2) and clause (4), are different from the clauses appearing in the deed of settlement that came up for consideration before the Supreme Court. Firstly, under clause (2) of the deed of trust in the instant reference before us there is an obligation on the part of the trustees to accumulate the income of the year including the income of the relevant accounting year, after disbursement of costs, charges and expenses as mentioned in clause (1) of the deed of trust and after disbursement, if any, made for the benefit of the minor as mentioned in clause (4). The minor on the attainment of majority will be entitled to have this accumulated income including the income of the relevant year in question. This is a factor which is different from the position as noted in the judgment of the Supreme Court and as mentioned hereinbefore. Secondly, in the trust deed in the instant reference there is the clause for making disbursement for the maintenance, advancement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable sum for their future maintenance. It was held by Chitty J. that, on the construction of the document, it created a discretionary trust equivalent to a power ; and the co-trustees having, in the bona fide exercise of their discretion, refused to make any allowance for maintenance, the court could not compel the payment and overrule their discretion. In those circumstances, the application was refused. The decision does not deal with the question whether even in a case of discretionary trust the beneficiary has any right against the trustees or acquires any beneficial interest. Moreover, the case was not concerned with the construction of a clause like clause (2) of the trust deed before us. In In re Vestey's Settlement : Lloyds Bank Ltd. v. O'Meara , what had happened was that by clause 7 of a settlement made in 1935, the settlor had directed that, during a specified period, the trustees " shall pay or apply the income " of the trust fund " unto or in any manner for the support or benefit of all or anyone or more " of a named class of persons, " such payment or application " to be made in such shares, in such manner and on such terms, as the trustees should in their discreti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame absolutely entitled to it, and, therefore, section 31 of the Trustee Act, 1925, did not apply to that sum. It has to be observed that the court found that on the construction of the deed the infant had no right on the intermediate income. As mentioned before, under clause (2) of the trust deed before us, the infant beneficiary would have the accumulated income including the income of the relevant year in question on the attainment of majority. Furthermore, the question whether a beneficiary in the case of a discretionary trust would have the right to compel the trustees to exercise the discretion or compel the performance of the trust, did not fall for consideration in that case. The case depended upon the construction of the clauses which were different from the clauses in the present reference, and on the provisions of section 31 of the Trustee Ad of 1925. Section 16(3)(b) of the Indian Income-tax Act, 1922, creates an artificial liability. It has, therefore, to be strictly construed. The purpose of the enactment of this section was to defeat the endeavour on the part of the taxpayer to avoid or reduce the liability of taxation by means of settlements or trusts. The controv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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