M. S. MENON C.J. - This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922. The assessment of the year concerned is 1957-58 and the accounting period, 1131 M.E. or the twelve months ended August 16, 1956. The question referred is :
'Whether the income derived by Geevarghese Koshy as managing trustee of Jeejambai Trust is taxable in the hands of the assessee either under section 16(1)(c) or section 16(3)(b) of the Indian Income-Tax Act, 1922 ?'
Counsel for the department submits that he does not propose to depend on section 16(1)(c) and that we need consider the case only with the reference to section 16(3)(b). Section 16(3) reads as follows :
'16. (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;
(ii) from the admission of the minor ton the benefits of partnership in a firm of which such individual is a partner;
(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; or
(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration; and
(b) so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the persons association by such individual for the benefit of his wife or a minor child or both.'
The instrument by which the assessee created the trust is given as annexure 'A' to the statement of the case. The trust is for the benefit of his daughter, Jeejam Bhai alias Fathima Bhai who was born on the 12th Meenom 1116 M.E. (March 25, 1941). There is no provision in the document for the payment of any portion of the income or the corpus of the trust properties ton the beneficiary until she attained the age of twenty-one years.
The trust deed opens by saying that the settlor doth thereby convey unto the trustees a sum of Rs. 90,000 and the properties specified in the document 'for the use and benefit of the said Jeejam Bhai alias Fathima Bhai'. Clause 8 of the deed says :
'That on the attainment of the said Jeejam Bhai alias Fathima Bhai of the age of twenty-one years this trust shall cease and the trust property or such portion of it as as may be then in existence in whatever form and however disposed shall vest absolutely in the said Jeejam Bhai alias Fathima Bhai for ever and the trustees shall surrender and vacate office :
Provided that if the said Jeejam Bhai alias Fathima Bhai should fail to attain the age of twenty-one years and meanwhile die (which God forbid)leaving her surviving child or children of her womb than the trust property shall vest in such child or children in such share as is provided by the law of the parties and then the trustees shall surrender the trust property to the legal guardian of such child or children as may be and vacate office :
Provided further that if the said Jeejam Bhai alias Fathima Bhai fails to attain the age of twenty-one years and meanwhile die leaving no issue of her surviving then in such event this trust shall cease and the trust property or such portion of it may then be in existence in whatever form or however disposed shall vest in the settlor or his heirs art law wholly discharged of the trust thereon by these presents hereby created.'
A case very similar to the one before us came up for consideration before Bombay High Court in Manilal Dhanji v. Commissioner of Income-tax. The assessee in that case had created a trust in respect of a sum of Rs. 25,000 in favour of his minor daughter and directed that the interest on that amount should be accumulated and added to the corpus, that his minor daughter should receive the income from the corpus (increased by the addition of interest) throughout her life after she attained the of eighteen years and that after her death the corpus should go to certain persons specified in that behalf in the document of trust. The assessee in his capacity as trustee, received a sum of Rs. 410 as interest from the trust amount during the year of account and the question for determination was whether the said sum of Rs. 410 could be included in the total income of the assessee under section 16(3)(b) of the Indian Income-tax Act 1922. Chagla C.J. said :
'....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, 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. Joshis contention, the result would be that 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 (page 472).
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 (page 472).
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 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 (page 473).
With regard to the amount 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.......' (page 475).
The department appealed to the Supreme Court, but without success. The Supreme Court said in Commissioner of Income-tax v. Manilal Dhanji :
'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 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.
When, however, the minor child derives no benefit under the trust deed in the year of account, it is not consistent with the scheme of section 16 to say that even though there is no accrual of any income or benefit in the year of account in favour of the minor child, yet the income must be included in the total income of the individual concerned.'
In the light of the decision of the Supreme Court above-mentioned we must answer the question referred in the negative and against the department. We do so, but without any order as to costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.