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TMI Blog1991 (1) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee ... Smt. V. J. Aleykutty. Assessment years ... 1969-70 and 1970-71. Income-tax References Nos. 64 and 65 of 1988 : Respondent-assessee ... Sri T. J. Joseph. Assessment years ... 1969-70 and 1970-71. Income-tax References Nos. 68 and 69 of 1988 : Respondent-assessee ... Sri K. J. Mathew. Assessment years ... 1969-70 and 1970-71. In the above batch of six cases, we are concerned with the interpretation to be placed on section 64(1)(v) of the Income-tax Act, 1961, before the section was substituted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. In the next batch of cases, the details are as follows: Income-tax Reference No. 34 of 1986 : Respondent-assessee ... Dr. K. J. Mathew. Assessment year ... 1976-77. Income-tax Reference No. 141 of 1986 : Respondent-assessee ... Smt. V. J. Aleykutty. Assessment year ... 1978-79. Income-tax Reference No. 53 of 1987 : Respondent-assessee ... Dr. K. J. Mathew. Assessment year ... 1978-79. Income-tax Reference No. 67 of 1988 : Respondent-assessee ... Dr. K. J. Mathew. Assessment year ... 1977-78. Income-tax References Nos. 88 to 90 of 1988 : Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thapar v. CIT [1972] 83 ITR 208. So, this court declined to answer the question whether the income arising to the minor children of the assessee by virtue of all being beneficiaries in the trust can rightly be included in the total income of the assessee under section 64(v) of the Income-tax Act, 1961. The Tribunal was directed to dispose of the appeals in accordance with law and in the light of the observations contained in the said judgment. Thereafter, the matter was considered by the Tribunal in the appeals relating to one of the assessees, Sri K. J. Mathew, and an order was passed by the Tribunal for the assessment years 1969-70 and 1970-71. The order is dated June 30, 1979, which is the main order which has been followed in the case of the other two assessees also, and for all the subsequent years, by the Incometax Appellate Tribunal. The main order passed by the Tribunal, dated June 30, 1979, is annexure C in Income-tax References Nos. 68 and 69 of 1988. After adverting to the history of the case, section 64(v) of the Income-tax Act, and the decision of the Supreme Court in Prem Bhai Parekh's case [1970] 77 ITR 27, the Tribunal concluded thus : "But, this is in pursuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stituted for the following by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976 : (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly- . . . (v) to any person or association of persons from assets transferred 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." The question/questions of law referred in the second batch of cases Income-tax Reference No. 34 of 1986, (assessment year 1976-77, Dr. K. J. Mathew), Income-tax Reference No. 141 of 1986 (assessment year 1978-79, Smt V. J. Aleykutty), Income-tax Reference No. 53 of 1987 (assessment year 1978-79, Dr. K. J. Mathew), Income-tax Reference No. 67 of 1988 (assessment year 1977-78, Dr. K. J. Mathew) and Income-tax Reference Nos. 88 to 90 of 1988 (assessment years 1980-81, 1981-82 and 1982-83, Smt. V. J. Aleykutty) are to the following effect: Income-tax Reference No. 34 of 1986 : "Whether, on the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cases, the provision of law which is relevant is section 64(1)(vii) of the Income-tax Act, 1961. It is as follows : 64. Income of individual to include income of spouse, minor child, etc.-(1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly-. . . (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." We heard counsel for the Revenue, Mr. P. K. R. Menon, as also counsel for the respondent-assessee, Mr. George. Even at the outset, we expressed to counsel that it will be extremely difficult to answer the question/questions referred to this court by the Tribunal, in the absence of the various trust deeds under which income has been received by the children of the assessees. Counsel for the assessees has filed C. M. P. No. 933 of 1990 in Income-tax Reference No. 71 of 1986 along with an affidavit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was whether the income arising to the minors by virtue of their admission to the benefits of partnership in the firm could be included in the total income of the assessee under section 16(3) (a) (iv) of the Income-tax Act which was to the following effect (at pp. 29, 30) : "In computing the total income of any individual for the purpose of assessment, there shall be included -(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly .... (iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration." In construing the above section, the Supreme Court held thus (at p. 30) : "There is no dispute that the assessee had transferred to each of his minor sons, a sum of Rs. 75,000. It may also be that the amount contributed by those minors as their share in the firm came from those amounts. But the question still remains whether it can be said that the income with which we are concerned in this case arises directly or indirectly from the assets transferred by the assessee to those minors. The connection between the gifts mentioned ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961, requires further evaluation. That apart, the crucial aspect in Prem Bhai Parekh's case [1970] 77 ITR 27 (SC), as explained in CIT v. Prahladrai Agarwala [1989] 177 ITR 398 (SC), is that it is as a result of the agreement between the partners that the minor (or the wife) were entitled to the benefits or became a partner in the firm land as a result of such membership in the firm, the minor (or the wife) received the income. In other words, it is not the mere contribution of capital by the minor (or the wife) in the firm that entitled the minor (or the wife) to membership in the firm automatically. It is as a result of a further agreement between the partners that the minor (or the wife) became entitled to the benefits of the firm and received the income in question. The receipt of such an income was said to be not as a result of the transfer and the connection between the gift obtained by the minor (or the wife) and the income received by the minor (or the wife) from the firm was said to be remote. How far the ratio laid down in Prem Bhai Parekh's case [1970] 77 ITR 27 (SC) is applicable to the present case requires further appraisal. The Revenue contends th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guard against a growing tendency on the part of the assessees in making attempts to avoid or reduce tax liability by means of settlements and to provide against the disposal by the assessees of a part of their property in such a way that the income will no longer be received by them while, at the same time, retaining powers over or interest in the property or its income. - See Tulsidas Kilachand v. CIT [1961] 42 ITR 1 (SC) page 4. On a resume of the above, it is evident that it is essential to find out on what basis the minor children of the assessees received income from the various trusts. The various aspects that arise for consideration are (1) Who created the trust? (2) Who are its beneficiaries ? (3) What are the terms and conditions under which the beneficiaries received income ?+ (4) Who are all the persons who contributed to the corpus of the trusts ; and what are the various clauses in the trust deeds by which the corpus is to be administered and income distributed to the various beneficiaries ? These and other aspects are germane to the enquiry and also to consider whether the income received by the various beneficiaries are includible in the income of the di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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