Madras High Court
Commissioner Of Income-Tax vs T.G.K. Raman (Deceased) By Legal ... on 25 August, 1994
Equivalent citations: [1995]214ITR11(MAD)
JUDGMENT Thanikkachalam, J.
1. At the instance of the Department, the Tribunal has referred the following question for the opinion of this court under section 256(1) of the Income-tax Act, 1961, for the assessment year 1975-76 :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in excluding the sum of Rs. 1,472 being the dividend in respect of the share dealt with by the assessee under the settlement deed dated March 26, 1974, included under section 64(1)(v) of the Income-tax Act, 1961 ?"
2. In the assessment year under consideration, the assessee had transferred 3,200 shares in Messrs. Rane Brake Linings Limited to a discretionary trust created on March 27, 1974, for the benefit of his minor son, T. G. K. Raman. Relying upon section 64(1)(v) of the Income-tax Act, 1961, the Income-tax Officer included the income arising out of the shares in the hands of the assessee for the assessment year under consideration. On appeal, following his earlier order, the Appellate Assistant Commissioner directed the Income-tax Officer to exclude the dividend income arising out of the value of the shares transferred to the trust. On appeal, the Income-tax Appellate Tribunal confirmed the order passed by the Appellate Assistant Commissioner in deleting the dividend income arising out of the shares transferred by the assessee to the trust for the benefit of his minor son.
3. Before us, learned standing counsel for the Income-tax Department contended that even though the amounts were payable to the beneficiary only after he attained the age of 21, the money was held for the benefit of the minor being accumulated during the period of his minority. The mere fact that it was to be received by the minor after he attained the age of 21 did not make the settlement ineffective. The income from the said shares accrued to the minor, only the enjoyment thereof was postponed. Alternatively, it was submitted that under the trust deed, the income from the trust was to go to the son only after attaining majority. Till that time it belonged to the assessee, the amount not having been transferred to the beneficiary. It was further pointed out that there was difference in wording between the provisions of the 1922 and the 1961 Acts. Under the latter Act, even the conferment of deferred benefit on the minor brought the section into operation.
4. Learned counsel appearing for the assessee pointed out that there was not even a deferred payment in this case to the minor, that the payment was clearly being only to a major and hence the provisions of section 64 of the Act have no application at all. Therefore. according to learned counsel for the assessee, even according to the trust deed, the income from the trust was to go to the son only after his attaining majority. It was, therefore, pleaded that the trust was created not for the benefit of the minor, but for the benefit of the major, even though during the relevant point of time, he was a minor. Hence, it was submitted that the Tribunal was correct in deleting the dividend income instead of including the same in the hands of his father under section 64(1)(v) of the Act.
5. We have heard the rival submissions. Clause 6 of the trust deed states as under :
"Nothing in this indenture shall be deemed or construed to confer any right on the beneficiary to receive any payment or benefit under the trust until after he has attained the age of 21 years and the trustees shall have no power to pay any money or transfer any asset or confer any benefit on the beneficiary before he attains the said age of 21."
6. This would go to show that the benefit of the trust would go to the minor not during his minority, but the benefit would go to him after he attained the age of 21 years. The trustee shall have no power to pay any money or transfer any asset or confer any benefit for the beneficiary before the minor attains the age of 21. The trust deed further says that the corpus and the interest accrued thereon did not vest in the minor during his minority. Clause (vii) of section 64(1) of the Act applies even if the trust is for the deferred benefit of the minor child nd the minor child derives no benefit under the trust in the accounting year. The deferred benefit here means benefit deferred to a year subsequent to the account year in which the income is taxable, so long as it is not deferred beyond the minority of the child. The reason is that the section requires the income to be for the benefit of. . . . minor child, even when the benefit is deferred; in other words, the benefit should go to the child now or later, but during his minority. Thus clause (vii) of section 64(1) of the Act would not apply if the income during the minority is to be accumulated and added to the corpus and the increased corpus or the income therefrom has to be given to the child after attaining majority. This was the view taken by the Bombay, Gujarat, Andhra Pradesh and Karnataka High Courts in the decisions Yogindraprasad N. Mafatlal v. CIT [1977] 109 ITR 602; Addl. CIT v. M. K. Doshi [1980] 122 ITR 499; CIT v. (T.) Ponnaiah [1988] 172 ITR 269 and CIT v. M. D. Veeranarasimhaiah [1988] 174 ITR 435, respectively. The Tribunal in its decision followed the judgment of the Supreme Court in the case of CIT v. Manilal Dhanji [1962] 44 ITR 876 wherein it was held that clause (vii) of section 64(1) of the Act would not apply if the income during the minority is to be accumulated and added to the corpus and the increased corpus or the income therefrom is to be given to the child after attaining majority. This was held while interpreting the provisions of section 16(3)(b) of the 1922 Act. But on principle this decision would be applicable even while interpreting the provisions of section 64(1)(vii) of the 1961 Act. The Tribunal has also followed another decision of the Calcutta High Court in the case of Chhanganlal Baid v. CIT [1971] 79 ITR 258, wherein the Calcutta High Court also came to the same view as adumbrated by the Supreme Court in the abovesaid decision.
7. Our attention was drawn to another decision of the Bombay High Court in CWT v. Seth Yogindraprasad N. Mafatlal [1988] 170 ITR 648 and it was submitted that this was in relation to the same trust which was considered in Yogindraprasad N. Mafatlal v. CIT [1977] 109 ITR 602 (Bom.) But it remains to be seen that the decision of the Supreme Court in CIT v. Manilal Dhanji [1962] 44 ITR 876 was not taken into consideration in CWT v. Seth Yogindraprasad N. Mafatlal [1988] 170 ITR 648 (Bom). This decision proceeds on the basis of the assumption that the trust was for the benefit of the minor daughter. The position in the instant case is different. A plain reading of the trust deed in the instant case would go to show that the benefit was not given to the minor during his minority. But the benefit was given to the major son. If that is so, the provisions of section 64(1)(v) of the Act would not be applicable to the facts of the present case. So, even on the facts and in accordance with law, the order passed by the Tribunal in deleting the income arising out of the shares belonging to the trust in the hands of the assessee, who is the father of the minor, is in order. Accordingly, we answer the question referred to us in the affirmative and against the Department. Counsel's fee Rs. 1,000 .