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TMI Blog2006 (8) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... us on a reference order dated February 25, 2002, made by a Division Bench consisting of two learned judges of this court. The question referred by the Division Bench for answer is as hereunder: "Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the share income of the minors who are beneficiaries of a trust which was a partner in a registered firm cannot be clubbed in the hands of the assessee under section 64(1)(iii) of the Income-tax Act?" Before the Division Bench, learned counsel for the Revenue relied upon a judgment of this court in the case reported in CIT v. K.J. Ramaswamy [2002] 256 ITR 191 to contend that in computing the total income of the individual/assessee in this case, such income of the minor should be included. The abovereferred to judgment is in relation to an assessee by name K.J. Ramaswamy, who is the assessee in T.C. No. 55 of 1996 and similar are the facts in that case. However, learned counsel for the asses see contended that inasmuch as there is no dispute that under the trust deed the beneficiaries/minors cannot lay their hands on their share of income till they attain majority, it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gencies in a representative capacity. The assessment year in T.C. No. 55 of 1996 is 1983-84 and the assessment year in T.C. No. 107 of 1996 is 1985-86. The assessee in each case is the father of the respective beneficiaries under the two trusts. A question arose as to whether the income derived by the trustee in the representative capacity from the partnership firm would be added on to the income of the respective parent of the beneficiaries or not under section 64(1)(iii) of the Income-tax Act read with Explanation 2A to the very same section? It may be noted here that similar was the situation before this court in respect of one of the assessees in the abovereferred to case viz., CIT v. K.J. Ramaswamy [2002] 256 ITR 191 (Mad) referred to supra, where a Division Bench of this court, as already noted, held that the income so derived from the partnership firm by the representative trustee should be clubbed to the income of the individual namely, father of the beneficiary. The same issue cropped up for the subsequent assessment years, namely, 1983-84 in T.C. No. 55 of 1996 and 1985-86 in T.C. No. 107 of 1996. Mrs. Pushya Sitaraman, learned senior standing counsel appearing for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or child of such individual from the admission of the minor to the benefits of partnership in a firm." Explanation 2A to section 64 is extracted hereunder: "For the purposes of clause (iii), where the minor child of an individual is a beneficiary under a trust, the income arising to the trustee from the membership of the trustee in a firm shall, to the extent such income is for the benefit of the minor child, be deemed to be income arising indirectly to the minor child from the admission of the minor to the benefits of partnership in a firm." We extract hereunder section 64(1)(vii) of the Income-tax Act - (section 64(1)(vii) was previously in the statute book as section 64(1)(v)): "(vii) to any person or association of persons from assets transferred directly or indirectly otherwise than for adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse or minor child (not being a married daughter) or both." In our considered opinion, in understanding clause (iii) of sub section (1) of section 64 of the Act, we have to necessarily look into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade, then such income shall be lawfully included in the income of the individual in computing his total income. To attract section 64(1)(v) of the Act, it must be seen that the income generated from such assets is available for the immediate or deferred benefit of the persons mentioned in that sub-section. This sub-section came up for consideration before the Supreme Court in the judgment reported in CIT v. M.R. Doshi [1995] 211 ITR 1 referred to supra. The facts in that case are as hereunder: "The assessee, an individual, had executed two deeds of trust and a supplementary deed, the cumulative effect of which was that the income from the trusts was to be accumulated until the attainment of majority by his three sons. The cumulative income was then to be divided into three equal shares and the respective 1/3rd share of each son was to be paid to him. The question was whether the income from the trusts could be included in the total income of the assessee under the provisions of section 64(1)(v) of the Income-tax Act, as it then stood." The hon'ble Supreme Court then went on to hold as hereunder: "In the judgment in the assessee's own case (Addl. CIT v. M.K. Doshi [1980] 122 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no application." From the judgment referred to above, it is clear that if the benefit has to reach a child only on the child attaining majority, namely, the benefit getting postponed to a definite future date, then, the income earned by such beneficiary shall not be included in the income of the individual in computing his total income. The words used in this sub-section is "immediate or deferred benefit". In Explanation 2A, the phrase used is "for the benefit of the minor child". This means that the minor should have the benefit of the income. In other words, the income must be readily available for the use of the minor. If the income is only to be credited to the minor's account in the trust and to remain there as it is till the minor attains majority, then, it must be held that it is not for an immediate use for the minor, which means that the minor do not get any benefit at all for the present. He is not entitled to receive the money till he attains majority. Therefore, in our considered opinion, the expression "for the benefit of the minor" found in Explanation 2A to section 64(1) of the Act would only mean that the minor should be the legal owner of the income mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. If, on verification, it is found that such income in the hands of the trustee stands transferred to the trust account to be accumulated till the minors/beneficiaries attain majority, then, it shall not be included in the income of the individual. If it is otherwise, it can be included. Accordingly, T.C. No. 107 of 1996 stands disposed of as hereunder: "The Assessing Officer will reopen the assessment for the period 1985-86; verify from the records already available or to be produced by the assessee as to the manner of disposal of the minors/beneficiaries share of income from the partnership firm namely, whether it is available for their immediate benefit or it stands credited to the trust account to be accumulated till the beneficiaries attain majority and depending upon the outcome of such finding, to proceed in accordance with law." We conclude as hereunder: "To attract clause (iii) of section 64(1) of the Income-tax Act read with Explanation 2A of the same Act, unless it is found that the minor, for whose benefit the income is available, is shown to have an absolute right of disposal in praesenti over the same, it cannot be included in the income of the individual in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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