S.P. Mitra, J.
1. This is a Reference under Section 66(1) of the Indian Income-tax Act, 1922. The assessment years are 1958-59 and 1959-60, the corresponding previous years being the Bengali years ended on the 13th April 1958 and the 13th April 1959. On April 24, 1957, the respondent executed a deed of trust conveying certain stocks and debentures as well as his interest in landed properties valued in all at Rs. 4,98,000/- to his brother J.N. Chowdhury who was to hold such properties in trust for the benefit of J.N. Chowdhury's wife and 2 daughters, one married and the other a minor. On the same day J.N. Chowdhury created a similar trust involving assets and properties of the same nature and value as covered by the respondent's trust, appointing the respondent as the trustee for the benefit of the respondent's wife and his major son.
2. In the assessments for the aforesaid two years, the Income-tax Officer observed that these mutual transfers were made with a view to avoid the income from the assets and properties concerned being taxed in the hands of the transferors. According to the Income-tax Officer, the result of these transfers was that neither the respondent nor his brother had lost anything by such transfer and looked at from the point of view of mutuality of the transactions the assessee could be treated to have purchased certain assets from his brother for the benefit of his own wife and son and instead of paying in cash for the properties he had paid in kind. For these reasons, the income-tax Officer applied the provisions of Section 16(3) of the 1922 Act and included the income from the assets given in trust to the respondent's brother in the assessment of the respondent.
3. Before the Appellate Assistant Commissioner, the respondent contended that the provisions of Section 16(3) applied only to the case of transfer of assets by an individual, directly or indirectly, to his wife or minor children. But since in the present case the assets had been transferred to a trust of which the trustee was the assessee's brother and the beneficiaries were the wife and children of the assessee's brother, the provisions of Section 16(3) had no application. The Appellate Assistant Commissioner was of the view that as between the two brothers, the cross-transactions had to be looked at as a whole and taking into account, the fact that the date of the trust deeds was the same and the trust properties were of identical nature and value, the wife and the son of the respondent derived the same benefit as the wife and the children of his brother. The Appellate Assistant Commissioner said that one transfer had obviously constituted the consideration for the other. He held that the arrangement made by the two brothers by executing the two trust deeds constituted one disposition with the result that in effect the respondent had merely transferred his own assets to his wife and son. The Appellate Assistant Commissioner's conclusion was that barring the income of the trust which was receiveable by the major son of the respondent, the rest was assessable in the hands of the respondent in terms of the provisions of Section 16(3) (b) of the Act.
4. Before the Tribunal the respondent's Counsel submitted that whereas the Income-tax Officer had invoked generally the provisions of Section 16(3) of the Act, the Appellate Assistant Commissioner in the concluding part of his order had made a specific mention of Section 16(3) (b). The departmental representative also accepted the position that it was only under Section 16(3)(b) that the income of trust properties could be included in the assessment of the respondent. In these circumstances, the respondent's Counsel restricted his arguments to two points only. Firstly, according to Counsel for the respondent, Section 16(3)(b) does not contemplate the case of a trust; it speaks of inclusion of income of third parties to whom assets and properties had been transferred by the assessee without adequate consideration for the benefit of the letter's wife and minor children; but as a result of transfer under a deed of trust, the trustee is never the owner of the income receivable from the trust properties; he merely collects such income in a representative capacity. Secondly, assuming that the provisions of Section 16 (3) (b) cover the case of a transfer by trust, it could only affect the case of a transfer which resulted in direct benefit to the transferor's wife and/or minor children; but since in the present case the respondent's transfer effected by the trust deed dated the 24th April, 1957 was meant for the benefit of the wife and children of the transferor's brother, the provisions of Section 16(3)(b) were inapplicable as significantly the phrase 'directly or indirectly' which was so conspicuous in all the sub-clauses under Section 16(3)(a) has been omitted in Section 16(3)(b) by the Legislature. The Tribunal found that the income of the properties given in trust by the respondent to his brother for the benefit of the latter's wife and children could not be assessed in the hands of the respondent under Section 16(3)(b).
5. The following questions of law have been referred to us for our opinion :--
(1) Whether the Tribunal was right in holding that the provisions of Section 16 (3)(b) of the Indian Income-tax Act, 1922, were not applicable to the cases of transfers of property by way of Trust?
(2) If the answer to question no. 1 be in the negative, whether, on the facts and in the circumstances of this case, income of the properties given in trust by the assessee to his brother for the benefit of the latter's wife and minor child was chargeable to tax in the hands of the assessee under Section 16(3) (b) of the Indian Income-tax Act, 1922?
6. The relevant provisions of Section 16(3) (b) of the Act are as follows:--
'In computing the total income of any individual for the purpose of assessment, there shall be included --
*** *** ***(b) so much of the income of any person. . . . . . .as arises from assets transferred otherwise than for adequate consideration to the person .....by such individual for the benefit of his wife or a minor child or both.'
7. Mr. Pal learned Counsel for the respondent, has argued that the language of Section 16 (3) (b) apparently envisages a case of trust: but on closer examination it does not include the case of a trustee inasmuch as the income that has to be assessed is not the income of the trustee at all. It is the income of the beneficiaries which the trustee received on their behalf. Learned Counsel refers to Section 41 of the Act which, he says, lays down the general rules of assessment of properties in the hands of all kinds of trustees. Counsel for the respondent contends that Sub-section (1) of Section 41 shows that the trustee receives income on behalf of the beneficiaries and is made liable as a special case; the assessment that is made on the trustee is not in respect of his total income but of the shares of the beneficiaries who are ultimately entitled to the income. Moreover, Sub-section (2) of Section 41 makes the beneficiaries liable to be directly assessed. According to Mr. Pal, these provisions show that not only are the beneficiaries interested in the income, they are entitled to the income in praesenti and, as such the trustee merely receives the income on their behalf. Mr. Pal also referred to some of the provisions of the Trust Act in support of his argument.
8. We are unable to accept these contentions. Firstly, under Section 16(3)(b) the income that is assessed is an income which arises from what is transferred by the individual concerned for the benefit of his wife or minor child or both. A trustee receives this income, meets certain outgoings and then distributes the income amongst the beneficiaries. Legally, the income is the income of the trustee and the trustee by reason of obligations imposed on him has to disburse or distribute this income (after providing for outgoings) amongst certain beneficiaries in accordance with the provisions of the Trust. This is an income, in other words, which arises to the trustee out of the trust property which has been transferred to him. When we read Section 16(3) (b) in the light of these principles it is clear to us that this Sub-clause does envisage the case of a trust. In any event, the argument which learned Counsel for the respondent has advanced cannot any longer be entertained by this Court. In this connection, it would be useful to refer to a judgment of the Privy Council and two judgments of the Supreme Court which we propose to do.
9. In Rani Chhatra Kumari Devi v. Mohan Bikram Shah their Lordships of the Judicial Committee observed :--
'The Indian law does not recognise legal and equitable estates: ........ By that law, therefore, there can be but one 'owner', and where the property is vested in a trustee, the 'owner' must, their Lordships think, be the trustee. . ......'
10. In W.O. Holdsworth v. State of Uttar Pradesh : 33ITR472(SC) the Supreme Court at p. 480 (of SCR) (at p. 891 of AIR), has observed :--
'The trustee is ........the legal owner of the trust property and the property vests in him as such. He no doubt holds the trust property for the benefit of the beneficiaries but he does not hold it on their behalf. The expressions 'for the benefit of' and 'on behalf of' are not synonymous with each other. They 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 a cesti que trust, the latter connotes art agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of another............. '
11. In view of this pronouncement by the Supreme Court, the argument that in construing Section 16(3)(b) it should be borne in mind that the trustee receives income not on his own account but on, behalf of the beneficiary, is altogether untenable.
12. The argument appears to be more untenable by reason of the Supreme Court's observations in Commissioner of Income-tax, Bombay v. Manilal Dhanji : 44ITR876(SC) Their Lordships observe :
'. . . . . On a closer scrutiny, however, it seems to us that Clause (b) must be read in the context of the scheme of Section 16 and the two Clauses (a) and (b) of Sub-section (3) thereof must be read together. So read, the only reasonable interpretation appears to be the one which the High Court accepted, namely, that the scheme of the section requires that an assessee can only be taxed on the income from a trust fund for the benefit of his minor child, provided that in the year of account the minor child derives some benefit under the trust deed either he receives income, or the income accrues to him, or he has a beneficial interest in the income in the relevant year of account .....'
Again at page 884 (of ITR) ; (at p. 437 of AIR) the Supreme Court says :
'..... The obvious intention of the legislature in enacting Clause (b) was to see that the provisions of Clause (a) were not defeated by the assessee creating a trust and in order to deal with that mischief it enacted Clause (b). Instead of the expression 'so much of the income of a wife or minor child' the expression used in Clause (b) is 'so much of the income of any person or association of persons, etc.'. Obviously, when a trust is created the income is income in the hands of the trustees. But the underlying principle in the two Clauses (a) and (b) appears to be the same, namely, there must be income of the wife or minor child under Clause (a) and there must be the same benefit derived by the wife or minor child in the year of account under Clause (b) ... '
13. These observations of S.K. Das, J. speaking on behalf of the Supreme Court, in our view, set the controversy at rest and, without any hesitation, we overrule the contention of Mr. Pal that Clause (b) of Section 16 (3) of the Indian Income-tax Act, 1922, does not apply to cases of trust.
14. We now proceed to deal with the second question referred to us.
15. In the instant case we find that the assessee appointed his brother as the trustee and the trustee was to hold the properties not for the benefit of the assessee's wife or any minor child of the assessee but for the benefit of the assessee's brother's wife and children. In view of these terms of the Deed of Trust it cannot be said that the income that the trustee had derived could be included in computing the total income of the assessee. These terms do not come within the scope of Section 16(3)(b). Our view is further confirmed when we compare the provisions of Section 16(3)(b) with those of Section 16(3)(a). In Section 16(3)(a) the expression 'directly or indirectly' has been repeatedly used. In other words, whether the wife or minor child receives the income directly or indirectly, Section 16(3)(a) would be attracted. But strangely enough, this expression has been omitted in Section 16(3)(b). And, to us, the omission cannot be without significance. It is possible, as learned counsel for the Commissioner has contended, that the manner in which the two Deeds of Trust were executed on the same day by the two brothers in respect of properties having more or less the same value meant that the wife or minor child of the assessee was indirectly deriving the income. But this indirect income does not attract Section 16(3)(b). We have further to observe that even in the Income-tax Act of 1961 no change of language has been effected so far as this aspect of the matter is concerned (vide Section 64 of the Income-tax Act, 1961).
16. In view of the difference therefore, in language, that exists between Section 16 (3)(a) and Section 16(3)(b), we have to hold, on the facts of this case, that the income of the assessee's brother's wife and minor child was not chargeable to tax in the hands of the assessee. Our answers to the questions aforesaid are as follows:
1. The Tribunal erred in holding that the provisions of Section 16(3)(b) of the Indian Income-tax Act, 1922, were not applicable to the cases of transfers of property by way of Trust.
2. On the facts and in the circumstances of this case, the income of the properties given in Trust by the assessee to his brother for the benefit of the letter's wife and minor child was not chargeable to tax in the hands of the assessee under Section 16(3)(b) of the Indian Income-tax Act, 1922.
17. There would be no order as to costs.
18. We are delivering this judgment in supersession of the judgment that was delivered on the 20th May, 1968.
K.L. Roy, J.
19. I agree.