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TMI Blog1984 (5) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, there came to be created two more trusts of Rs. 5,000 each, one by Smt. Lakhanbai, wife of late Khiyaram for the benefit of Master Manoj and Kumari Sanju, two other minor children of Shri Srichand, with Smt. Suseela S. Lulla, wife of Shri Srichand, as the trustee and the other by Smt. Radhabai Nagpal, wife of Kanayalal Nagpal, for the benefit of Kumari Renuka and Kumari Rachana, two other minor children of Shri Ramchand with Smt. Rani R. Lulla, wife of Shri Ramchand, as the trustee. The amounts were invested as share capital in Sri Ram Sons for 18 per cent share which worked out to Rs. 14,377/Rs. 14,379 being the further subject-matter of aggregation in the hands of the male parents, the assessees herein. 4. The assessee's objection to aggregation before the ITO was that the trust deeds in all these cases conferred only a deferred benefit to the beneficiaries and that the conspicuous omission of the words 'immediate or deferred benefit' in Explanation 2A in contradistinction to Explanation 1A to section 64(1)(iii) would invite application of the Supreme Court decision in CIT v. Manilal Dhanji [1962] 44 ITR 876 for the benefit of the assessees. It was claimed that in all these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as of the view that the mere fact that it was found not necessary to draw any moneys during the year could not nullify the immediate right of the beneficiaries for the specified purposes of maintenance and education in case the circumstances warranted. The first appellate authority had also incidentally reproduced a clause which provided for the credit of the income to the minor/minors in the accounts. Under these circumstances, he upheld the orders of the ITO. The assessees are, therefore, in second appeal. 6. The learned counsel for the assessee took us over the trust deeds and amendments thereto. He claimed that the first appellate authority had overlooked the 'corrigendum' appended to the trust deeds 'clarifying' that the credit of the net income is to be to 'trust fund' and not 'in name of beneficiary/beneficiaries' on the ground that it was initially 'wrongly typed'. It was claimed that this correction was done on 1-4-1978, well before the accounting year. According to him, the trust deeds clearly contemplated that the income should be accumulated for the benefit of minor child/children. He further claimed that it is a matter of record that there was no withdrawal whatsoeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally sought to be roped in by the statute, he contended that the assessee was in a much better position because of the conspicuous absence of the word 'deferred' in Explanation 2A. The mere fact that the deed initially contemplated 'credit' in minor's account, he claimed, cannot make the rationale of the decisions cited by him inapplicable. It was practically minor's trust fund account only. Even this misapprehension on account of the wording originally, he claimed, was subsequently corrected well before the accounting year. Section 64(1)(iii), he argued, contemplated an immediate or a vested right on behalf of the minor as a result of the trustee's membership in the firm. He argued that the interest of the minor in such membership was secondary, if not remote, and that section 64, which has to be strictly construed, cannot justify aggregation in such circumstances. He further claimed that the income itself accrued to the firm. What can be done by the ITO is only to include the income of the firm to the extent such income accrues to the trustee as a member of the firm 'for the benefit of the minor child' in the year of account. Section 64(1)(iii) read with Explanation 2A contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able common issue in these two cases. As for possible discretionary benefit, he pointed out to such a provision in two of the cases cited by him. He referred to Yogindraprasad N. Mafatlal's case at page 604 to point out that there was a similar possible discretionary benefit which was found to be immaterial as it was merely contingent as pointed out in the said case. As for the argument that the Court's concurrence was required under the Indian Trusts Act, he claimed that the rectification merely clarifying intention relating to accounting does not affect the rights of the minors in any manner and that it could, therefore, be done without the Court's concurrence. At any rate, he argued, the position is not different even without rectification as minor does not get a right to receive the amount even if it is credited to his account. He further pointed out that both settlor and the natural guardian were parties to the rectification deed. He also claimed that the estate duty decision rendered in the language of estate duty law has no relevance to the issue before us. 9. We have carefully considered the records as well as the arguments. Relevant clauses in identically worded trust de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income of the trust fund or the distribution of the corpus thereof or in any manner give any power of appointment, accumulation, right to nominate beneficiary or of modification to the trust and the trust herein contained shall be deemed to be the specific trust. 6. The trust fund and the income thereof shall be possessed and enjoyed by the person beneficiary entitled thereto by virtue of these presents to the entire exclusion of the settlor and any benefit to him, by contract or otherwise ; and no part of the trust fund or the income thereof or the accumulated income thereof shall be paid to or applied for the benefit of the settlor in any circumstances of whatsoever nature. " In the case of two trust deeds, where the beneficiaries are two, wherever the word 'beneficiary' occurs, the plural is used. The disputed corrigendum is that instead of the words 'credit the balance in the name of the beneficiary/in all the names of the beneficiaries', it should be read as 'credit the balance to the account of trust fund'. These 'rectifications' are prior to the accounting year. 10. The relevant portion of section 64 is as under : " (1) In computing the total income of any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pouses and minor children by the employment of a trust as an intermediary. While it is so, the use of the words 'immediate or deferred benefit' in Explanation 1A in relation to spouses and the absence of these words in Explanation 2A in relation to minor children definitely indicates lesser circumstance for aggregation in minor children's case. If the benefit is deferred, such benefit goes beyond the scope of aggregation, if the beneficiary is a minor child, it is not so, if the beneficiary is a spouse. We have to approach the issue arising in the appeals before us in the light of this legal position. 11. If the entire accumulated income were to be handed over to the beneficiaries only after majority, there would not be even an arguable case for the revenue in absence of the words 'deferred benefit' in section 64(1)(iii) read with Explanation 2A thereunder in view of what we have stated in the preceding paragraph and in view of Manilal Dhanji's case. We have to see whether the possible discretionary benefit on 'maintenance and education' would make their interest an interest which attracts aggregation. We find that in H.H. Maharani Shri Vijaykunverba Saheb of Morvi's case, the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 'as much of the income of a wife or minor child' the expression used in clause (b) is 'so much of the income of any person or association of persons, etc.' Obviously, when a trust is created the income is income in the hands of the trustees. But the underlying principle in the two clauses (a) and (b) appears to be the same, namely, there must be income of the wife or minor child under clause (a) and there must be some benefit derived by the wife or minor child in the year of account under clause (b). When the minor child derives no benefit under the trust deed in the year of account, it is not consistent with the scheme of section 16 to say that even though there is no accrual of any income or benefit in the year of account in favour of the minor child, yet the income must be included in the total income of the individual concerned. " [Emphasis supplied] No doubt, the High Court was interpreting section 16(3) of the 1922 Act, but there is no reason why this interpretation should be disregarded in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court's view in Yogindraprasad N. Mafatlal's case and held that aggregation was not possible. The Gujarat High Court concluded as under in M.K. Doshi's case : "...The interest which each son has, therefore, got in the accumulated income in the present case cannot be said to be a vested interest but is merely a contingent interest in the sense that his interest will ripen into vested interest on the condition of attainment of majority by him [vide CWT v. Kum. Manna G. Sarabhai [1972] 86 ITR 153 (Guj.)]. Unless, therefore, it can be said that any of the sons has a vested interest, it cannot be urged successfully that the income has accrued to him. There is, therefore, in the present case, neither receipt nor accrual of income so as to attract the provision contained in clause (v) of section 64(1). . . ." [Emphasis supplied] 14. We, therefore, find that there is preponderant authority for the view that either there should be receipt of income in respect of a discretionary interest or right to such interest otherwise during the year. We do not think reference to estate duty decisions can rebut this position as the estate duty decisions, e.g., in H.H. Maharani Shri Vijaykunverba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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