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TMI Blog1988 (6) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... are the five minor children of the said Narasimhaiah represented by their mother, trustee, in the firm of Jaya Co. Similarly, in the Veeranarasimhaiah trust, the three minor children of Veeranarasimhaiah are represented by their mother as the trustee in the registered firm of Narasimhaiah Bros. The said two trusts were created on November 29, 1969, and they were registered on December 4, 1969. A sum of Rs. 10,000 was settled by M. D. Veeranarasimhaiah in favour of the trust created by him, while D. L. Narasimhaiah settled a sum of Rs. 9,999 in favour of the other trust. The trust funds were invested in the said two firms and the two trusts became partners in the respective firms. For the assessment year 1976-77, the share income received by the respective trusts from the firms were apportioned equally among the respective beneficiaries and taxed in their hands. The trust deed provided that the income arising from the property of the trust shall be accumulated until the termination of the trust. It is only on the determination of the trust that the monies accumulated and the trust fund are to be distributed among the beneficiaries. The beneficiaries were minors. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attainment of majority of the minor children. Clause 1 provides that the trustees shall hold the, trust property for the benefit of the beneficiaries. The same idea is repeated in clause 2, while clause 5 makes a provision for a deferred payment, viz., that the net profit or, loss shall be duly credited or debited respectively to the account of each of the beneficiaries in accordance with the share he is entitled to under these presents, the trustees shall only accumulate the income and shall not, during the existence of the trust, expend or authorise any expenditure from out of the trust funds including the accumulated income for the benefit of the beneficiaries or disburse, during the existence of the trust, any amounts, for any reason whatsoever to the beneficiaries or any of them. Clause 6 provides that the trust shall be in force till March 31, 1989, and thereafter shall get extinguished, whereupon, the sums due to the beneficiaries from the trust including the amounts, if any, standing to their credit in their respective accounts shall be paid off. In the event of any of the beneficiaries dying before the trust is extinguished, the beneficial interest in the trust property sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid section. This court in the case of CIT v. A. B. V. Gowda [1986] 157 ITR 697 explained the meaning and distinction between the words "accrue", "arise" and "received". It was held therein that the income is said to accrue to person when he has a right to the income and that right must be an enforceable right in regard to that income though actual quantification and receipt may follow in due course. Therefore, in the present case, the two aspects referred to by Sri Srinivasan, viz., "income received" or "income accrued" do not arise for consideration. The only question that falls for consideration is as to what beneficial interest the beneficiaries have in the income which is accumulated. The "beneficial interest" is defined in section 3 of the Indian Trusts Act, 1882, which reads as under : "The 'beneficial interest' or 'interest' of the beneficiary is his right against the trustee as owner of the trust property." A careful reading of the provisions of the trust deed makes it clear that during the subsistence of the trust, the minor children have absolutely no right whatsoever to enforce against the trustee in respect of the accumulated income. Hence, by no stretch of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary must have received or derived some benefit in the relevant year either in the income or corpus or both. The change in the language of section 64(1)(vii) by introducing the expression "immediate or deferred" will govern only the "benefit" and not the minority of the child. The fictional transfer in section 64(1)(vii) becomes applicable only if the enjoyment is deferred for any time when it can be taxed in the hands of the individual, that is, during the minority of the child. In a case where the enjoyment of benefit in the income or corpus is postponed beyond the period of minority, the provisions of the clause do not apply. Thus, where the income during the minority is to be accumulated and added to the corpus and income from the increased corpus is given to the child on attaining majority, that income cannot be assessed in the hands of the transferor. The deeming clause of section 64(1)(vii) can have effect in any of these situations : (a) if the minor child receives or enjoys benefit from the transferred asset or if he is entitled to the enjoyment of some benefit though not actually availed of the same, or, (b) when the enjoyment is postponed to a period within the min ..... X X X X Extracts X X X X X X X X Extracts X X X X
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