1991 (1) TMI 117 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 64(1)(v) of the Income-tax Act, 1961, before its amendment in 1975.
2. Interpretation of Section 64(1)(vii) of the Income-tax Act, 1961, after its amendment in 1975.
3. Inclusion of income from trusts in the hands of the assessee.
4. Necessity of trust deeds for proper adjudication.

Issue-wise Detailed Analysis:

1. Interpretation of Section 64(1)(v) of the Income-tax Act, 1961, before its amendment in 1975:
The court examined the interpretation of Section 64(1)(v) as it stood before being substituted by the Taxation Laws (Amendment) Act, 1975. The relevant provision included income arising directly or indirectly from assets transferred otherwise than for adequate consideration to any person or association of persons for the immediate or deferred benefit of the assessee's spouse or minor child.

The Tribunal had relied on the Supreme Court's decision in CIT v. Prem Bhai Parekh [1970] 77 ITR 27, concluding that the income accruing to the minor children of the assessee from the trusts could not be said to arise directly or indirectly from the amounts donated by the assessee to the trusts. The court noted that the Tribunal did not properly evaluate whether the dictum laid down in the Prem Bhai Parekh case applied to Section 64(1)(v) of the Income-tax Act, 1961.

2. Interpretation of Section 64(1)(vii) of the Income-tax Act, 1961, after its amendment in 1975:
For the subsequent batch of cases, the court considered the interpretation of Section 64(1)(vii) of the Income-tax Act, 1961, after its amendment. This provision included income arising directly or indirectly from assets transferred otherwise than for adequate consideration to any person or association of persons for the immediate or deferred benefit of the assessee's spouse or minor child.

The Tribunal had again relied on the decision in Prem Bhai Parekh's case without considering the different language and context of Section 64(1)(vii). The court emphasized that the Tribunal failed to evaluate whether the dictum in Prem Bhai Parekh's case applied to the amended provision.

3. Inclusion of income from trusts in the hands of the assessee:
The Tribunal had concluded that the income accruing to the minor children from the trusts could not be included in the income of the assessee. The court noted that the Tribunal relied heavily on the decision in Prem Bhai Parekh's case, which dealt with a different statutory provision and context.

The court highlighted the necessity to consider the decision in Col. H. H. Sir Harinder Singh v. CIT [1972] 83 ITR 416, which construed Section 16(3)(b) of the Indian Income-tax Act, 1922, and emphasized the distinction between direct and indirect transfers of assets for the benefit of minor children.

4. Necessity of trust deeds for proper adjudication:
The court stressed the importance of perusing the relevant trust deeds to understand the basis on which the minor children received income from the trusts. The court noted that the Tribunal did not annex the trust deeds as part of the statement of the case, making it difficult to answer the questions referred.

The court dismissed the application to produce additional material (trust deeds) at the hearing stage, emphasizing that it was the Tribunal's responsibility to forward the trust deeds along with the statement of the case.

Conclusion:
The court declined to answer the questions of law referred by the Tribunal due to the absence of relevant trust deeds and the Tribunal's failure to evaluate all basic facts and statutory provisions. The court directed the Income-tax Appellate Tribunal to restore the respective appeals to file and dispose of them afresh in accordance with law and the observations made in the judgment.