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TMI Blog1962 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... be made under the first proviso to section 41(1). We have, therefore, come to the conclusion that on the second question also the answer given by the High Court was correct. Appeal dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ttlement were not only the assessee but his wife and children as well. It was contended that the assessee received the amoount in trust for himself and his wife and children and it was open to the department to proceed under the first proviso to section 41(1) of the Income-tax Act and recover tax on a separate assessment made on the assessee as a trustee in respect of the said sum at the maximum rate, because the individual shares of the beneficiaries on whose behalf the money was receivable were indeterminate and not known. The Income-tax Appellate Tribunal, on an appeal by the assessee, did not accept these contentions. The Tribunal was then moved to state a case to the High Court on two questions of law. Those questions were : " 1. Whether the sum of Rs. 410 is properly includible in the assessee's total income either in accordance with the provisions of section 16(3)(b) and/or section 16(3)(a)(iv) of the Indian Income-tax Act, 1922 ? 2. Whether the sum of Rs. 14,170 is properly includible in the total income of the assessee as the sole beneficiary thereof under the trust settlement made on 1-12-1941 by Dhanji Devsi ? " On being satisfied that these questions of law aros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... she had no right to the trust income nor any beneficial interest therein ; she could neither receive nor enjoy the income. She did not derive any benefit whatsoever from the trust funds during her minority and even after she attained majority, she did not have any right to the trust income which arose during her minority and her only right was to enjoy the income arising from the enlarged trust funds, i.e., the original trust funds and the accumulations of trust income during her minority. Therefore, the sum of Rs. 410 was not the income of Chandrika, but was the income of the trustees and the income was impressed with a trust, namely, that it should be added to the trust corpus. The question is, does section 16(3)(b) apply to such a case ? We shall presently read section 16(3), but before we do so it is necessary to refer to the scheme of section 16 of the Income-tax Act. The section deals with the computation of total income as defined in section 2(15) of the Act, and provides what sums are to be included or excluded in determining the total income. The definition of total income in section 2(15) involves two elements---(a) the income must comprise the total amount of income, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife or a minor child or both. " The argument on behalf of the appellant is that the conditions laid down in clause (b) of sub-section (3) of section 16 are fulfilled in the present case and, therefore, the department was entitled to include in the total income of the assessee so much of the income in the hands of the trustees as arose from the assets transferred by the assessee for the benefit of his minor child. It is pointed out that the conditions laid down in clause (b) are---(1) that there must be income in the hands of any person or association of persons (trustees in the present case) ; (2) the income must arise from assets transferred otherwise than for adequate consideration to the trustees ; and (3) the transfer must be for the benefit of the minor child. It is argued that when the conditions are fulfilled and the only exceptional case, namely, where the transfer is for adequate consideration is out of the way, clause (b) must apply and the department is entitled to include the income in the hands of the trustees in computing the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year the transfer was for the benefit of the minor child. Section 4, the charging section, of the Income-tax Act makes it clear that what is taxed is the total income of the relevant account year, and total income, according to section 2(15), is the income, profits and gains referred to in sub-section (1) of section 4 and computed in the manner laid down in the Act. In other words, the tax is levied on a yearly basis. It is true that in the present case there was income in the hands of the trustees and the trustees were liable to pay tax thereon. That, however, is not the question before us. The question before us is whether such income in the hands of the trustees could be included in the total income of the assessee under clause (b) of sub-section (3) of section 16. In our opinion, when clause (b) of sub-section (3) of section 16 talks of benefit of the minor child it refers to benefit which arises or accrues to the minor in the year of account. If there be no such benefit the income cannot be included in the total income of the individual who made the transfer. There is a third type of case which also illustrate the same principle. If only a portion of the income of the trust is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression " immediate or deferred benefit " so that even a benefit which is postponed and does not arise in the year of account will entitle the department to include the income in the hands of the trustees in the total income of the settlor. We do not, however, think that the Act of 1961 can be taken as declaratory of the law which existed previously ; nor can section 64(v) be taken as determinative of the true scope and effect of clause (b) of sub-section (3) of section 16. The legislature may have thought fit in its wisdom to widen the scope of the law that existed previous to it so as to take in deferred benefits as well. We think that we must interpret clause (b) of sub-section (3) of section 16 in the context of the section as it occurs in the Income-tax Act of 1922. We have been referred to two English decisions, Dale v. Mitcalfe and Mauray v. Commissioners of Inland Revenue. One of the decisions (Dale v. Mitcalfe) related to section 25 of the English Income Tax Act, 1918 (8 & 9 Geo. V, c. 40) and the other related to section 20(1)(c) of the English Finance Act, 1922 (12 & 13 Geo. V, c. 17). Those provisions were differently worded and appear in a different context and decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d does enforce a direction or trust in favour of third parties if such a binding obligation can be clearly ascertained from the document. Instances of cases where no trust is created and of cases where a trust is created are detailed at pages 85 and 86 of Lewin on Trusts (15th edition). We are unable to hold that in the case before us clause 7 of the trust deed merely expressed a wish or desire or hope on the part of the settlor. We are in agreement with the High Court that the direction contained in clause 7 created a trust in favour of the assessee, his wife and children. The expression " for the maintenance of himself and his wife and for the maintenance, education and benefit of all his children " is not indicative of a mere desire or hope. It imposes a binding and obligatory trust. In re Booth : Booth v. Booth a testator gave the residue of his estate to his executors, on trust, to pay to his wife, or permit her to receive the annual income thereof during her life, " for her use and benefit and for the maintenance and education of my children ". It was held that the wife took the income subject to a trust for the maintenance and education of the children. A similar view was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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