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TMI Blog1974 (7) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee out of natural love and affection for his minor son, Prince Mayurdhavjsinhji, executed a deed of trust on October 6, 1955. The minor son was born on November 29, 1953. Under the deed of trust three trustees were appointed and they were, Her Highness Vijaykunverba Saheb of Morvi, the Bank of India Ltd. and Dadachanji, solicitor. The settlor died on August 17, 1957, and his executrix and executors are parties to this reference. The relevant clauses of the deed of trust are as under: "4. Subject to clause 3 hereof the trustees shall till the said Prince Mayurdhavjsinhji attains the age of 21 years accumulate the net income of the trust funds or so much as may not have been applied under clause 5 hereof at compound interest by investing the same and the resulting income thereof in any of the investments hereby authorised with power from time to time to vary such investments at discretion until the termination of the said period of accumulation. 5. The trustees may dur ing the period of accumulation apply the whole or any part at their discretion of the net income of the trust funds for and towards the maintenance education or benefit of the said Prince Mayurdhavjsinhji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accumulated; that the income did not accrue to him because it is the trustees who own the investments and who have the right to the income from the investments; that the minor has no beneficial interest in the income in the relevant years as he cannot call upon the trustees to pay the amount to him; that according to the Tribunal the view taken by them was entirely in consonance with the principles laid down by the Supreme Court in Commissioner of Income-tax v. Manilal Dhanji. There were protective orders so far as the trustees were concerned and having regard to the final view taken by the Tribunal the income of the trust for the relevant assessment years was assessed in the hands of the trustees under section 41(1) of the Act. Mr. Joshi on behalf of the revenue contended that, having regard to the provisions of section 16(3)(b) of the Act, the income of the trust was for the benefit of the minor Prince and was clearly covered by the provisions of section 16(3)(b). His submission was that, if regard be had to the relevant clause of the deed of trust, then the minor Prince could have even compelled, if necessary, the trustees to utilise the income of the trust in consonance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration 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, by such individual otherwise than for adequate consideration; and (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." It is not the contention of Mr. Joshi on behalf of the revenue that any of the sub-clauses of clause (a) of sub-section (3) is attracted in the present case. Reliance is placed on behalf of the revenue upon the provisions of clause (b) of sub-section (3) and it is submitted that, if regard be had to the relevant clauses of the deed of trust above referred to, the income derived by the trustees arose from the assets transferred by the settlor otherwise than for adequate consideration and such income was meant for the benefit of a minor child of the settlor. According to his submission, the aforesaid four clauses of the deed of trust clearly brought the case within the ambit of the provisions of clause (b) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was to receive the income from the corpus, increased by the addition of interest, when she attained the age of 18 on February 1, 1959. She was to receive the income during her lifetime and after her death the corpus was to go to persons with whom the court was not concerned. The income derived from the said trust fund amounted to Rs. 410 in the relevant account year 1953-54, and the taxing authorities 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 Act. The Supreme Court took the view that on a true construction of clause (b) of section 16(3) no benefit accrued to the minor daughter in the year of account and the sum of Rs. 410 could not be included in the total income of the assessee. It is further laid down in this case that in cases where property is given to a parent or other person standing or regarded as in loco parentis, with a direction relating to the maintenance of the children, the question would arise whether the settlor intended to impose a trust by the direction or whether the direction was only the motive of the gift. The line between the two classes of cases has not been drawn always ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those expressions must receive a proper interpretation. Section 16(3)(b) makes it clear that the transfer of assets need not be to the wife or the minor child nor does the provision 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. For the purpose of inclusion of the income of the wife or the minor child of the assessee from assets transferred by him to any person or association of persons for the benefit of the wife or minor child it is not necessary that the transfer should be to the wife or minor child either immediately or ultimately. The scheme of section 16(3)(b) requires that the assessee can only be taxed on the income from a trust fund created for the benefit of his wife or minor child or both if in the relevant year of account the wife or the minor child or both have derived some benefit under the trust deed. That is, the wife or the minor child either has received the income or the income has accrued to them or they have a beneficial interest in the income in the relevant year of account. It follows that if no income accrues or no benefit is derived and there is no income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting year was so used for the benefit of the minor Prince. This clause undoubtedly confers a discretionary power upon the trustees to so utilise the trust funds if the facts and circumstances of the case so demand. No material is brought on record with a view to show that the financial condition of the minor Prince was such that he could have compelled the trustees to exercise the discretion conferred by clause 5 consistently with the well-settled principles in favour of the minor. Neither the income is so utilised nor a case is made out which would enable the minor Prince to compel the trustees to so utilise the trust funds for his maintenance, education or benefit. When such is the position, it cannot be said that any beneficial interest is derived by the minor Prince in the relevant years of account for the three years. Clause 6 provides for spending a sum, not exceeding Rs. 3,00,000, at the time of betrothal and marriage of the minor Prince. The Prince was born on November 29, 1953, and during the relevant accounting year he had not even completed 5 years of age. So there was no question, if regard be had to the common course of natural events, of either any ceremony of bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement or benefit of the said beneficiary as the trustees may in their discretion deem fit. Having regard to the provisions of clause (2) and clause (4) of the deed of trust the Calcutta High Court took the view that under the terms of the trust deeds in that case the beneficiary had a right to get the income of the trust property accumulated year by year, and after the disbursements of all expenses and of such sums, if any, made by the trustees in their discretion under clause (4) of the trust deed; that benefit accrued or arises to the assessee, viz., the right to have the income accumulated, in the years relevant for the present assessments. It was not a case of deferred benefit; the benefit arose in the year of account but the enjoyment of that right was postponed. This was the view taken upon the construction of the provisions of clause of the deed of trust. So far as clause (4) was concerned, the Calcutta High Court took the view that it created a discretionary trust, but even in a case where there is a discretionary trust, the beneficiary has a beneficial interest, in the sense of a right to compel proper exercise of discretion by the trustee if such a need arises. That righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d if regard be had to the facts of the case then the minor Prince derived no benefit whatsoever in the relevant accounting year. So far as clause 4 was concerned, undoubtedly it created a discretionary trust, but the question of a minor beneficiary deriving benefit under such a trust can arise if either when the trustees exercise the discretion and spend a part of the income of the trust for the maintenance, education, etc., of the minor beneficiary, or if circumstances exist which can enable the minor beneficiary to compel the trustees to judicially exercise the discretion in his favour consistently with the provisions of the trust deed. It is not disputed in the present case that the trustees have not exercised the discretion nor are any facts brought on record which would go to show that the financial position of the minor Prince was such that he could compel the trustees to judicially exercise the discretion in his favour by calling upon them to spend either the whole or part of the income of the trust funds for his maintenance, education, etc, With respect, we are unable to agree with the view taken by the Calcutta High Court in the above decision. In our opinion, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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