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TMI Blog1962 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... apart by the assessee and it was provided that the interest on that amount should be accumulated and added to the corpus and a minor daughter of the assessee, named Chandrika, 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 we are not concerned. The income derived from the said trust fund amounted to Rs, 410 in the relevant account year and the taxing authorities included this amount in the total income of the assessee, purporting to act under section 16(3)(b) and/or section 16(3)(a)(iv) of the Income-tax Act. As regards the second sum of Rs. 14,170 it appears that on December 1, 1941, the assessee's father had created a trust in respect of some shares and a cash sum of Rs. 30,000 for the benefit of his four sons including the assessee. The trustees were the Central Bank Executor and Trustee Co. Ltd., the assessee himself and one other person. The said trustees were to hold the trust funds upon trust to pay the net interest and income thereof to the assessee " for the maintenance of him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of law arose out of the order of the Tribunal dated April 24, 1957, the Tribunal stated a case under section 66(1) of the Income-tax Act. The High Court answered both the questions in favour of the assessee by its judgment and order dated September 25, 1958. Thereafter the High Court granted a certificate of fitness under section 66A(2) of the Income-tax Act and, as we have already stated, the present appeal has been brought to this court on the strength of that certificate. We proceed now to deal with the first question which relates to the sum of Rs. 410. The question is whether this sum was properly includible in the assessee's total income under the provisions of section 16(3)(b) of the Income-tax Act, because Mr. Rajagopal Sastri appearing for the appellant has not pressed the claim which was made before the Tribunal on behalf of the department under the provisions of section 16(3)(a)(iv). Before we go to the provisions of section 16(3)(b) it is advisable to set out the material portions of clauses 3 and 4 of the trust deed of January 12, 1953. Those clauses were in these terms. " 3. The trustees shall hold and stand possessed of the trust fund and the investments for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of income, profits and gains referred to in section 4(1), and (b) it must be computed in the manner laid down in the Act. The exemption granted under the Act is of two kinds ; certain classes of income are exempted from tax and also excluded from the computation of total income, while certain other classes of income exempted from tax are to be included in the assessee's total income. Now, clause (a) of sub-section (1) of section 16 provides that sums exempted from tax under certain provisions of the Act should be included in the assessee's total income. Clause (b) lays down the mode of computing a partner's share in the profit or loss of the firm. Under clause (c) income which arises to any person by virtue of any settlement or disposition from assets remaining the property of the settlor or disponer etc. is taxed as his income. The object of the legislation is clearly designed to overtake and circumvent a tendency on the part of the tax-payers to endeavour to avoid or reduce tax liability by means of settlements. Sub-section (2) deals with grossing up of dividend etc. Then we come to sub-section (3). This sub-section aims at foiling an individual's attempt to avoid or reduce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the individual assessee who made the transfer. At first sight the argument appears to be attractive and supported by the words used in the clause. 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 an assessee can 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 derives some benefit under the trust deed---either he receives the income, or the income accrues to him, or he has a beneficial interest in the income in the relevant year of account. But if no income accrues, or no benefit is derived and there is no income at all (so far as the minor child is concerned), then it is not consistent with the scheme of section 16 that the income or benefit which is non-existent so far as the minor child is concerned, will be included in the income of his father. Take, for example, a case where the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the trust is reserved for the minor child, clause (b) would apply and that portion of the income which is set apart for the benefit of the child would be taxable in the hands of the settlor. All these illustrations only establish the principle that the minor child must derive some benefit in the relevant year of account before clause (b) would apply. Furthermore, we are also of the view that clauses (a) and (b) to the sub-section must be read together. Clause (a) begins with the expression " so much of the income of a wife or minor child of such individual as arises directly or indirectly ", and this is followed by the four circumstances numbered (i), (ii), (iii) and (iv). There is no doubt that so far as clause (a) is concerned, there must be income of the wife or minor child. Mr. Rajagopal Sastri has not disputed this. The obvious intention of the legislature in enacting clause (b) was to see that the provisions of clause (a) were not defeated by the assessee creating a trust and in order to deal with that mischief it enacted clause (b). Instead of the expression " so much of the income of a wife or minor child " the expression used in clause (b) is " so much of the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text and decisions of the English courts given on provisions differently worded and appearing in a different context are not, in our opinion, helpful in determining the true scope and effect of clause (b) of sub-section (3) of section 16 of the Income-tax Act, 1922. We have, therefore, come to the conclusion that on a true construction of clause (b) of sub-section (3) of section 16, the view expressed by the High Court was correct and the sum of Rs. 410 did not form part of the total income of the assessee. The High Court correctly answered the first question referred to it. We now turn to the second question. The relevant clause of the trust deed of Decemer 1, 1941, is clause 7 which reads as follows : " The trustees shall hold and stand possessed of the trust fund mentioned in the Second Schedule hereto and the accumulations thereof referred to in clause 3 hereof upon trust to pay the net interest and income thereof to the settlor's son Manilal for the maintenance of himself, his wife and for the maintenance, education and benefit of all his children till his death. " The question before us is whether under this clause the income received by the assessee is impressed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar view was expressed in Raikes v. Ward and Woods v. Woods. On behalf of the appellant our attention was drawn to section 8 of the Indian Trusts Act, 1882 (11 of 1882), which states that the subject-matter of a trust must be property transferable to the beneficiary and it must not be merely beneficial interest under a subsisting trust. It is contended that the assessee held a beneficial interest in the income from the trust funds under the trust deed of December 1, 1941, and in respect of that beneficial interest another trust could not be created in favour of himself, his wife and children. We think that this argument proceeds on a misconception. The assessee did not create a second trust in respect of the beneficial interest which he held under the trust deed of December 1, 1941. The assessee's father created two trusts by that trust deed, one requiring the trustees to pay the trust income to the assessee and the other requiring the assessee, who was himself a trustee, to spend the income for the maintenance, education and benefit of his children. It is not disputed that by a single document more than one trust may be created. It is not, therefore, true to say that the subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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