1962 (1) TMI 13 - SC - Income Tax

Whether the sum of 410 is properly includible in the assessee s total income either in accordance with the provisions of section 16(3)(b) and/or section 16(3)(a)(iv) of the Indian Income-tax Act 1922 ? Whether the sum of 14, 170 is properly includible in the total income of the assessee as the sole beneficiary thereof under the trust settlement made on 1-12-1941 by Dhanji Devsi ? Held 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 410 did not form part of the total income of the assessee. The High Court correctly answered the first question referred to it. In respect of the sum of 14, 170 the assessee was a trustee within the meaning of section 41 of the Income-tax Act appointed under a trust declared by a duly executed instrument in writing and as such trustee he had the right to contend that his assessment in respect of the money received by him not as a beneficiary but as a trustee could only be made under the first proviso to section 41(1). We have therefore come to the conclusion that on the second question also the answer given by the High Court was correct. Appeal dismissed.

Summary

Issues Involved:
1. Whether the sum of Rs. 410 is properly includible in the assessee's total income under section 16(3)(b) of the Indian Income-tax Act, 1922.
2. Whether the sum of Rs. 14,170 is properly includible in the total income of the assessee as the sole beneficiary under the trust settlement made on December 1, 1941.

Issue-wise Detailed Analysis:

1. Inclusion of Rs. 410 in the Assessee's Total Income:
The first issue revolves around whether the sum of Rs. 410, derived from a trust created by the assessee for the benefit of his minor daughter Chandrika, is includible in the assessee's total income under section 16(3)(b) of the Indian Income-tax Act, 1922.

Trust Deed Provisions:
- The trust deed dated January 12, 1953, stipulated that the income from the trust fund should be accumulated and added to the corpus until Chandrika attains the age of 18.
- During her minority, Chandrika had no right to the trust income nor any beneficial interest therein.

Legal Interpretation:
- Section 16(3)(b) aims to include in the assessee's income any income arising from assets transferred for the benefit of a minor child.
- The court highlighted that the minor child must derive some benefit in the relevant year of account for section 16(3)(b) to apply.
- Since Chandrika had no right to the income during her minority, the income was not for her benefit in the relevant year.

Conclusion:
- The sum of Rs. 410 was not includible in the assessee's total income as it did not benefit Chandrika in the relevant year. The High Court's decision to exclude this amount from the assessee's income was upheld.

2. Inclusion of Rs. 14,170 in the Assessee's Total Income:
The second issue concerns whether the sum of Rs. 14,170, derived from a trust created by the assessee's father, is includible in the assessee's total income as the sole beneficiary.

Trust Deed Provisions:
- The trust deed dated December 1, 1941, required the trustees to pay the net interest and income to the assessee for the maintenance of himself, his wife, and his children.

Legal Interpretation:
- The court examined whether the trust deed created two trusts: one for paying income to the assessee and another obligating the assessee to use the income for the maintenance of his family.
- The court concluded that the direction to use the income for maintenance created a binding and obligatory trust, not a mere wish or desire.

Section 41 of the Income-tax Act:
- Under section 41, the department could tax the trustees or those on whose behalf the trustees received the amount.
- The assessee was a trustee, holding the income on trust for himself, his wife, and his children, with indeterminate shares.

Conclusion:
- The sum of Rs. 14,170 could not be included in the assessee's total income as though he was the sole beneficiary. The department could levy tax at the maximum rate under section 41 but not include the amount in his total income for super-tax purposes.
- The High Court's decision to exclude this amount from the assessee's income was upheld.

Final Judgment:
The appeal was dismissed, and the High Court's answers to both questions were affirmed. The sums of Rs. 410 and Rs. 14,170 were not includible in the assessee's total income.