C.R. Nagappa v. Commissioner Of Income-Tax

Hegde, J.:— In this reference under Section 66(1) of the Indian Income-Tax Act, 1922 to be referred to herein after as the Act, the Income-Tax Appellate Tribunal, Madras Bench, has referred the following questions of law for the opinion of this Court.—

(1) Whether on the facts and circumstances of the case, the income from assets transferred by the assessee to the trustees otherwise than for the adequate considerations for the benefit of the minor children under the seven separate trust deeds is properly includible in the assessee's total income in accordance with the provisions of Section 16(3)(b) of the Indian Income-Tax Act, 1922?

(2) Whether Section 41 of the Indian Income-Tax Act is a bar for treating the income received by the trustees on behalf of the beneficiary as the income of the settler?

(3) Whether on the facts and circumstances of the assessee's case, the income from the trust properties is not exempt by virtue of the third proviso to Section 16(1)(c) of the Indian Income-Tax Act? And,

(4) If the answer to question No. 1 is in the affirmative, to what extent the income from the trust properties is includable in the assessee's total income?

Statement of the Case.

The assessee, an individual, was owner of immovable properties in Bangalore. On 14-4-1956 by virtue of seven independent trust deeds registered in the office of the Sub-Registrar, Bangalore City on 24-4-1955 transferred and assigned certain of his properties to the trustees upon trust. The trustees were the assessee, his two wives and his married daughter. The beneficiaries under the different trusts were the six minor sons and one un-married minor daughter. The four trustees were Smt. Gowramma, Smt. Veeramma, Smt. Kamalamma and the assessee himself. The seven trust deeds are identical in nature and the relevant clauses of one of the trust deed are as under.—

“The Settlor, out of natural love and affection for his abovesaid children is desirous of creating separate and independent trust of the properties belonging to him for the benefit and enjoyment of each of his aforesaid children separately.”

“1. The settlor hereby transfers and assigns the property described in the schedule hereto which belongs to him to the—trustees upon trust”.

(Underlining is ours).

“2. Out of the rents and profits so collected the trustee shall, in the first instance pay all the taxes, rates x x x out of the balance after deducting and meeting the above expenses, the trustee shall pay every month Rs. 75 to C.N Kumar the beneficiary under the trust, till he completes his 13th year and thereafter Rs. 100 a month, for his maintenance, upbringing, education and advancement in life. The said sum shall be paid over to Smt. Veeramma, as mother and guardian of the said minor till he completes his 20th year whereupon Bach amount shall be paid over directly to the said C.N Kumar till he completes his 21st year”.

“3. If any amount is left over after the payments referred to above, the trustees shall deposit the same in the name of the said minor C.N Kumar or invest the same in his name. x x x”.

“12. The trustee or trustees shall transfer the schedule trust properties to the said C.N Kumar the beneficiary under the trust absolutely along with any accumulations of money; shares, dividends, stocks, acquisitions of moveable or immoveable properties, profits and rents, etc., on the said C.N Kumar completing the age of Twenty-one years.”

“13. In the event of the said beneficiary dying intestate before the age of 21 years without leaving his wife or children, the beneficial interest and the properties for which he would have been entitled under these presents shall pass to his legal heirs …”

In the course of the assessment proceedings, the Income-Tax Officer sought to include the income arising from the trust properties in the assessee's total income on the ground that the provisions of Section 16(3)(b) of the Act applied to the facts of the assessee's case. The assessee's contentions that the third proviso to Section 16(1)(c) of the Act applies to the assessee's case or that the income from the trust properties should not be otherwise included in the assessee's total income were negatived by the Income-Tax Officer.

The appellate Assistant Commissioner on appeal upheld the Income-Tax Officer's contention and the assessee's appeal was dismissed.

There was an appeal to the Tribunal. It was contended that, on the facts and circumstances of the case, the case fell within the exception mentioned in third proviso to Section 16(1)(c) of the Income-Tax Act and as such Section 16(3)(b) had no application and alternatively, if Section 16(3)(b) applied then only such income or benefit as was actually received or derived by the minor child in the year of account could be assessed and not the entire income.

The Appellate Tribunal held that the beneficiaries had absolute interest in the assets of the trust created and that the rents and income from the assets transferred to the trustees have been in fact received by the trustees for the benefit of the beneficiaries; the income belonged to the beneficiaries which the trustees were only to receive on their behalf. Since the assets transferred to the trustees no longer remained the property of the settlor Section 16(1)(c) of the Act could not have any possible application to the facts of the case and therefore the third proviso thereto also could have no application whatsoever. In its view the assessee's case was clearly hit by the provisions of Section 16(3)(b) of the Act.

The first contention of Sri K. Srinivasan the learned counsel for the assessee is that on the facts found by the Tribunal the case fell within the scope of the third proviso of Section 16(1)(c). Section 16(1)(c) along with the third proviso thereto reads as follows:—

“All income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-Tax (Amendment) Act, 1939 (VII of 1939), from assets remaining the property of the settlor of disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor.

Provided further that this clause shall not apply to any income arising to any person by virtue of a settlement or disposition which is not revocable for a period-exceeding six years or during the lifetime of the person and from which income the settlor or disponer derives no direct or indirect benefit but that the settlor shall be liable to be assessed on the said income as and when the power to revoke arises to him.”

Before the third proviso to Section 16(1)(c) can come into operation the case must first come within the scope of Section 16(1)(c). If the case does not come within that provision, then no reliance can be placed on the proviso in question. Therefore we have to see whether the present case comes within the ambit of Section 16(1)(c). Section 16(1)(c) has two parts. It includes:

(1) All income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether affected before or after the commencement of the Act from assets remaining the property of the settlor or disponer, and,

(2) All income arising to any person by virtue of a revocable transfer of assets.

In the instant case as found by the Tribunal, which finding is not challenged before us, the assets themselves have been transferred in favour of the trustees for the benefit of the minors. Therefore the case does not certainly come within the first part of Section 16(1)(c). The trusts with which we are concerned in this case are not revocable trusts. Hence the second part of Section 16(1)(c) is also inapplicable. In other words, neither the first part nor the second part of Sec. 16(1)(c) is applicable to the facts of the present case and therefore the proviso referred to above cannot be of any assistance to the assessee. The scope of Section 16(1)(c) came up for consideration before the Supreme Court in Provat Kumar Mitter v. Commissioner of Income-Tax West Bengal(1) and again in Tulsidas Kilachand v. Commissioner of Income-Tax, Bombay City-1(2). Discussing the scope of that provision, this is what Hidayatullah J. who spoke for the Supreme Court observed at page 1025 in Tulsidas Kilachand's case.—

“The object of framing S. 16 can almost be taken from the observations of Lord Macmilan id Chamberlain v. Inland Revenue Commissioners,(3) where he stated as follows:

“This legislation………….. (is) designed to overtake and circumvent a growing tendency on the part of tax payers to endeavour to avoid or reduce tax liability by means of settlements. Stated quite generally, the method consisted in the disposal by the tax-payer of part of his property in such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interests in, the property or its income. The legislature's counter was to declare that the income of which the tax-payer had thus sought to disembarass himself should, notwithstanding, be treated as still big income and taxed in his hands accordingly.”

“These observations apply also to the section under consideration, and the Indian provision is enacted with the same intent and for the same purpose. Section 16 thus lays down certain exemptions and exclusions in determining the total income of assessee. Some of the provisions lay down the conditions for inclusion of certain income, while others lay down the conditions for exclusion of other income. We are concerned with the income accruing in case of settlements and the conditions under which income of a wife is treated as the income of the settle or disponer or as the income of the husband. We have to see if the provisions for exclusion or inclusion apply to this case.

“Section 16(1)(c) provides that income from assets remaining the property of the settlor or disponer or arising to any person by virtue of a revocable transfer of assets shall be deemed to be the income of the transfer or What Cl. (c) means was decided by this Court in Provat Kumar v. Commissioner of Income-tax,(4). There, Provat Kumar Mitter had asigned the dividends only, and had not transferred the relevent shares. It was held by this Court that this was a case of application of one's income and not assignment of the source form which the income was derived, which alone saved the income from tax, subject, however, the provisions like S. 16(1)(c) and S. 16(3). The deed in favour of the wife in that case gave only a right to the dividends, and not being a transfer of an existing property of the assessee, S. 16(1)(c) and the third proviso were not attracted. That case thus has no application to the facts of the present case, where the disposition is differently made.”

In the instant case as seen above, Cl. (1) of the Trust Deed specifically says:

“The Settlor hereby transfers and assigns the property described in the schedule hereto which belongs to him, to the-trustees upon trust.”

Hence the present case cannot be brought within the scope of Section 16(1)(c).

We now come to question whether the present case falls within Section 16(3)(b). That provision reads:

“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 arise 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”.

(Underlining is mine.)

There is hardly any doubt that in the present case the assessee had transferred a portion of his assets to the trustees, and the income that is tried to be brought within the net of taxation is the income that arose to the trustees from out of those assets which income was intended for benefit of the minor child.

The next contention of Sri Srinivasan was that before a case can be held to be within the scope of Section 16(3)(b) the trustee should not have realised the income “on behalf of the beneficiary”; it is only in cases where a trustee realises the income “for the benefit of the minor” that Section 16(3)(b) is applicable; if he realises the income on behalf of the minor, then the relevant provision is Section 41 and not Section 16(3)(b). In other words he tried to differentiate between the expressions “for the benefit of” found in Section 46(3)(b) and on behalf of” found in Section 41 of the Act. To eleborate that contention, according to the learned counsel that though under the general law the trustee is not only the owner of the corpus of the trust but he is also the owner of the income, under Section 41, for the purpose of the Act, the law is different; under the Act the trustee though considered as the owner of corpus is not considered to be the owner of the income; he is merely considered as receiving the income of the trust property on behalf of the minor; therefore whenever a trust is created for the benefit of a minor and the trustee realises the income of the trust property on behalf of the minor, Section 16(3)(b) becomes inapplicable. It is contended that the present case is one such. It is true that in Section 16(3)(b) we find the expression “for the benefit of” and in Section 41 the expression “on behalf of”. In I.T.R.C No. 11/1960 we had—occasion to consider the scope of Section 41. Therein we came to the conclusion that the expression “on behalf of” found in Section 41 is not a happy expression and in relation to the trustees it should be understood as meaning “for the benefit of”. We observed therein—

“The contention of the learned counsel for the Department is that expression was loosely used; when the Legislature used that expression, it merely intended to say “for the benefit of any person”. Though this interpretation is opposed to the Rule of grammatical construction, it appears to me that it is the only reasonable interpretation possible. The Rule of harmonious construction requires us to reconcile seemingly conflicting words and take the provision as an integrated whole. Both Sec. 41(1) as well as the first proviso to the same specially deal with “trusts” and “trustees.” The expression “trust” is well known in law, though not defined in the “Act”. For finding out the meaning of the word “trust” we have to fall back on the Trust Act. On an examination of the deed in question, we are left in no doubt that it is a trust deed and there was a validly constituted trust. If Sec. 41(1) as well as the first proviso thereto applies to trusts—in our mind there is no doubt about that—merely because the Legislature used the expressions “are entitled to receive on behalf of any person” and “on behalf of any one person, or where the individual shares of the persons on whose behalf they are receivable are indeterminate of unknown” there is no justification to say that income from trust properties does not fall within the scope of Sec. 41(1) or the first proviso thereto. Therefore, it is reasonable to construe the expressions mentioned above as being equivalent to “for the benefit of other person or persons.” I am aware that it is a hard thing to say that the Legislature intended something different from what is said and it is wrong thing to do so except on compelling grounds. But in the present case if we do not read those expressions in the manner I have indicated, then a good portion of Sec. 41(1) and the first proviso thereto becomes otiose. It is not proper to construe that any portion of a provision in a Statute as superfluous. Such a construction should be avoided except in extreme cases Though as a normal Rule the Courts should give to the words used in the Statute its normal meaning, occasions do arise when it becomes necessary to give special meaning to a word.”

In C.P 465/1960 it became necessary for us to consider the scope of Sec. 10(1)(a) of the Mysore Agricultural Income-Tax Act, 1957 which provision more or less corresponds to Section 41 of the Act. Therein we have observed that a trustee is not only the legal owner of the corpus of the trust property but is also the owner of its income.

Relying on the decisions of the Supreme Court in Commissioner of Agricultural Income-Tax, West Bengal v. Sri Keshab Chandra Mandal and Rao Bahadur Ravulu Subba Rao v. Commissioner of Income-Tax, Madras Sri Srinivasan contended that the Act being a self-contained Act, in considering its provisions the courts should not be influenced by the general law. In Sri Keshab Chandra Mandal's case, Das J. (as he then was) observed as follows:—

“There is no doubt that the true rule as laid down in judicial decisions and indeed as recognised by the High Court in the case before us is that unless a particular statute expressly of by necessary implication or intendment excludes the common law rule, the latter must prevail. It is, therefore, necessary in this case to examine the Act and the rules to ascertain whether there is any indication therein that the intention of the Legislature is to exclude the common law rule.”

This observation is undoubtedly against the contention advanced by Sri Srinivasan. In interpreting the true scope of the powers of a trustee, while dealing with Section 41 of the Act, we cannot keep out of consideration the law of Trusts, unless it is shown to us that the provisions of the Act either have specifically or by necessary implications altered the common law. No provision in the Act has been brought to our notice to show that for the purpose of the Act the trustee is not the legal owner of the income of the trust property. The true nature of the rights of a trustee was considered by the Supreme Court in W.O Holdsworth v. State of Uttar Pradesh. Section 11 of the U.P Agricultural Income-Tax, 1948 is modelled on the basis of Section 41 of the Act. While considering the scope of that Section the Supreme Court observed that—

“A trustee is the legal owner of the trust property and the property vests in him as such and the beneficiary has only a right against the trustee as owner of the trust property. The trustee no doubt holds the trust property for the benefit of the beneficiaries but he does not hold it on their behalf. The expression “for the benefit of” and “on behalf of” are not synonymous and convey different meanings; the former connotes a benefit which is enjoyed by another thus bringing in a relationship as between a trustee and a beneficiary or cestui que trust; the latter connotes an agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of another.”

Reliance was placed on some of the observations found in Rao Bahudur Ravulu Subba Rao v. Commissioner of Income Taxes, case. It is true that in that decision the Supreme Court quoted with approval the remarks of Lord Herschell in Bank of England v. Valiano—

“I think the proper course is in the first instance to examine the language of the statute, and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered… …”

Their Lordships further observed:

“We must therefore construe the provisions of the Indian Income-Tax Act as forming a code complete in itself and exhaustive of the matters dealt with therein, and ascertain what their true scope it.”

Again at the end of the judgment their Lordships observed:

“To sum up, the Indian Income-Tax Act is a self-contained code exhaustive of the matters dealth with therein, and its provisions show an intention to depart from the common rule, qui facit per alium facit per se.”

It is true that if there is any conflict between the law as enunciated in the Act and common law, the former must prevail. But the question now for consideration is whether on a true interpretation of the relevant provisions there are reasons to think that for the purpose of the Act, a trustee cannot be considered as the legal owner of the income of the trust property. We are unable to agree with Sri Srinivasan that merely because the legislature used the expression “on behalf of” in Section 41 it intended to effect any change in the nature of the legal relationship between the trustee and the beneficiary. The expression “on behalf” was evidently used in Section 41 because in that provision along with trustees, guardians and other like representatives of the legal owners were included. The language of Section 41 does not make any distinction between the corpus of the trust and the income thereof. Therefore what is true of the corpus would be equally true of its income. If a trustee does not hold the corpus “on behalf of the beneficiaries” equally it cannot be said that he is holding the income of the trust property “on behalf of the beneficiaries”. The attempt of Sri Srinivasan to distinguish between the corpus of the trust and its income appears to me to be a distinction without difference. At any rate that distinction is not justified by the language of any provision in the Act. After carefully considering the arguments of Sri Srinivasan, I see no reason to deviate from the view expressed by us in I.T.R.C 11/1960.

If our interpretation of Section 41(1) in I.T.R.C 11/60, is the correct interpretation then the present case must definitely come within Section 16(3)(b) as well as within Section 41. But as between the two the former provision being a special provision it should prevail over the later. Section 41(1) covers all trusts, whereas Section 16(3)(b) covers only trusts wherein the beneficiaries are the wife or the minor children of the Settlor.

We have earlier seen that the settlor in this case (the assessee) had transferred his assets in favour of the trustees and the trustees are directed to applly the income of the trust property for the benefit of the minor child. Section 16(3)(b) is modelled on the basis of the corresponding provision in the English Income-Tax Act. The provision in the English Income-Tax Act came up for consideration in The Commissioners of Inland Revenue v. John C. Dewar. The material facts of that case are as follows:—

Under a deed of trust a father made over funds to trustees, directing them to take out an educational endowment assurance policy on the life of his daughter, born in 1927, to provide an annuity for four years from the date when she attained the age of fifteen. The premiums on the policy were to absorb practically the whole trust income. The trustees were to apply the annuity and any income of the trust funds for the daughter's education and advancement from the date of her attaining the age of fifteen until she was twenty-one, when the funds in trust were to be transferred to her absolutely. In the event of the daughter dying before attaining the age of twenty-one the trust funds were to revert to the father. The House of Lords held that the income in question was not income of the daughter.

A case some what similar to the one that we are considering came for decision before the Bombay High Court in Commissioner of Income-Tax, Bombay v. Sir Mahomed Yusuf Ismail. Therein under a deed of wakf executed by the assessee in 1929 the trustees paid 21 per cent of the income of the property transferred, to the assessee's wife which was not included in the income of the assessee for the assessment year 1939–1940. Subsequently the superior officer of the Income-Tax Officer took the view that the provisions of Section 16(3)(b) had been misconstrued and the Income-Tax Officer thereupon proceeded to re-open the assessment under Section 34. Before their Lordships it was contended that Section 16(3)(b) did not apply to the facts of the case. Negativing that contention the Court held that the income received by the wife could be included in the income of the assessee under Section 16(3)(b) of the Act.

On a consideration of the relevant provisions of the Act as well as the decided cases. I have no doubt that the facts of this case clearly fall within the scope of Section 16(3)(b) of the Act.

For the reasons mentioned above, I see no conflict between Section 41(1) and Section 16(3)(b) and therefore the ratio of the decision in The State of Uttar Pradesh v. Basti Sugar Mills Co. Ltd., is not of any assistance for our present purpose.

This leaves us with the question to what extent the income of the trust property is includible in the assessee's total income. The contention of the Department is that the entire income utilised for the benefit of the minor child as well as that saved for its benefit should be taken into consideration; where as according to Sri Srinivasan, only that portion of the income which was utilised for the benefit of the minor during the relevant period should be taken into consideration and not the accumulated portion. Section 16(3)(b) says:

“So much of the income of any person or association of persons as arises from assets transferred x x x for the benefit of his wife or a minor child or both”.

What is the income that can be said to have arisen from assets transferred “for the benefit of the minor child?” The dictionary meaning of the word “arises” is to rise up; to get up; to take rise, originate; and to come into being. According to the dictionary meaning the accumulated income is also income that has arisen from the assets that were transferred. Section 16(3)(b) no where says that the income before it could be included in the settlor's taxable income should have been either expended on behalf of the minor or should have been handed over to him. All that it says is that it should have arisen from the assets transferred “for the benefit of the minor child”. Undoubtedly the accumulated income is also income that has arisen from the assets transferred “for the benefit of the minor”. That section does not say that the income should have been transferred to the minor. It only says that it should be received from the assets transferred “for the benefit of the minor”. Hence, on a grammatical interpretation, we should have had no difficulty in accepting the contention of the Department. But, Sri Srinivasan contends that we should not depart from the view taken by the decided cases wherein the expression “arises” found in Section 16(3)(b) has been understood as meaning utilised for the benefit of the minor. It is a well accepted rule that while interpreting fiscal statutes the courts should strive to achieve uniformity. We have earlier mentioned that Section 16(3)(b) has its roots in the English Income-tax Act. Dealing with Section 25 of the English Income-tax Act, 1918, Lord Buckmaster observed thus in The Commissioner of Inland Revenue v. John C. Dewar (referred to earlier)—

“The decision, however, really turns upon the actual terms of the trust deed itself. From these it is observed that if the daughter dies before fifteen, she receives no benefit whatever, apart from the fact that during her life she has an insurance for her maintenance and education, if she does attain fifteen. This does not, in my opinion, give her any present beneficial right to receive the income which must be applied for the purpose in which both she and her father have a contingent interest; she, if and when she attains fifteen, he, if she dies before.

In these circumstances it is impossible to say that the income is solely devoted to her absolute benefit. Further, it will be observed that nowhere under the trust deed is there any gift whatever to her of the income of the trust fund. If therefore, she died with any part of the income for any time unapplied, and unless her death synchronised with the actual date of payment of the premium, this must result; her estate would have no right to the money that was unapplied for nowhere has it been given to her.”

But Section 25 of the English Income-tax Act, 1918 is somewhat differently worded from Section 16(3)(b). It says—

“Where in pursuance of the provisions of any will or settlement any income arising from any fund is accumulated for the benefit of any person contingently on his attaining some specified age or marrying, and the aggregate amount in any year of assessment of that income and the income from any other fund subject to the like trusts for accumulation and of the total income of that person from all sources (hereinafter referred to as “the aggregate yearly income”) is of such an amount only as would entitle an individual either to total exemption from tax or to relief from tax that person shall, on making a claim for the purpose within six years after the end of the year of assessment in which the contingency happens, be entitled, on proof of the claim in manner prescribed by this Act, to have repaid to him on account of the tax which has been paid in respect of the income during the period of accumulation a sum equal to the aggregate amount of relief to which he would have been entitled if his total income from all sources for each of the several years of the said period had been equal to the aggregate yearly income for that year; but in calculating that sum a deduction shall be made in respect of any relief already received.”

Interpreting Section 16(3)(b) of the Act, a Bench of the Bombay High Court in Manilal Dhanji v. Commissioner of Income-Tax Bombay City, held that—

“In order that an amount could be included in the total income of the assessee an income or benefit must be received or derived by the minor child in the year of account; what was sought to be taxed under that section was an existing income.”

Chagla C.J, while dealing with this aspect of the case accepted the contention of Mr. Palkhivala that the object of the Section 16(3)(b) and the scheme of the Section requires that an assessee can only be taxed on the income from a trust for the benefit of the minor provided in the year of account the income is either received by the minor or the benefit is derived by the minor under the trust. If no income is received, if no benefit is derived, by the minor, then it is difficult to accept the contention that the assessee can be held liable to be taxed in respect of that amount. His Lordship observed:

“If we are right in our original assumption that Section 16(3) deals with actual income received by a person other than the assessee, that person being his wife or his minor child, then the proper way to construe and interpret clause (b) is also to accept the position under that sub-section that an income or benefit must be received or derived by the minor in the year of account. What is sought to be taxed is not a non-existent income. What is sought to be taxed is an existing income which is received by someone other than the assessee. In this case there is no dispute on the facts. It is not suggested and it cannot be suggested that the minor has no right to the sum of Rs. 410. It is not suggested that the assessee has received this amount for the benefit of the minor. The sum of Rs. 410 is impressed with a trust and that trust is that it should be added on to the corpus created under the trust deed. It is difficult to understand how, therefore, it can be said that the assessee can be assessed to Rs. 410 which was never received by either his wife or his daughter and in respect of which neither his wife nor his daughter can claim any benefit. In our opinion, therefore, on a true construction of Section 16(3)(b), Rs. 410 does not form part of the total income of the assessee.”

With great respect to the learned Judges who decided that case. I do not think that their view that an income before it could be held to be within the scope of Section 16(3)(b) should have been received by the minor or that the minor should have derived any immediate benefit therefrom. The language of the Section to which reference has been made earlier does not warrant such a conclusion. The receipt of the income by the minor or any derivation of benefit by him is not a relevant consideration under the provision in question. The only relevant consideration is whether the income in question has arisen from the assets transferred by the assessee to the trustees “for the benefit of his wife or minor child.” But whatever view I may hold about the correct interpretation to be placed on Section 16(3)(b) I must remind myself that, I am not writing on a clean state. While it is true as contended by Sri D.M Chandrasekhar, the learned counsel for the Department, that the above referred decision of the Bombay High Court was rendered only in 1958, and no other High Court has followed that decision yet, the fact remains that no decision has taken a contrary view. Further, the Direct Taxes Administration Enquiry Committee appears to have accepted that decision as laying down the law correctly. This is what the Committee observed at page 183 of the printed report.—

“At present, in a case where a father creates a trust for the benefit of his minor daughter with a stipulation that the income of the trust should be accumulated and added to the corpus and that the daughter should be entitiled to receive the income only after attaining majority it has been held by the Courts that the provisions of Section 16(3)(b) of the Income-Tax Act do not apply as the income is not receivable by the trustees on behalf of the minor but is merely added to the corpus. We recommend that the law should be modified so as to tax such income of the minors. There may, however, be cases in which the shares of the beneficiaries are not definite and tax as applicable to an association of persons is charged. Such cases should be excluded.”

(Underlining is mine).

On the basis of the recommendation of that Committee the Parliament has now enacted Section 64 of the Income-Tax Act, 1961. The relevant portion of that Section reads—

“In computing the total income of any individual, there shall be included all such income as arises directly or indirectly to any person or association of persons from assets transferred otherwise than for adequate consideration to the person or association of persons of 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.”

It may be, as contended by the learned counsel for the Department, that the Parliament might have thought that instead of entering into a controversy about the correctness of the view expressed by the Bombay High Court it would be easier to clarify the law, particularly in view of the fact that a bill relating to a new Statute on Income-Tax was on the anvil. But yet it would be improper to ignore all that had happened ever since 1958, and unsettle a question which appears to be settled and thereby throw that question into a melting pot. The question in contraversy can only touch some pending cases in view of Section 64 of the new Act. Hence in the interests of uniformity. I propose to abide by the rule laid down in Dhanj's case.

For the reasons mentioned above, I answer questions 1 to 3 in favour of the Department and question No. 4 in favour of the assessee. In other words, in my view, the case before us comes within the scope of Section 16(3)(b); it is not governed by the provisions of either Section 41 or the third proviso to Section 16(1)(c). But the income that can be taken into consideration in computing the income of the assessee is the actual income received by the minor or in respect of which the minor had derived benefit in the year of account.

In the circumstances of the case we direct the parties to bear their own costs.