M.C. Chagla, C.J.
1. Two questions arise on this reference. There are hardly any matters under the Income-tax Act which have not been considered by some High Court or other. The first question that we have to consider however has not been judicially considered at all and there fore we must decide it on first impression by construing the section and on principle.
2. The question is concerned with an amoutn of Rs. 410 which was included in the total income of Manilal Dhanji, the assessee. This amount he received admittedly as a trustee, but the beneficiary is his minor daughter Chandrika, and the contention of the Department was that the case fell under Section 16(3((b). Now, the scheme of the trust deed is that a sum of Rs. 25,000 was set aside by the assessee and it was provided that the interest on that amount should be accumulated and should be added to the corpus and Chandrika, the daughter, was to receive the income from the corpus increased by the addition of interest when she attained the age of 18 years. She was then to receive the income during her lifetime and after her the corpus was to go to persons with whom we are not concerned. Therefore, the significant feature of this trust deed is that Chandrika was not to receive any income, any interest, any benefit what soever from this trust deed during her minority. When, therefore, the assessee received Rs. 410 as a trustee from the trust fund in the year of account, the minor had no right to this income. She had no beneficial interest in this income and she could not enjoy this income. The assessee received this amount for the specific purpose of adding it on to the corpus of the trust. On these facts the question is whether section 16(3)(b) is attracted.
3. Before we look at Section 16(3)(6) we may look at the scheme of Section 16(3) itself as whole. This Sub-section deals with notional income. But as far as clause (a) is concerned, it is clear that the income is notional in the sense that there is actual income but that actual income is received by the wife or the minor child of the assessee and the law considers that the income received by the wife or the child is the income of the husband or the father. Turning to Section 16(3)(a) it provides:
'(3) 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-
(i) from the membership of the wife in a firm of which her husband is a partner.'
Therefore, here the wife of the minor child must receive the actual income from the partnership.
'(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner.'
Again, we are dealing with actual income.
'(iii) From assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart.'
Here too it is only the income actually received by the wife from the assets so transferred that would constitute a part of the total income of the husband.
'(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration.'
Here again, it is the actual income which the minor child derives from assets so transferred that would constitute a part of the total income of the assessee. Then we come to clauses (b). Having made these provisions in clause (a) of Section 16(3) the Legislature was at pains to see that these provisions were not defeated by the assessee creating a trust and in order to deal with that mischief clause (b) was enacted and it is in the following language-and we will only reproduce the material words:
'(b) so much of the income of any association of persons as arises from assets transferred otherwise than for adequate consideration to the association by such individual for the benefit of his wife or a minor child or both.'
Analysing this Sub-section it means that when you have an assessee, that is, an individual, transferring to trustees, that is, the association of person, without adequate consideration, assets, and the transfer is for the benefit of the wife or the minor child or both of the assessee, then the income of the trustees will be considered to be the income of the assessee.
4. Now, the contention of Mr. Joshi is that in this case you have a transfer of assets to trustees, the transfer is admittedly for the benefit of the minor child, and once that condition is satisfied you have not to look further and the income derived by the trustees from this transfer of assets constitutes part of the total income of the settlor. This raises a very important question. If we were to accept Mr. Joshi's contention, the result would be that however remote the benefit that the minor might derive under the trust deed, however long his interest may be postponed, as soon as there is a transfer by the settlor under which the minor derives some benefit, the interest received from the trust property must be added on to the total income of the assessee. Mr. Joshi realises that such an extreme position would be untenable and therefore he is prepared to make certain qualifications, and the qualification he is prepared to make is that there must be no intermediary beneficiaries before the minor gets the benefit under the trust deed. If there are intermediary beneficiaries, then section 16(3((b) would not be attracted. He further contends that if you have a trust deed for the benefit of the minor alone, then there can be no question as to the application of Section 16(3). It is difficult to understand why on principle it is possible to have one limitation on this section and not the other. the limitation suggested by Mr. Joshi is the limitation of other beneficiaries being introduced in the trust deed before the minor comes in for benefit. The limitation suggested by Mr. Palkhivala is a different type of limitation and that limitation is a limitation as to time, and the contention of Mr. Palkhivala is that the very object of the section and the scheme of the section requires that an assessee can only be taxed on the income from a trust deed 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 deed. If no income is received, if no benefit is derived, and there is no income at all, then it is difficult to accept the contention that the assessee can be liable to be taxed in respect of that amount.
5. 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 which is received by someone other than the assessee. In this case there is no dispute on the facts. It is not suggested sand 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 nad in respect of which neither his wife nor his daughter can claim any benefit. In our opinion, therefore, on a true construction of S. 16(3)(b) Rs. 410 does not form part of the total income on the assessee.
6. The second question is concerned with a sum of Rs. 14,170 and that received by the assessee under the following circumstances. There is a trust deed created by his father and under the relevant provision the trustees are to hold certain trust funds upon trust to pay the net interest and income thereof to the settlor's son Manilal for the maintenance of himself and his wife and for the maintenance, eduction and benefit of all his children till his death. The view taken by the Tribunal is that under this provision Manilal is the sole beneficiary and the amount is received by him for his own benefit, that he is not accountable to anyone in respect of this amount, and he can do what he likes with this amount. Before we come to the interesting argument advanced by Mr. Joshi, let us set at rest this particular question on which the decision of the Tribunal is based. It is perfectly clear that when you have a trust created to pay an amount to 'X' for the maintenance of himself, his wife and for the maintenance, eduction and benefit of his children, the amount received by 'X' is an amount impressed with a trust. A trust is created in favour of his wife and children and his is accountable for that amount as a trustee. The proposition is clearly stated in Lewin on Trusts at p. 85, 15th edition. Lewin distinguished between the motive of a gift and a trust and he points out that when a donor or a settlor gives a particular reason as the motive for making the gift, then the donee takes the gift beneficially and no trust is created. But Lewin points out that when there is a gift in favour of a person not only for his own use and benefit but also for the maintenance and education of his children or the maintenance of his wife, that does not constitute a motive for the gift but it creates a trust, and this is exactly the case here. Teh language used in the trust deed might have been almost bodily taken from Lewin on Trusts and therefore we disagree, with respect to the Tribunal, when they took the view that under this provision Manilal was the only beneficiary.
7. Now, if that be the true position and it Manila is a trustee, the question is whether the amount received by him under this trust deed can be added on to his total income, and Mr.Joshi's contention is that under Section 41 it is competent to the Department either to tax trustees of the trust deed or to tax those on whose behalf the trustees have received any amount, and the argument put forward is that this is a case where the trustees have received on behalf of Manilal the sum of Rs. 14,170. They have paid the amount to Manilal and therefore it is at the option of the Department either to assess the trustees under Section 41(1) or to assess the person who has received the amount under Section 41(2). Mr. joshi rightly points out that Section 41(1) does not speak of a beneficiary and according to his even if Manilal is not a beneficiary so long as he is the person on whose behalf the trustees have received the amoutn, the taxing department can go either against the trustees or against Manilal. Turning to Section 41(1), the words of that section, to the extent that they are material for the purpose of this argument, are:
'In the case of income profits or gains chargeable under this Act, the trustee appointed under trust declared by a duly executed instrument in writing, whether testamentary or otherwise, is entitled to receive on behalf of any person, the tax shall be levied upon and recoverable form the trustee in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are received and all the provisions of this Act shall apply'.
Mr. Joshi says that the trustees of the trust deed are entitled to receive this amount on behalf of Manilal and the tax can be levied upon and recovered from the trustees under this section. But, says Mr. Joshi, under Sub-section (2) the option is given to the Department to recover ti from the person on whose behalf the Trustees have received the amount and Sub-section (2) provides:
'Nothing contained in Sub-section (1) shall prevent either the direct assessment of the persons on whose behalf income, profits or gains therein referred to are receivable, or the recovery from such person of the tax payable in respect of such income, profits or gains.'
Therefore, Mr. Joshi contends that in this case the Department has preferred to have a direct assessment of the person on whose behalf this amount has been received. The argument sounds very plausible, but when one examines it, it is clear that although it is perfectly competent to the Department to go against Manilal, Manilal in his turn is equally competent to contend that he is a trustee and if he is to be taxed he can only be taxed as a trustee under Section 41(1). Under the proviso it is provided that where the individual shares of the persons on whose behalf the income is receivable are indeterminate, the tax shall be levies and recoverable at the maximum rate, and says Mr. Manilal, it is quite true that the shares of my wife and children are indeterminate and I am liable to be taxed at the maximum rate, but I can only be taxed as a trustee and not in my individual capacity. The answer given by Mr. Joshi to this contention is that we are not concerned with the second trust; we are only concerned with the first trust. We do not think it is seriously contended that two trusts cannot be created by the same instrument and the real position here is that there is a trust created which requires the trustees to pay a certain amount to Manilal and a second trust is created by which Manila has to hold that amount in trust for his wife and children. Therefore, Manilal is a trustee within the meaning of Section 41 appointed under a trust declared by a duly executed instrument in writing, and if he is a trustee he has a right to contend that his assessment in respect of the money received by him not as a beneficiary but as a trustee can only be made under the provisions of Section 41. We fail to appreciate the argument of Mr. Joshi that we are not concerned with the second trust. In our opinion, that is the only trust with which we are concerned. If Manilal is sought to be taxed and if his contention is that he is a trustee, we must look at the document in order to find out whether he has been constituted a trustee. If he is constituted a trustee, then if is difficult to understand what provision of the law prevents his from contending that Section 41 applies to him as much as it would apply to the trustees of the first trust. In our opinion, therefore, the Tribunal was in error in coming to the conclusion which it did with regard to this amount basing its decision on the fact that Manilal was the sole beneficiary under the trust.
8. We should have mentioned that with regard to the amoutn of Rs. 410 the tribunal seems to have proceeded on the basis that the daughter had a vested interest in the sum of Rs. 410. We do not accept that proposition at all. The interest does not vest in the daughter. It is contingent on her attaining majority, and it seems clear that even the tribunal has proceeded to decide against the assessee with regard to the sum of Rs. 410 on the supposition that the daughter had some interest in this sum of Rs. 410. As we have already pointed out, the daughter has no present interest whatever in this sum of Rs. 410.
9. The result is that we must answer question No. 1 in the negative and question No. 2 also in the negative.
10. The Commissioner to pay the costs.
11. Reference answered.