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Income‑tax Reference No. 14 of 1957, decided on 8th February 1960.
Income‑tax Act (XI of 1922)
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----S. 16 (3) (b)‑Transfer of assets-- Settlement in favour of wife, children and mother‑Portion of income reserved for wife and children‑Whether included in total income of settlor.
Section 16 (3) (b) of the Income‑tax Act, 1922 which provides that "so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consi deration to that person or association by an individual for the benefit of his wife or a minor child or both", shall be included in the total income of that individual, clearly deals with only that portion of the income of the transferee which arises from the assets transferred to him by the individual for the benefit of his wife or minor child or both. The whole of the income need not be reserved for the benefit of the wife or the minor child or both. The presence of the words "or both" does not make the position any different. The use of the expression "so much of the income" shows that a portion of the income of the assets transferred may be reserved for a person other than the wife or a minor child.
Held accordingly that where the assessee created a trust in favour of his mother, his wife and his children, three‑fourths of the income of the trust which was reserved for the benefit of his wife and minor children should be included in the total income of the assessed, under section 16 (3) (b) of the Income‑tax Act.
Commissioner of Income‑tax v. Mohamed Yusuf Ismail (1944) 12 I T R 8 ref.
‑The question of law referred to this Court under section 66 (1) of the Indian Income‑tax Act in this case is:
"Whether on the facts and in the circumstances of the case, three‑fourths of the income from the trust created by the applicant was includible in his total income under section 16 (3) of the Indian Income‑tax Act "
The facts are very short and not in dispute. One Baidya Nath De executed a trust deed on April 5, 1951, constituting himself as the sole trustee during his lifetime. The beneficiaries under the trust were Baidya Nath De himself, his wife, mother, a minor son, two unmarried daughters, sons to be born and their heirs. The settlor did not specify the definite shares of the beneficiaries. On February 10, 1954, he executed a supplementary deed giving up his beneficial interest reserved under the trust deed of April 5, 1951, and directed that the shares of the beneficiaries should be as follows:
"Mother 1/4th share ; wife for herself and on behalf of her daughters till their marriage 1/4th share with a direction that they should enjoy, it equally amongst themselves and on the daughters being married, her or their respective shares shall devolve upon the wife. The minor son was given the remaining half share. After the lifetime of the mother and the wife their respective shares shall devolve on the minor son and sons to be born and their heirs in‑equal proportion."
The Income‑tax Officer held that the trust deed fell within the mischief of the proviso to section 16 (1) (c) of the Indian Income tax Act. This was confirmed in appeal by the Appellate Assistant Commissioner, but before the Tribunal the contention of the assessed was accepted in part and the Tribunal held (i) that the shares of the beneficiaries were not specified in the trust deed dated April 5, 1951. and the applicant had retained interest in the income by way of hip own maintenance and (ii) that the Income‑tax authorities were right in refusing to act upon it. The Tribunal excluded the income reserved for the mother, but held that 3/4th of the income which were reserved for the benefit of the wife and the minor children should be includible in the income of the assessee.
Section 16 (3) (b) runs as follows:
"In computing the total income of any individual for the purpose of assessment, there shall be included so much of the income of any person or association of persons as arises from assets transferred 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."
It is contended before us that the section is attracted only in cases where property is transferred to trustees for the benefit of the wife or the minor child or both and is not attracted to a case where any benefit is reserved to any person other than the wife or minor child. The argument is that the use of the expression "or both" showed that the section was to be limited to the cases where any benefit was reserved for the wife or minor child or both and it could not be applicable in a case where any third party, ,that is to say, a person other than the wife or minor child, had any interest reserved under a trust deed. We are unable to accept this argu ment. Section 16 (3) (b) clearly deals with only that portion of the income of the trustee, which arises from assets transferred to him by the settlor for the benefit of his wife or minor child or both. By implication, it is clear that the whole of the income need not be reserved for the benefit of the wife or the minor child or both. The addition of the words "or both" does not make the position any different. It was argued that the expression "or both" need not have been used at all, for if the section had stopped at the expression "minor child" the meaning would have been the same. Probably that is so and the use of the expression "or both" may be ex abundanti cautela, but the meaning seems to be clear, namely, that any portion of the income which arises from assets transferred to a trustee for the benefit of his wife or minor child or both is to be included in the income of the individual, that is to say, the settler. The question came up for consideration by the Bombay High Court in the case of Commis sioner of Income‑tax v. Mahomed Yusuf Ismail ((1944) 12 I T R 8), by a Bench presided over by Beaumont, C. J., and Chagla, J., as he then was. In view of the opinion formed by the Court as to whether there could be a reopening of the assessment under section 34 of the Act in the circumstances of the case both the learned judges thought that they need not go into the further question as to the meaning of section 16 (3) (b), but Beaumont, C, J., dealt with the question at page 16 of the report and observed:
"If the argument of the assessee is right, the Commissioner submits that really he might have included the whole of the income arising from assets transferred and not merely that portion of the income which went to the wife."
It was argued on behalf of the assessee that section 16 (3) (b) was only meant to apply to cases where specific assets were transferred for the benefit of the wife or the minor child. Beaumont, C. J., had no hesitation in rejecting the same. The same argument was raised before us and it was further contended that if assets were transferred for the benefit of a third party as well as for the wife or a minor child or both the section would be inapplicable. We cannot accept this. The use of the expression "so much of the income" shows that a portion of the income of the assets transferred may be reserved for a person other than a wife or minor child. Beaumont, C. J, said in that case that undoubtedly assets had been transferred and the transfer was beneficial to the wife who got 21 percent. of income and therefore, the case fell within ‑the subsection. Chagla, J., dealt with the point even more briefly, but he agreed with the view taken by the learned Chief Justice.
In our opinion, there is no substance in the contention raised and the answer to the question of law is that three‑fourths of the income from the trust created by the applicant was includible in his total income under section 16 (3) (b) of the Indian Income‑tax Act.
The question is, accordingly answered in the affirmative.
The assessee will pay the costs of this reference.
LAHIRI, C. J.
‑I agree.
Question answered in the affirmative.
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