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TMI Blog1976 (11) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant accounting year all these three daughters were minors and unmarried. Under the first trust, which may conveniently be called "Kunti Family Trust", the assessee, in the first instance, settled 150 ordinary shares of Mafatlal Gagalbhai & Co. (Private) Ltd. and later on during 1960-61, 100 shares and 60 ordinary shares of the same company were further added to the trust fund; under the second trust, which may conveniently be called "Aparna Family Trust", the assessee settled 75 shares of the same company, while under the third trust, which may conveniently be called "Gayatri Family Trust", the assessee settled another 75 shares of the same company. The trustees to whom the shares constituting the trust fund were transferred under the three trusts were Arvind N. Mafatlal, Rajesh N. Mafatlal and Hemant B.Mafatlal. Since the provisions of the three trust deeds are almost similar to one another including the preamble, we may set out the preamble and the relevant portions of one of the trust deeds, namely, the trust deed relating to Kunti Family Trust. The preamble runs thus: "Whereas the Settlor is desirous of settling the 150 ordinary shares in Mafatlal Gagalbhai & Co. (Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... living at her death, etc., but if the said Kunti died unmarried or childless or without leaving any issue (male or female) her surviving, the future income of the trust fund shall be utilised for all or any of the daughters or daughter of the settlor living at the death of Kunti and the children or child then living of any then deceased daughter of the settlor, etc., and after making a couple of other provisions under the last sub-clause of clause (C) it has been provided that in the event of failure of any of the earlier provisions the trustees shall hold all the trust fund and the future income therefrom upon trust to spend and apply the same upon such one or more of such objects or purposes as the law deems public charitable as the trustees may think fit or in such manner as the trustees may think fit. Sub-clause (D) of clause 3 runs thus : "D. Notwithstanding anything contained to the contrary in these presents, the trustees shall, after the said Kunti shall attain her age of majority pay when and so often as may be demanded by the said Kunti part or parts of the trust fund not exceeding in the aggregate one-half thereof, to the said Kunti absolutely freed and discharged from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said Kunti at the end of each calendar year absolutely. (iii) After the said Aparna attains majority to pay the whole residue of such income to the said Aparna at the end of each calendar year absolutely until the said Gayatri attains majority: B. After the said Gayatri attains majority: To pay the whole residue of such income of the Trust Fund to the said Gayatri during her life at the end of every calendar year absolutely. C . ...... D. Notwithstanding anything contained to the contrary in these presents, the Trustees shall, after the said Gayatri shall attain her majority pay when and so often as may be demanded by the said Gayatri part or parts of the said Trust Fund not exceeding in the aggregate one-half thereof, to the said Gayatri absolutely freed and discharged from the Trusts and provisions of these presents." Two or three aspects which are material for our consideration under each of the said three trust deeds are these : It is clear that under the scheme of these three trust deeds the trustees are enjoined upon to hold the trust fund under each of the deeds so as to accumulate the accruing income and add the same to the corpus of the trust fund till the el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 30,808 ------ The Income-tax Officer included the aforesaid income in the total income of the assessee presumably under the provisions of section 64(v) of the Act. It is also not clear whether such inclusion was objected to before the Income-tax Officer or not, for, there is no discussion about this aspect of the matter in the assessment order. However, in the appeal which was preferred by the assessee before the Appellate Assistant Commissioner, the assessee objected to the inclusion of the aforesaid income in his total income. It was contended that the net income of the trusts for the relevant accounting year was not to be paid to the beneficiaries at all but that such net income in each of the trusts was required to be added on to the corpus and what the beneficiaries were entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was also placed upon the decision of the Supreme Court in Philip John Plasket Thomas v. Commissioner of Income-tax [1963] 49 ITR 97 (SC). The Tribunal, on a comparison of the language of section 16(3)(b) of the Indian Income-tax Act, 1922, under which the decision of the Supreme Court in Manilal Dhanji's case [1962] 44 ITR 876 had been rendered, and the provisions of section 64(v) of the present Income-tax Act, 1961, which applied to the facts of the case, took the view that the expression "deferred" did not refer to the period of the minority of the child but referred to the benefit of the child which could be deferred even beyond the period of minority. Principally relying upon the amendment that had been effected by addition of the words "immediate or deferred" in the relevant provision (section 64(v)) the Tribunal held that the income accruing to the trusts which were admittedly made for the benefit of daughters (who in the accounting years were minors and unmarried) was properly includible in the total income of the assessee. The Tribunal further held that an interpretation which would render a provision (amended provision) meaningless, was generally not to be accepted and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a benefit which the minor is certain to get and must not be dependent upon the fulfilment of any contingency. According to him, having regard to the provisions of the three deeds in question, it was quite clear that the benefit or interest which the minor daughters were to get was not a vested one but was contingent upon each of the daughters attaining majority and to such a case section 64(v) would be clearly inapplicable. On the other hand, Mr. Joshi, appearing for the revenue, invited our attention to the fact that originally the relevant provision was to be found in section 16(3)(b) of the 1922 Act, where the provision merely was that in computing the total income of any individual for the purpose of assessment, there shall be included so much of the income of any person or association of persons (trustees) as arises from assets transferred otherwise than for adequate consideration to the person or association of persons (trustees) by such individual for the benefit of his minor child and the words "for the immediate or deferred benefit of the minor child" were absent and the decision in Manilal Dhanji had been rendered both of this court in [1959] 35 ITR 467 (Bom) as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the proper interpretation of the expression "for the immediate or deferred benefit" occurring in clause (v) of section 64 of the 1961 Act and the real question is whether "deferred benefit" means benefit deferred to a year subsequent to the accounting year in which the income is taxable, so long as it is not deferred beyond the minority of the child or it means benefit which has been deferred even beyond the minority of the child and the question would also be what was the intention of the legislature in amending the old provision by addition of the words "for the immediate or deferred benefit" while enacting the new provision. It may be stated that clauses (i), (ii), (iii) and (iv) of section 64 of the present Act, more or less, correspond to sub-clauses (i), (ii), (iii) and (iv) of clause (a) of section 16(3) of the 1922 Act and clause (v) of section 64, more or less, corresponds to clause (b) of section 16(3) of the old Act, of course, with an addition of the words "immediate or deferred". It was not disputed before us that section 16(3) of the old Act as also the present section 64 aimed or aim at foiling an individual's attempt to avoid or reduce the incidence of tax by tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined certain powers or control or interest in the property or its income and, therefore, the legislature enacted that such income of which the taxpayers had thus sought to disembarrass themselves be treated as still their income and taxed in their hands accordingly. This aspect of the object or purpose with which the relevant provision has been enacted will become abundantly clear if the provision of section 64(v) (equivalent to old section 16(3)(b)) is carefully scrutinised. Under clause (v) of section 64 it has been provided that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to trustees from assets transferred to them otherwise than for adequate consideration to the extent to which the income from such assets is for the immediate or deferred benefit of the settlor's minor child; in other words, by interposing another person or association of persons (trustees) who are enjoined upon to hold assets transferred to them upon certain trusts which are made for the benefit of the settlor's minor child or children (not being his married daughters) the settlor would be in no position to avoid the incidence of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t look at the mischief which had to be cured as well as at the cure provided '." Having regard to the observations of Lord Macmillan in Chamberlain's case [1943] 25 TC 317, 329 (HL), which we have quoted above, the object and the intendment of particular provision becomes abundantly clear. It would, therefore, now be necessary to consider what was provided by the earlier enactment and in comparison what has been now provided for in the present section 64(v) in order to understand the legislative history and the purpose of making the amendments in the old provision. Section 16 of the 1922 Act principally deals with the topic of "exemptions and exclusions in determining the total income" and the material provision which is to be found in section 16(3)(b) of the Act ran thus: "16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included-... (b) 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 such individual for the benefit of his wife or a minor child or both." This provision came up for consideration before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit must be received or derived by the minor in the year of account and what could be taxed could not be a non-existent income. The other ground on which the contention on behalf of the revenue was rejected was that having regard to the provisions of the deed it could not be suggested that the assessee had received the amount of Rs. 410 for the benefit of the minor, inasmuch as, the said sum of Rs. 410 was impressed with a trust and that trust was that it should be added on to the corpus created under the trust deed, and the court observed that it was difficult to understand as to how it could be said that the assessee could be assessed to Rs. 410 which was never received by his daughter and in respect of which his daughter could not claim any benefit. On both the aforesaid grounds, therefore, this court held that on a true construction of section 16(3)(b) the amount of Rs. 410 did not form part of the total income of the assessee. It may be stated that when this very case was carried further to the Supreme Court, that court in its decision reported in [1962] 44 ITR 876 (Commissioner of Income-tax v. Manilal Dhanji) upheld the construction that was placed by this court on sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect about the income losing its character as "income" of the corpus in respect whereof the original trust had been created was not gone into by the Supreme Court but the court accepted the construction placed by this court on section 16(3)(b) on the only ground that the income from the trust which had been created for the benefit of the settlor's minor child could be included in the settlor's income under the said provision provided that in the year of account the minor child derived some benefit under the trust deed and it is on this basis that the construction put upon the relevant provision by this court was approved by the Supreme Court. Then we come to the material provision, viz., section 64(v) of the 1961 Act with which we are concerned in the instant case. As stated above, clauses (i), (ii), (iii) and (iv) of section 64 are, more or less, similar to sub-clauses (i), (ii), (iii) and (iv) of clause (a) of section 16(3) of the 1922 Act and clause (v) of section 64 contains provision similar to the provision of section 16(3)(b) of the 1922 Act. Section 64(v) of the 1961 Act runs thus : "64. Income of individual to include income of spouse, minor child, etc.-In computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clauses thereof appear from page 150 onwards in the Income Tax Reports (Supplement) at the end of [1961] 42 ITR and at page 164, so far as section 64, which was clause 64 in the Bill, this is what has been stated : "Clause 64.-This clause corresponds to the existing section 16(3) with necessary changes to give effect to the recommendations of the Direct Taxes Administration Enquiry Committee contained in paragraphs 7.81(5) and 7.81(6) of its report." We are not concerned with sub-paragraph (5) of paragraph 7.81 of the Report of the Direct Taxes Administration Enquiry Committee 1958-59, but the material sub-paragraph is sub-paragraph (6) of paragraph 7.81 and sub-paragraph (6) runs thus : "(6) At present, in a case where a father creates a trust for the benefit of his minor daughter with a stipulation that the income of the trust should be accumulated and added to the corpus and that the daughter should be entitled to receive the income only after attaining majority, it has been held by the courts that the provisions of section 16(3)(b) of the Income-tax Act do not apply as the income is not receivable by the trustees on behalf of the minor but is merely added to the corpus. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deferred" occurring in clause (v) of section 64, therefore, were inserted with the intention or object specified in sub-paragraph (6) of paragraph 7.81 of the Report of the Direct Taxes Administration Enquiry Committee and must be taken to have been inserted for the purpose of getting over the difficulty. What is sought to be urged by Mr. Joshi is that the word "immediate" has of course a reference to the year of account, but the word "deferred" should be construed at large without any limitation of time, that is to say, even when the benefit has been deferred beyond the minority of the child concerned, such income should be held to be includible in the total income of the assessee (settlor) for, according to Mr. Joshi, there is no warrant for placing any limitation on the word "deferred" as used in clause (v) of section 64. It is not possible to accept this contention of Mr. Joshi for two or three reasons. In the first place, as has been pointed out by Mr. Joshi, the words "immediate or deferred" were introduced for the purpose of getting over the decision of this court in Manilal Dhanji's case [1959] 35 ITR 467 (Bom) and this undoubtedly is clear from sub-paragraph (6) of paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mr. Joshi as to why the expression "deferred benefit" should be interpreted to include benefit deferred even beyond the minority of the child concerned. In the first place, he urged that if the expression "deferred benefit" was interpreted in the manner suggested by Mr. Kolah, it would defeat the very object or purpose for which the amendment had been effected by insertion of the words "immediate or deferred" in clause (v) of section 64. Secondly, he urged that the word "minor" in the expression "minor child" should be regarded as descriptive and not as having been used for the purpose of laying emphasis upon the character which the child must possess while receiving the benefit of the income from the assets so transferred. It is not possible to accept either of these submissions of Mr. Joshi. In the first place, as we have indicated above, the object or intention with which the amendment was made, as is clear from sub-paragraph (6) of paragraph 7.81 of the Report of the Direct Taxes Administration Enquiry Committee, was to get over the difficulty that had been created by a decision of this court in Manilal Dhanji's case [1959] 35 ITR 467 (Bom), and the reason given by this cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reover, instances of settlements created by a settlor for the benefit of his minor children where the income of the property is made available to the minors during their minority for their maintenance and education, etc., are not unknown and when during the minority such obligation is cast upon the trustees such income from trust funds which are so transferred would come within the purview of section 64(v), even though no benefit thereof is either received or accrued to the minor during the year of account in which such income is intended to be taxed. Secondly, there is sufficient warrant to interpret or construe the expression "deferred benefit" as being referable to benefit which has been deferred to a year subsequent to the accounting year in which the income is taxable, so long as it is not deferred beyond the minority of the child. In the first place, the object of the provision and the scheme thereof as explained by Lord Macmillan [Chamberlain v. Inland Revenue Commissioners [1943] 25 TC 317, 329 (HL)] in his observations, which we have quoted above, clearly suggests that such construction should be placed on that expression. Further, the word "minor" in the expression "minor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 64. But curiously enough the learned author has stated that the Supreme Court decision in Manilal Dhanji's case [1962] 44 ITR 876(SC) has been superseded by the 1961 Act in this behalf. As pointed out by us earlier, the Supreme Court decision had not been rendered when the report was submitted by the Direct Taxes Administration Enquiry Committee to the Government which led to the enactment of section 64(v) in the 1961 Act. It was only the Bombay High Court decision in Manilal Dhanji's case [1959] 35 ITR 467 (Bom) that had been rendered and we have already discussed how out of two grounds on which the decision was based, the reasoning in respect of only one ground was sought to be got over by amendment. It may be stated that just as this learned author has expressed this particular view about the effect of amendment that has been made while enacting section 64(v), another learned author, Mr. Palkhivala in his treatise The Law and Practice of Income-tax, 7th edition, has expressed the contrary view. In our view, the question must in the ultimate analysis depend upon the true interpretation of the expression "deferred benefit" occurring in section 64(v) of the 1961 Act and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 25,000 in that case was that interest on the trust fund on Rs. 25,000 should be accumulated and added to the corpus and his minor daughter was to receive the income from the corpus increased by the addition of interest when she attained the age of 18 years and that she was then to receive the income during her lifetime and after her the corpus was to go to certain other specified persons; in other words, the significant feature of that trust deed was that the minor daughter was not to receive any income, any interest or any benefit whatsoever under the trust deed during her minority. Mr. Kolah pointed out that when such was the position under the trust deed which came up for consideration before the court in that case this is what Chief Justice Chagla has observed at pages 475 of the report : "We should have mentioned that with regard to the amount of Rs. 410 the Tribunal seems to have proceeded on the basis that the daughter had a vested interest in the sum of Rs. 410. We do not accept that proposition at all. The interest does not vest in the daughter. It is contingent on her attaining majority, and it seems clear that even the Tribunal has proceeded to decide agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is not a case where a vested interest in the income of the trust fund has been created in favour of the principal person with the enjoyment or possession being merely postponed to some future date but it is a case where the interest created in the person concerned is clearly contingent upon the happening of a particular event, namely, attaining of majority by that person. Besides, it is not a case where contingent interest is created with any kind of gift over in favour of the other persons. He, therefore, contended that whatever interest has been created by the settlor in favour of his minor daughters must be regarded as a contingent interest and not a vested interest, the interest being contingent upon the minor daughter attaining the age of majority and, therefore, the interest being not certain, section 64(v) would not be applicable. On the other hand, Mr. Joshi urged that this was a case where a vested interest has been created by the settlor, both in the income as well as the corpus of the trust fund in favour of the minor daughters but merely enjoyment or possession thereof has been postponed until the person concerned attains the age of majority. In our view, having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reaches that age, or directs the income or so much thereof as may be necessary to be applied for his benefit, such interest is not contingent." It is not necessary to set out the provisions of section 120 of the Indian Succession Act which corresponds to section 21 of the Transfer of Property Act. Illustration (ii) given under section 120 of the Succession Act is as follows : "(ii) A sum of money is bequeathed to A 'in case he shall attain the age of 18' or 'when he shall attain the age of 18'. A's interest in the legacy is contingent until the condition is fulfilled by his attaining that age." Reliance was placed by Mr. Kolah upon the Exception to section 21 of the Transfer of Property Act and the aforesaid Illustration No. (ii) given below section 120 of the Indian Succession Act. Relying upon these provisions he contended that the instant case was exactly similar to illustration No. (ii) given below section 120 of the Succession Act. In this context it would be useful to mention that the position under the English law is somewhat different from the position which obtains under the Indian law and the difference between the two positions--one under the English law and ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain upon attaining the age of majority, the settlor has not given to the daughters the intermediate benefit arising from such interest before the daughters were to attain the age of majority nor any other intermediate income has been directed to be applied for the benefit of the minor daughters during their minority. It is, therefore, clear that this is a case of a simple transfer of interest to minor daughters upon condition of their attaining the age of majority and the case does not come within the Exception to section 21, with the result that interest created by the settlor under the three trust deeds in the instant case will have to be regarded as contingent depending upon happening of particular event, viz., attaining the age of majority by the three daughters. If that be so, the item of income of Rs. 30,808 which arose during the year of account in this case could not be included in the total income of the assessee as section 64(v) would be clearly inapplicable. Having regard to the aforesaid discussion, the question referred to us will have to be answered in the negative and in favour of the assessee. DESAI J.-I agree but would like to add a few words. The reasoning to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... always result in a higher income, cannot be accepted as equivalent to a benefit enjoyed by the child in that income. This argument was advanced before the Tribunal but was countered with a reference to the provisions contained in clause 3D of the respective trust. That each of the daughters has been given under the trust deed a right to demand a part of the corpus freed of the trust after attaining her majority would not seem to me to make a material difference in the proper approach to the question. Finally , I would hold that the benefit, if any, receivable by the child must be certain and vested. It cannot be the mere possibility of a benefit or a benefit available on the fulfilment of a contingency. In Manilal Dhanji's decision as given by a Division Bench of this court reported in [1959] 35 ITR 467 (Bom), it has been observed that where there is a stipulation in the trust similar to the stipulation contained in the three trusts with which we are concerned, the interest must be regarded as contingent. It was further observed that the view taken by the Tribunal in that case that the interest or benefit must be regarded as vested was erroneous. It is impossible to hold that this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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