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TMI Blog1968 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4,98,000 to his brother, J. N. Chowdhury, who was to hold such properties in trust for the benefit of J. N. Chowdhury's wife and 2 daughters, one married and the other a minor. On the same day J. N. Chowdhury created a similar trust involving assets and properties of the same nature and value as covered by the respondent's trust, appointing the respondent as the trustee for the benefit of the respondent's wife and his major son. In the assessments for the aforesaid two years, the Income-tax Officer observed that these mutual transfers were made with a view to avoid the income from the assets and properties concerned being taxed in the hands of the transferors. According to the Income-tax Officer, the result of these transfers was that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstituted the consideration for the other. He held that the arrangement made by the two brothers by executing the two trust deeds constituted one disposition with the result that in effect the respondent had merely transferred his own assets to his wife and son. The Appellate Assistant Commissioner's conclusion was that, barring the income of the trust which was receivable by the major son of the respondent, the rest was assessable in the hands of the respondent in terms of the provisions of section 16(3)(b) of the Act. Before the Tribunal the respondent's counsel submitted that whereas the Income-tax Officer had invoked generally the provisions of section 16(3) of the Act, the Appellate Assistant Commissioner, in the concluding part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislature. The Tribunal found that the income of the properties given in trust by the respondent to his brother for the benefit of the latter's wife and children could not be assessed in the hands of the respondent under section 16(3)(b). The following questions of law have been referred to us for our opinion : " (1) Whether the Tribunal was right in holding that the provisions of section 16(3)(b) of the Indian Income-tax Act, 1922, were not applicable to the cases of transfers of property by way of trust ? (2) If the answer to question No. 1 be in the negative, whether, on the facts and in the circumstances of this case, income of the properties given in trust by the assessee to his brother for the benefit of the latter's wife and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed. According to Mr. Pal, these provisions show that not only are the beneficiaries interested in the income, they are entitled to the income in praesenti and, as such, the trustee merely receives the income on their behalf. Mr. Pal also referred to some of the provisions of the Trusts Act in support of his argument. We are unable to accept those contentions. Firstly, under section 16(3)(b) the income that is assessed is an income which arises from what is transferred by the individual concerned for the benefit of his wife or minor child or both. A trustee receives this income, meets certain outgoings and then distributes the income amongst the beneficiaries. Legally, the income is the income of the trustee and the trustee by reason o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnotes a benefit which is enjoyed by another thus bringing in a relationship as between a trustee and a beneficiary or cesti que trust ; the latter connotes an agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of another ...... " In view of this pronouncement by the Supreme Court, the argument that in construing section 16(3)(b) it should be borne in mind that the trustee receives income not on his own account but on behalf of the beneficiary is altogether untenable. The argument appears to be more untenable by reason of the Supreme Court's observations in Commissioner of Income-tax v. Manilal Dhanji. At page 882 their Lordships observe : " On a closer scrutin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of S. K. Das J., speaking on behalf of the Supreme Court, in our view, set the controversy at rest and, without any hesitation, we overrule the contention of Mr. Pal that clause (b) of section 16(3) of the Indian Income-tax Act, 1922, does not apply to cases of trust. We now proceed to deal with the second question referred to us. In the instant case we find that the assessee appointed his brother as the trustee and the trustee was to hold the properties not for the benefit of the assessee's wife or any minor child of the assessee but for the benefit of the assessee's brother's wife and children. In view of these terms of the deed of trust it cannot be said that the income that the trustee had derived could be included in computing th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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