9911796707
TMI Blog1996 (7) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... l's finding that the assets transferred to the minors through the medium of trusts cannot be included in the net wealth of the assessee under section 4(1)(a)(v) of the Wealth-tax Act is sustainable in law ? " The assessee, Smt. N. Muthammal, Dindigul, is an individual. For the assessment year 1976-77, the accounting year ended on December 31, 1975. She derived share income from two firms and other sources. Originally, the assessment was completed on January 28, 1977, on a total income of Rs. 28,590 in which the assessee has not shown any income against column 12(b) in the return of income pertaining to income arising to spouse/minor child/son's wife/son's minor children. On the basis of communication from the Income-tax Officer, the assessment was reopened and the Income-tax Officer included the income arising from three private trusts created by the assessee, viz., Vijayashree Trust, Sujatha Trust and Ranjit Trust, in favour of her minor grandchildren, viz., Miss Vijayashree, Miss Sujatha and Master Ranjith, by invoking section 64(1)(vi) of the Income-tax Act, 1961. According to the Income-tax Officer, the word " indirectly " appearing in section 64(1)(vi) would apply to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following his decision in the income-tax appeal for the assessment year 1976-77 deleted the inclusion of assets made by the Wealth-tax Officer under section 4(1)(a)(v) of the Wealth-tax Act, 1957. Aggrieved, the Revenue filed a second appeal before the Tribunal and the assessee filed a cross-objection. The Tribunal, following its order in Income-tax Appeal No. ITA 539 (Mds.) of 1982 and C. O. (Mds.) of 1982 dated December 31, 1982, upheld the order of the Appellate Assistant Commissioner both on the validity of reassessment proceedings and on the merits of the case. Learned standing counsel for the Department submitted that section 64(1)(vi) applied to the transfer of assets through the medium of trust, which amounted to indirect transfer. Therefore, the Tribunal was not correct in holding that section 64(1)(vi) would not be applicable to the facts of this case. In order to support his contention, learned standing counsel relied upon a decision of the Calcutta High Court in Sital Chowdhury v. CIT [1979] 119 ITR 698. Reliance was placed upon the decision of the Supreme Court in CIT v. C. M. Kothari [1963] 49 ITR 107 (SC), which was applied in the decision in Sital Chowdhury v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, created three trusts in favour of the three grandchildren and gifted amounts for the benefit of the three minors by creating a trust. The point for consideration is whether the income arising to the three minor children is assessable in the hands of the assessee grandmother by applying the provisions of section 64(1)(vi) of the Income-tax Act, 1961, and whether the net wealth in the hands of the three minors is assessable in the hands of the grandmother, the assessee herein, since there was indirect transfer. In the instant case, gifts have been made admittedly after June 1, 1973, to the above three different private trusts for the benefit of the abovesaid three minor children through her son. Under section 64(1)(vi), in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the son's wife, or son's minor child of such individual from assets transferred directly or indirectly on or after the June 1, 1973, to the son's wife or son's minor child by such individual, otherwise than for adequate consideration. In the present case, there is no complaint that there is no adequate consideration in making the gifts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the nature of the transaction in the instant case was similar to that which was before the Supreme Court. The assets of the assessee in the process of being transferred in favour of his wife have been deliberately and in a planned manner converted into assets of a like value in the hands of another person and on the basis of the exchange the income is indirectly reaching the hands of the assessee's wife. Consequently, section 64(iii) of the 1961 Act was applicable and the entire income from the assets transferred by the assessee to J was includible in the income of the assessee : CIT v. Kothari (C. M.) [1963] 49 ITR 107 (SC) and CIT v. Abhijit Sen [1968] 68 ITR 23 (Cal) followed. " In CIT v. C. M. Kothari [1963] 49 ITR 107 (SC), the Supreme Court while considering the provisions of section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, and while answering the question, whether the income arising to Mrs. C and Mrs. D from the house arose out of the assets transferred indirectly to them by C and D, respectively and could, therefore, be included in the total income of C and D under section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, held as under : " (i) That for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of profits to the extent of 20 per cent., that would at best be a surrender in favour of the firm and not in favour of the minor children of the assessee. Consequently, there was no transfer of assets by the assessee in favour of his minor children or for their benefit even indirectly. The Tribunal was, therefore, right in deleting the addition of the share income of the trust in the assessment of the assessee for the assessment years in question. " Learned counsel also relied upon a decision in CIT v. T. G. K. Raman [1995] 214 ITR 11, wherein this court while considering section 64 of the Act, held : " ... that a plain reading of the trust deed showed that the benefit was not given to the minor during his minority, but upon his attaining majority. Section 64(1)(v) was not, therefore, applicable. The Tribunal was right in excluding the dividend from the shares from the total income of the assessee. " Our attention was also drawn to a decision of the Supreme Court in CIT v. M. R. Doshi [1995] 211 ITR 1, where the Supreme Court, while considering the provisions of section 64(v) (prior to amendment in 1971) held as under : " ... that the specific provision of the law under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grandmother, since there is indirect transfer. Section 4(1)(a)(v) states that in computing the net wealth of an individual, there shall be included as belonging to that individual, the value of the assets which on the valuation date, are held by the son's wife or the son's minor child of such individual, to whom such assets have been transferred by the individual, directly or indirectly, on or after June 1, 1973, otherwise than for adequate consideration. According to the facts, as stated by learned counsel appearing for the assessee, the net wealth in the hands of the minor beneficiaries was stated to be assessed in the hands of the trust, under section 21 of the Wealth-tax Act, 1957, since the trust was considered to be holding the net wealth of the minors. Inasmuch as the net wealth of the minor beneficiaries was assessed in the hands of the trust under section 21 of the Wealth-tax Act, 1957, we consider that another assessment in the hands of the grandmother is not warranted, since it cannot be said that she is holding the net wealth in her hands, after the gifts were made to the trust. Accordingly, on the basis of the facts recorded by the Tribunal, we answer the questions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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