1989 (7) TMI 68 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 64(1)(vi) of the Income-tax Act, 1961.
2. Applicability of section 64(1)(vi) to the case of the assessee.
3. Inclusion of income derived by the trust in the hands of the assessee.
4. Effect of the insertion of clause (viii) in 1985 on the interpretation of section 64(1)(vi).

Analysis:
The judgment pertains to a petition under section 256(2) of the Income-tax Act, 1961, where the Commissioner of Income-tax sought a direction for the Income-tax Appellate Tribunal to refer questions of law arising from its order. The key questions revolved around the applicability of section 64(1)(vi) to the case of the assessee and the inclusion of income derived by the trust in the hands of the assessee for assessment years 1979-80, 1982-83, and 1983-84. The respondent, along with her husband, had created a trust for their daughter-in-law and grandchildren, leading to the clubbing of income in their hands under section 64(1)(vi).

The Appellate Assistant Commissioner allowed the appeal filed by the respondent, directing the exclusion of the income included in their hands. Subsequently, the Department appealed to the Income-tax Appellate Tribunal, challenging the orders passed by the Commissioner of Income-tax under section 263 for the assessment years 1982-83 and 1983-84. The Tribunal interpreted section 64(1)(vi) and concluded that the transfer to the trust did not attract its provisions, considering the insertion of clause (viii) in 1985 as indicative that such transfers were not initially contemplated.

The petitioner contended that the insertion of clause (viii) was clarificatory, while the respondent's counsel argued that a legal question existed, albeit with a self-evident answer. The High Court emphasized the importance of interpreting the phrase "assets transferred ... indirectly" in section 64(1)(vi) and highlighted the need to determine if creating a trust for grandchildren fell within its ambit. Consequently, the Court directed the Tribunal to refer and address specific questions of law related to the applicability of section 64(1)(vi) and the inclusion of trust income in the assessee's hands.

In conclusion, the judgment delves into the nuanced interpretation of section 64(1)(vi) concerning indirect asset transfers to trusts for specific beneficiaries. It underscores the significance of legal clarity in tax provisions and mandates a detailed examination of the legislative intent behind such provisions.