TMI Blog1976 (11) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Aparna and (3) Gayatri. In the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e male and female issues of said Kunti 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 Kun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains majority, to pay the whole residue of such income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 after they attained majority was the net income from the enlarged corpus and, therefore, the net income of the trusts under consideration could not be regarded as "deferred benefit" within the meaning of that expression as used under section 64(v). The Appellate Assistant Commissioner did not accept this contention. He took the view that the assessee had transferred certain shares to the trustees and such transfer was for the ultimate benefit of his three minor daughters and that though during the period of their minority no income was payable to them, the income that was received was for their ultimate benefit, in that the income on the assets originally transferred and the income on the additions to the corpus by way of annual incomes would be receivable by them for their own benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision (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 that the words "minor child" meant a child who was a minor at the relevant time, the relevant time being the year of account. It also held that the word "minor" was only descriptive of child and the material word was "deferred" and that word had been used with regard to the year of account. The Tribunal, therefore, on the aforesaid construction which it placed upon the amended provision which was to be found in section 64(v) negatived the contention of the assessee and upheld the inclusion of income of Rs. 30,808 in the total income of the assessee. At the instance of the assessee the question set out at the commencement of the judgment has, therefore, been referred to us for our determination. Mr. Kolah, appearing for the assessee, has raised three or four contentions before us in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociation 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 as of the Supreme Court when the matter was carried to that court in [1962] 44 ITR 876 (SC) by having regard to the earlier provision which was to be found in section 16(3)(b) and he further invited our attention to the fact that since the decision in that case had been rendered by this court the legislature has made an amendment to the relevant provision which is to be found now in section 64(v) of the 1961 Act and that this amendment, by insertion of the words "for the immediate or deferred benefit of the minor child", had been deliberately made with a view to get over the effect of the said decision. As against the view expressed in Kanga Palkhivala's Treatise, he placed reliance on the view expressed by Sampath Iyengar in his book on Income-tax, 6th edition, on the construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) 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 transferring assets to the spouse or minor child, or admitting the spouse as a partner, or getting a minor child admitted to the benefits of partnership in a firm, or adopting any of the other modes covered by the section and it was also not disputed before us that since both the old section 16(3) as well as the present section 64 created or create artificial liability to tax, the provision thereof must be construed strictly. The object with which the aforesaid provisions have been incorporated in the taxing statute has been clearly indicated by the Supreme Court in the case of Tulsidas Kilachand v. Commissioner of Income-tax [1961] 42 ITR 1 (SC), where the observations of Lord Macmillan in Chamberlain v. Inland Revenue Commissioners [1943] 25 TC 317, 329 (HL) have been set out with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 over such income which is for the immediate or deferred benefit of his minor child and that such income will be added to the total income of the settlor. That being the main object or purpose of the enactment, the question that really arises for our consideration is whether the expression "deferred benefit" which occurs in clause (v) of section 64 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 means benefit deferred even beyond the minority of that child. The question is whether even the income falling within the latter category was intended to be caught by the legislature within the mischief of section 64(v) by addition of the words "immediate or deferred" or, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 this court in Manilal Dhanji's case [1959] 35 ITR 467 (Bom). In that case, the assessee had created a trust of the sum of Rs. 25,000 and had directed that the interest on that amount 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 the interest when she attained the age of 18 years. The daughter was then to receive the income during her lifetime and after her the corpus was to go to certain other specified persons. Under this trust the assessee received an amount of Rs. 410 as trustee and the question was whether this amount could be included in the total income of the assessee under section 16(3)(b) of the 1922 Act. This court took the view that under section 16(3)(b) of the Act, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said 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 section 16(3)(b) in its judgment. We might observe that the Supreme Court accepted the construction placed upon that provision by this court by relying upon one of the two grounds set out by this court in its judgment. The Supreme Court took the view that clause (b) of section 16(3) 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 and, so read, the only reasonable interpretation was that an assessee could only be taxed on the income from a trust fund for the benefit of his minor child, provided that in the year of account the minor child derived some benefit under the trust deed-either he received the income, or the income accrued to him, or he had a beneficial interest in the income in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated 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 total income of any individual, there shall be included all such income as arises directly or indirectly . ...... (v) to any person or association of persons from assets transferred otherwise than for adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse or minor child (not being a married daughter) or both." It is true that on a comparison of the language employed in section 16(3)(b) of the 1922 Act with the language of sub-clause (v) of section 64 (1961 Act), it is clear that the words "immediate or deferred" have been added before the words "benefit of his or her spouse or minor child or both" and it was contended by Mr. Jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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. We recommend that the law should be modified so as to tax such income of the minors. There may, however, be cases in which the shares of the beneficiaries are not definite and tax as applicable to an association of persons is charged. Such cases should be excluded." Relying upon the aforesaid material, namely, note on clause 64 of the Bill and sub-paragraph (6) of paragraph 7.81 of the Report of the Direct Taxes Administration Enquiry Committee, it was urged by Mr. Joshi that the intention of the legislature while making a provision which is to be found in section 64(v) clearly was to include the income of a trust created by a father for the benefit of his minor child as would accrue or arise but is directed to be accumulated and added to the corpus and not paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 paragraph 7.81 of the Report of the Direct Taxes Administration Enquiry Committee. Therefore, as we have stated above, the difficulty which was created by the decision of this court in Manilal Dhanji's case [1959) 35 ITR 467 (Bom) was that since the particular item of Rs. 410 in that did not arise or accrue to the minor child nor did the minor child receive any benefit thereof during "the year of account", the item was held to be not includible in the total income of the assessee and it was to obviate this difficulty which had been created by this decision that the legislature had introduced the words "immediate or deferred" in clause (v). Secondly, since the other termini or the point of limitation had not figured in the decision of this court in Manilal Dhanji's case [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 court for the purpose of coming to the conclusion that the particular income could not be included in the total income of the assessee, namely, such income from the assets transferred to the trustees had neither arisen nor accrued to the minor nor had the minor received the benefit thereof "during the year of account" and not for the purpose of catching the income arising or accruing to the minor from the assets so transferred at any time even beyond the minority of such minor. Moreover, our construction does not render the amendment useless or otiose. If the construction which we are placing upon the words "immediate or deferred" benefit were going to lead to any absurdity as serving no purpose whatsoever, the question would assume different dimension. If the expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 child" occurring in clause (v) of section 64 will have to be given a proper meaning and the word "minor" in that expression cannot be regarded as merely a word descriptive of the child. When the expression "minor child" has been used, it could be said that clause (v) of section 64 requires the income to be in terms for the benefit of a minor child even when it is deferred. Having regard to the above discussion, we are clearly of the view that the construction which Mr. Kolah has suggested seems to be the correct construction, which will have to be placed on the expression "deferred benefit" occurring in clause (v) of section 64 and, in our view, that construction accords with the object as well as the scheme of the provision. Mr. joshi on behalf of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proper interpretation has to be placed on that expression after considering the legislative history, the purpose or object with which the amendment was made, the mischief which was sought to be remedied by the proposed amendment and the surrounding circumstances. We have already discussed the legislative history, sub-paragraph (6) of paragraph 7.81 of the Report of the Direct Taxes Administration Enquiry Committee setting out the reasons or the purpose for which the amendment was being effected in the relevant provision of the enactment and after considering all these aspects and the surrounding circumstances, we have come to the conclusion that the expression "deferred benefit" cannot refer to benefit which has been deferred up to any length of time but the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gla 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 against the assessee with regard to the sum of Rs. 410 on the supposition that the daughter had some interest in this sum of Rs. 410. As we have already pointed out, the daughter has no present interest whatever in this sum of Rs. 410." Likewise, Mr. Kolah has pointed out that under the three trust deeds in the instant case also during the minority of the principal person concerned in each of these trust deeds, the principal person, namely, the minor daughter, is not to get any interest or benefit of either the income accuring from the trust fund or in the trust fund itself but there is a direction that such income should be added on to the corpus and it is only if and when after Kunti, eldest daughter, attains majority, that interest or benefit in the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 regard to the provisions which are to be found in section 21 of the Transfer of Property Act and section 120 of the Indian Succession Act and certain illustrations given thereunder, it appears to us that the interest created in favour of the minor daughters in the three trust deeds will have to be regarded as contingent interest and not vested interest. Section 19 of the Transfer of Property Act deals with what is "vested interest" and reliance was placed by Mr. Joshi upon the Explanation to that section. Section 19 of the Transfer of Property Act runs thus: 19. Where, on a transfer of property, an interest therein is created in favour of a person without specifying the time when it is to take effect, or in terms specifying that it is to take effect forthwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow 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 another under the Indian law--has been succinctly brought out in the passage which occurs in Mulla's Transfer of Property Act, sixth edition, on page 142, where under the heading "Condition precedent construed as condition subsequent" the following statement of law is indicated : "The English courts have adopted two rules of construction, namely, (1) that the gift of the income of the same fund, until the contingency happens, to the very person who will on attaining a particular age take the fund makes the gift of the fund, apparently contingent upon the attainment of that age, a vested interest, and (2) that a gift over upon failure of a prior gift may have the effect of converting the prior gift apparently contingent upon attainment of a particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be found in the order of the Tribunal and the arguments of the learned counsel for the revenue were principally centred round the recommendation to be found in sub-paragraph (6) of paragraph 7.81 of the Report of the Direct Taxes Administration Enquiry Committee (Tyagi Committee). Even if it is accepted that the recommendation of the Tyagi Committee was for modification of the income-tax law so as to provide for taxing of the income of a trust created by the father for the benefit of his minor daughter, which trust contains a stipulation that the income should be accumulated and added to the corpus during the period of minority and that additional words "immediate or deferred" to be found in section 64(v) of the Income-tax Act, 1961, were added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 conclusion of the Division Bench was given per incuriam. On the other hand, such a conclusion appears to be in accord with illustration (ii) to section 120 of the Indian Succession Act, 1925, and the provisions contained in section 21 of the Transfer of property Act. It is true that in Chandulal Shivlal v. Commissioner of Wealth-tax [1965] 55 ITR 441 (Guj), a Division Bench of the Gujarat High Court has observed that the word "benefit" is a word of the widest import and would seem, in its opinion, to include a contingent benefit. With respect, however, and bearing in mind what the Gujarat High Court was called upon in that case to decide, this observation must be regarded as a stray observation, a casual use of a word or phrase and not ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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