# IHI v. n. o.g i l;iMiqdl w C L"

- **Citation:** [1962] Supp. 2 S.C.R. 902
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Bench:** S.K. DAs, M. liIDAYATULLAH, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ihi-v-n-o-g-i-l-imiqdl-w-c-l-2353
- **Pages:** 16

## Headnote

Income Tax-Trmt crealed in favour of minor child-No
benefit =ruing to TMnor in acwunting yoar-Whelher incomt from
tnul la:etJbl< a.< i~
of a.<llUM~-Triut by aut.18tea fatMrAaae&U directed to iue it1COme for benefit of him8df, Ma wife and
cAi/dron-Whtther income tazabl< a.< i•come of aaauaee-lndian
lnconit·W Act 1922 (XI of 1922) as. 16(3) 41(1)-·Indian
T"'81JJ Act, 1882 (11of1882) •· 8.
In 1953 the assessee created a trust in 1espect of a sum of
money and provided that the interest on that amount was to
be accumulated and added to the corpus and that his minor
daughter C was to rettive the income from the corpu1
increased by the addition of interest when she attained the age
of 18 years.
In the relevant account year, when C was 1tlll a
minor the income derived from the trust fund was Rs. 410
Earll.,; in 1941, the as1e1ace's father had created a tru1t in
respect of =tain shares and money directing the trustees to
pay the net intercat "':'d income ther"."f to the assessee "for
the maintenance of hunself and h11 wife and for the malnten•
ance education and bcneflt of all his children till his death".
In the relevant account year a sum of Rs. 14, 170 accrued as
income in the hands of the asscssee from the said trust funds,
2 S.C.R.
SUPREMl.<"1 COURT REPORTS
ll03
The taxing authorities included both these incomes in the total
income of the assessee.
Held, that neither of these two incomes could be included
in the total income of the assessee.
Under s. 16(3)(b) of the Indian Income-tax Act, upon
which the authorities relied, the assessec could only be taxed
on the income from the trust funds for the benefit of his minor
child if in the year of account the minor child
either
received the income or it accrued to her or she had a beneficial
interest in the income in the relevant year of account. In the
present case though there was income in the hands of the
trustees and they were liable to pay tax thereon, there was no
benefit to the minor child in that year.
As such the sum of
Rs. 410 did not form part of the total income of the assessee.
The trust deed of 1941 created two trusts, the one
requiring the trustees to pay the income from the trust funds
to the assessee and the second requiring the assessec to spend
the income for the maintenance of himself and his wife and
for the maintenance, education and benefit of his children. It
was not a case where the settler merely expressed a·wish or
desire or hope but he gave as direction which created a trust in
respect of the income in the hands of the assessec in favour
of himself, his wife and children. The assessee did not create
the second trust in respect of the beneficial interest which he
held under the trust of I 941 and s. 8 of the Indian Trusts Act
which forbade the creating of such a trust was inapplicable.
The assessee was a trustee and not the sole beneficiary; and
since the shares of the beneficiaries were Indeterminate it was
open to the Department to levy and recover tax at the maximum rate from the assessee as trustee under the first proviso to
s.41(1} but the Department was not entitled to include the
sum of Rs. 14,170 in the total income of the assesse as though
he was the sole beneficiary under the trust deed.

## Text

IHI
v.
n. o.g..i
l;iMiqdl w ......
C.. L".
w.-..w.J.
J-.,Jl.
902 SUPRll:ME COURT REPORTS [1002] SUPP.
'!'.here oa.n therefore be no escape from the concJu.
BJOn tha.t the Act plainly intends that where the
Representative Union appears in any proceeding
under the Act even though that proceeding might
have commenced by an employee under s. 42 (4)
of the Act, the Representative Union alone can
represent the employee and the employee oa.nnot
'.l.ppear or act in such proceeding.
. .
In this view o.f t~e mattn the appeal must
tail and Is hereby d1sm1ssed.
In the circumstances
we pa.as no order as to costs.
Appe.al dismiB&ed.
THE COMMISSIONER OF INCOME-TAX
BOMBAY
v.
l\IANILAL DHANJI, BOMBAY
(S.K. DAs, M. liIDAYATULLAH and J.C. SHAH, JJ.)
Income Tax-Trmt crealed in favour of minor child-No
benefit =ruing to TMnor in acwunting yoar-Whelher incomt from
tnul la:etJbl< a.< i~
of a.<llUM~-Triut by aut.18tea fatMrAaae&U directed to iue it1COme for benefit of him8df, Ma wife and
cAi/dron-Whtther income tazabl< a.< i•come of aaauaee-lndian
lnconit·W Act 1922 (XI of 1922) as. 16(3) 41(1)-·Indian
T"'81JJ Act, 1882 (11of1882) •· 8.
In 1953 the assessee created a trust in 1espect of a sum of
money and provided that the interest on that amount was to
be accumulated and added to the corpus and that his minor
daughter C was to rettive the income from the corpu1
increased by the addition of interest when she attained the age
of 18 years.
In the relevant account year, when C was 1tlll a
minor the income derived from the trust fund was Rs. 410
Earll.,; in 1941, the as1e1ace's father had created a tru1t in
respect of =tain shares and money directing the trustees to
pay the net intercat "':'d income ther"."f to the assessee "for
the maintenance of hunself and h11 wife and for the malnten•
ance education and bcneflt of all his children till his death".
In the relevant account year a sum of Rs. 14, 170 accrued as
income in the hands of the asscssee from the said trust funds,
2 S.C.R.
SUPREMl.<"1 COURT REPORTS
ll03
The taxing authorities included both these incomes in the total
income of the assessee.
Held, that neither of these two incomes could be included
in the total income of the assessee.
Under s. 16(3)(b) of the Indian Income-tax Act, upon
which the authorities relied, the assessec could only be taxed
on the income from the trust funds for the benefit of his minor
child if in the year of account the minor child
either
received the income or it accrued to her or she had a beneficial
interest in the income in the relevant year of account. In the
present case though there was income in the hands of the
trustees and they were liable to pay tax thereon, there was no
benefit to the minor child in that year.
As such the sum of
Rs. 410 did not form part of the total income of the assessee.
The trust deed of 1941 created two trusts, the one
requiring the trustees to pay the income from the trust funds
to the assessee and the second requiring the assessec to spend
the income for the maintenance of himself and his wife and
for the maintenance, education and benefit of his children. It
was not a case where the settler merely expressed a·wish or
desire or hope but he gave as direction which created a trust in
respect of the income in the hands of the assessec in favour
of himself, his wife and children. The assessee did not create
the second trust in respect of the beneficial interest which he
held under the trust of I 941 and s. 8 of the Indian Trusts Act
which forbade the creating of such a trust was inapplicable.
The assessee was a trustee and not the sole beneficiary; and
since the shares of the beneficiaries were Indeterminate it was
open to the Department to levy and recover tax at the maximum rate from the assessee as trustee under the first proviso to
s.41(1} but the Department was not entitled to include the
sum of Rs. 14,170 in the total income of the assesse as though
he was the sole beneficiary under the trust deed.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 323of196. Appeal from the judgment a.lld order
dated September 25, 1958, of the Bombay High
Court in I.T.R. No. 3 of 1958.
K. N. Rajagopal Sastri and D. Gupta, for the
appellant.
I
R. J. Kolah, J. B. Dadachanji, O. 0. Mathur and
Ravinder Narain, for the respondent.
1962. January 31. Th~ Judgment of the Court
was delivered by
Tiu Ccmmissi•.,, •/
111&oine-tax, BmN.1
v.
Ji 1nil.J Dlionji.
ll1m•41
lfH
111C..-i.JJiMCM t/
,__.,_tu, He111toy
v.
M..tl1I DMr.ji, -....
D11 J.
904
SUPRE~fE COURT REPORTS (1962] SUPP·
S.K. DAS, J.-The CommiBSioner of Income-tax,
Bombay City I, has preferred this appeal to this
Court on a certificate of fitness granted by the High
Court of .Bombay under s. 66A (2) of the Indian
Income-tax Act, H!22.
The a.ssessee, who is the respondent before us,
waa assessed to income-tax as an inrlividual in respect of his incomo for the assessment yea.r 1954-55.
The taxing authorities included in the assesaee's
total income for the year to sums, namely, a sum of
Ra. 410/- and a sum of Hs. 14,170/-. It was stated
tha.t these two sums accrued in the relevant account
year in the following <>ircumstanees. Un January
12, 1953 the asse88ee created a. trust in respect of a
sum of Hs, 25,000/-, the truste1·s whereof were the
Central Bank Executor & Trustee Co., the &BBeSBoo
himself his wife and brother. The scheme of the
trust-deed was tha.t the said sum of Rs. 25,000/- was
set apart by the asscssee and it was provided tha.t
the interest on that amount should be accumulated
and adder! to the corpus and a minor daughter of the
a88essee, named Chandrika, was to receive the
income from the corpus increased by the addition of
interest, when she attained the age of 18 on
February I, 1959.
She was to receive the income
during her life time and after her death the corpus
was to go to persons with whom we are not concerned. Tho income derived from the said trust fund
amounted to Rs. 410/- in the relev!l.nt account yea.r
and the taxing authorities included this amount in the
total inrome of the aRSessee, purporting to a.ct under
s. 16(a)(b) and/or s. 16(3)la)(iv) of the Income-tax
Act. As regards the second sum of&. 14,170/- it
appears that on Deoember l, 1941, the &88e6lletl's
father had created a trust in respect of some shares
and a caah sum of Rs. 3t.1,0UO/- for the benefit of hie
four eoi;.s including the a.s&'88ee.
The trustees were
the Central Bank Executor and Trustee Co. Ltd.,
the asseSi!ee himself and one other person. The said
truateea were to hold the trust fonda upon trust to
2 S.C.R.
SUPREME COURT REPORTS
905
pay the net interest and income thereof to the assessee "for the maintenance of himself and his wife
and for the maintenance, education and benefit of
all his children till his death". The sum of Rs.
14,170/-. it was stated, accrued as income in the
hands of the assessee in the relevant account year
from the said trust funde.
The view of the taxing
authorities and the [ncome-tax Appellate Tribunal
was that under tho aforesaid provision of the trust
deed the assessee was the·sole beneficiary and that
the a.mount was received by him for his own benefit
and ho was not accountable to any one in respect of
the amount and, therefore, this amount was liable to
be included in his total income.
On behalf of the assessee the contention was
that the sum of Rs. 410/- aforesaid was not liable
to be included in the total income of the assessee inasmuch as Chandrika, the minor daughter
of the assessee, had no right to the income nor any
beneficial
interest
therein in
the
relevant
year
of
account
under
the
provisions of
the trus~ deed and, therefore, neither s. 16(2)(a)(iv)
nor s. 16(3J(b) applied to the case. As to the sum
of Rs. 14,170/- the case of the assessee was that it
should not be included in his total income as the
sole beneficiary, because the beneficiaries under the
trust settlement were not only the assessee but his
wife and children as well. It was contended that
the assessee received the amount in trust for himself and his wife and children and it was open to
the Department to proceed under the first proviso
to s. 41 (1) of the lncome-tax Act and recover tax
on a separate ·assessment made on the assessee a.s a.
trustee in respect of the said sum at the maximum
rate, because the individual shares of the beneficiaries on whose behalf the money was re~eivable were
indeterminate and not known.
The Income-tax Appellate Tribunal, on an
appeal by the assessee, did not accept these contentions. The Tribunal was then moved to state a
IS6t"
The Oommissiolur •f
Inconte .. tax, Bombay
'·
Manilal Dl"mji,
bombo.1
Das J.
1161
n.c_,n-.1
l11ec>.-....X• Be"'69
••
JI ""li:.f:;"i4
906
SUPREME COURT REPORTS (1962] SUPP.
case to the High Court on two questions of law
those questions were :
"l. Whether the sum of Rs. 410/· is
propt•rly includible in the asseSBee's +·:al
income either in accordance with the provisi?ns of section IH(3hbJ and/or section lti(3)(a)
(1v) of tho Indian Income-tax Act, 1!!22?
2. Whether the sum of Rs. 14, 170/· is
properly includible in the total income of the
a.BBessee as the sole beneficiary thereof under
the trust settlement made on 1-12-1941 by
Dhanji Devsi ?"
On being tiatisfied that these questions of law aroee
out of the order of the Tribunal dated April 24,
1957, the Tribunal stated a case under s. 66(1) of
the Income-ta.x Act.
The High Court answered
both the questions in favour of the asse·s1ee by its
judgment and order dated September 25, 1958.There
after the High Court granted a certificate of fitness
under s.66A(2) of the Income-tax Act and, as we
have already stated, the persent appeal has been
brought to this Court on the strength of that certificate.
We proceed now to deal with the first ques·
tion which relates to the sum of Rs. 410/·. The
question is whether this sum was properly includible
in t-he asHeSBee's total income under the provisions
of s. l6(3)(b) of the Income-tax Act, bll<'auee Mr.
Rajagopal Saatri appearing for thC1 appellant hae
not pressed the claim which WM made before the
Tribunal on behalf of the Department under the
provisions of s. l6(:l)(a)(iv). Before we go to the
provisions of s.
Jf~:l)(b) it is advisable to set ont
the material portions of els. 3 and 4 of the trust·
deed of January 12, 1953.
Those clauses were in
these terms :
"3. Th" Trustees shall hold and stand
pusscsi;etl of the trust fund and the invest1J1ents for the tilni; being representing the
2 sc .. R.
SUPREME COURT REPORTS
907
same and receive the income, divided, interest
and rents thereof and invest the same and the
resnlting income, dividend, interest and rents
ther-:iof so as to accumulate at compound interest to the intent that suc>h accumulations
shall be added to the principal trust fund
until the settler's daughter Chandrika shall
attain the age of eighteen years which age she
will attain on the lst February 1959 and after
the expiration of the above named period the
Trustees shall deal with and dispose of the
trust fund as hereinafter stated.
4,
The Trustees shall hold and stand
possessed of the trust fund and the accumulations thereof upon trust to pay the net interest
and income thereof after deducting ail outgoings and charges for collection to the said
Chandrika for her life for her maintenance ... "
It is clear from these clauses that during the minority of Chandrika, the income from the trust funds
was to be accumulated and added to the trust funds
md after the attained majority on February l,
1959, she was to get only the income from the
enl~rged trust funds.
Now, in the relevant year of
account Chandrika was still a minor and under the
terms of the trust deed she had no right to the
trust income nor any beneficial interest therein ;
she could neither receive nor enjoy the income. She
did not derive any .benefit whatsoever from the
trust funds during her minority and even after she
attained majority, she did not have any right to
the trust income which arose during her minority
and her only right was to enjoy the income arising
from the enlarged ti;ust funds, i. e., the original
trust funds and the accumulations of trust income
during her minority. Therefore, the sum of Rs. 410/-
was not the income of Chandrika, but was the
income of the trustees and the income }Vas impressed with a trust, namely, that it should be added to
IHB
n, CommissiDw of
Income-ta.., Bom6'!1
v.
Manilal Dhonji,
,,,.,....,,
Das J.
TA. CnnmisJiottn o.f
IMom,.tax. B00tb•)'
v,
M Milo/ DMflji,
Bombay
D., J.
9f8 SUPREME COURT REPORTS (1962] SUPP.
the trust cm pus. The qurbt ion is, does s. 16(3)(b)
apply to ~uch a ell.Se ?
We shall presently read s. 16(3), but before
we do so it is necessary to refer to the soheme or
s. 16 of the Income-tax Act.
The section deals
with the computation of total income as defined in
s. 2(15) of the Act, and provides that what sums are
to be included or excluded in determining the total
income.
The definition of cotal income in~. :?(15)
involves two elem('nts-(a) the income must comprise
tho total amount of income, profits and gains
refe1red to in s. 4( 1), and (b) it must be computed
in the manm·r laid down in the Act. The exemption
granted under the Act is of two kinds ; certain
classes of income are exempted from tax and n !so
excluded from the computation of total income,
while certain other classes of income exempted
from tax are to be included in the a86essee's total
income. Now cl. (a) of sub-8. (i) of s. Iii provides
the sums exempted from tax under certain provisions of the Act should be included in the assessee'1
total income. Clause (b) lays down the mode of
computing a partner's share in the profit or loss of
the firm.
Under cl. (c) income which arist~ to any
person by virtue of any settlement or disposition
from
assets
remaining the
property
of the
settler or disponer etc. is taxed as his income.
The
object of the legislation is clearly designed to overtake and circumvent a tendency on the part of the
tax-payers to endeavour to avoid or reduce tax
liability by means of settlements. Sub-Mection (2)
deals with grossing up of dividend etc. Then we
come to sub-a. (:I).
This sub·section aims at foiling
an individual's attempt to avoid or reduce the
incidence of tax hy transferring his <1.Ssets to his
wife or minor child or admit ting his wife as a
partner or admitting his minor child to the benefits
of a partn\'rship in a firm in which such individual
is a partner. The bU b-scctiu11 crrntes an artificial
2 S.C.R.
SUPREME COURT REPORT.3
909
liability to tax and must be strictly construed.
Now, let us read the sub-seotion.
"16. (3) In compnting 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 th!l wife in
a firm of which her husband is a
partner;
(ii) from the admission of the minor to
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
otherwi~e
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 codsideration to the person
or association by such individual for
the benefit of his wife or a minor child
or both."
The argume11t on behalf of the appellant is
that the conditions laid down in cl. (b) of sub-s. (3)
of s. 16 are fulfilled in the present case and therefore the Department was intitled to include in the
1962
Till Oommissiow of
lncome .. tax, Bom69
v.
M .. ilol Dlumjl,
, Bolft6q)
1. ,
---·
D., .I,
. I96a
T"' c....;,,;.,.,, of
l""'111ff-ta1 Bombq,
••
M ,.;/M D"4nji,
Bom/19
DuJ.
910
SUPREME COURT REPORTS (1962] SUPP.
tots.I income of the asseiieee so much of the income
in the hands of the trusteee as aroee from the aaaete
transferred bv the aasesaee for the benefit ofhia minor
.child. It is pointed out that the conditions laid down
m cl.(b)are-(l)thatthere must be income in thehanda
of any person or Msooiation of persona (trusteea in
the prelK'nt caaes;) (2) the inoome must ariae from
al!8ets transferted otherwise than for adequate consideration to the trustees; and (3) the transfer mnat
be for the benefit of the minor child. It is argued·
that when the oonditions are fulfilled and the only
exceptional oaee, namely, where the transfer is for
adequat" oonafderation is out of the way, cl. (b)
mW!t apply and the Department ia entitled to
include thll inoome in the handll of the trustees in
computing th& total irioome of the individual
&880811ee who made the transfer.
At f'rst eight the arirument appeara to be attrac·
tive and supported by the words used in the olaW!e.
On a closer scrntinv, however; it seems to us that
cl. (b) must be read
0in the context of the scheme of
16 and the two clauses (a) and (b) of sub-a. (3)
thereof must be read togf'ther. So read the only
rea.sonahle interpretation appears to be the one
which the High Court accepted, namely, that the
scheme of the section requires that an &1111e880e oan
only be taxed on the income from a truet fund for
the benefit of his minor child, provided that in the
year of account the minor child derives 1ome
benefit under the trust deed either he receives the
income, or the income accrues to him, or he hu a
beneficial interest in the income in the relevant
year of account. But if no income accrues, or no benefit derived and there is no income at all (eo far as the
minor child is concerned), then it is not oonaistent
with the scheme of e. 16 that the income or benefit
which is non-existent eo far as the minor child ia
concerned, will be included in the income of hi1
father. Take, for example, a oaae •here the ueeta
..
.....
.... ·<
•
2 S.C.R. SUPREME OOURT REPORTS
!111
were trAnsferred
ot;berwise
than for adequate
consideration for the 'benefit of a minor child, but
the child has attained majority befor the relevant
year of account. After the child attains majority
the sub·sectfon would cease to apply and the income from assets transferred for the benefit of the
child would no longer be taxable in the parent's
hands. The reason must be that in the relevant
year of account there · is no benefit to the minor
child by the transfer, even though the ·transfer was
originally made for the benefit of th£' child. The
same .principle may be illustrated by another
example which bas been dealt with by the High
Court. Take a case where there are intermediate
beneficiaries before the minor gets the benefit
under the trust deed. In such a case the learned
Advocate for the Department conceded in the
High Court that ol. (b) .of sub-a. (3) of s. 16 would
not be attracted till the minor derived benefit under
the trust d~ed. Mr. Rajagopal Sastri did not make
any such concession before us; but seems to us that
principle underlying the illustration is incontestable. If the minor derives no benefit in the relevant year of account, it can hardly be said that
for that year the transfer was for the benefit
of the minor child. Section 4, the charging section, of the Inoome-tax Act makeR it clear that
what is taxed is the total income of the relevant
account year, and total income, according to
.s. 2 (15), is the income, profits and gains referred
to in sub-a. (1) of s. 4 and computed in the manner
laid down in tlie Act. In other words, the tax is
levied on a yearly basis.· It is true that in the
present case there was income in the hands of the
trustees and the trustees were liable to pay tax
thereon. That, however, is not
the
question
before us.
The question
before us is whether
such income in the hands of the trustees could be
included in the total income of the assessee under
cl. (b) of sub-a. (:l) of s. 16. In our opinion, when
1962
Tiu Commission1r of
Incomt .. t"2X, Bombay
v.
M anilal Dhqnji,
Bomba..~
Das J.
lllOt
Tiii c....,;,,;- •f
/11&om~W BomboJ
v.
M .,.ilol D1'anji,
llomb•y
DasJ,
912 SUPREME COURT REPORTS [1962) SUPP.
cl. (b) of sub-s. (3) of s. 16 talks of benefit of the
minor child it refers to benefit which ari.eea or aoc·
rue11 to the minor in 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. There is a third type of case which
also illustrate the 8&Ille principle. If only a
portion of the income of the trust is reserved for
the minor child, cl, ( b) would apply and that portion of the income which is set apart for the benefit for the child would be taxable in the handa of
the settler. All these illustrations only establiah
the principle that the minor child mullt derive some
benefit in the relevant year of account before cl. (b)
would apply.
Furthermore, we are also of the view that
els. (a) and (b) of the sub-section must be read
together. Clause (a) begins with the expreeaion
"so much o: tho income of a wife or minor child
of such individual as ariees directly or indirectly",
and this is followed by tho four circumstanoee
numbered (i), (ii), (iii) and (iv). There is no doubt
that so far as cl. (a) is concerned, there must be
income of the wife or miuor child. Mr. Rajagopal
Sa.stri has not disputed this. The obvious intention of the Legislature in enacting cl. (b) wa.a to
see that the provisions of cl. (a) were not defeated
by the a.sst>.88ee creating a trust and in order to
deal with that mischief it enacted cl. (b). Instead
of the expre88ion "so much of the income of a wife
or minor child" the expression used in cl. (b) is
"so much of the income of any person or 8.880Cir.-
tion of persons etc.". Obviously, when a trust is
created the income is income in the hands of the
trustees. But the undHlying principle in the two
els. (a) and (b} appears to be the same, namely,
there must be income of the wife or minor child
under cl.(a) and there must be some benefit derivfld
by the wife or minor child in the year of account
under ol.(b). Thia is consistent with the scheme of a.16
28.C.R.
SUPREME COURT REPORTS
913
1968
and particularly subs. (3) thereof. which is intended to foil <in individual's attempt to avoid or
reduce the incidence of t1.x by transferring his
assets to his wife or minor child etc. When, however, the minor child derives no benefit under the
trust deed in the year of account, it is not consis·
tent with the scheme of s. 16 to say that even
thou~h 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.
1 ht Commisaiontr. of
lnc.Jme-tav, Bomboy
Our attention has been drawn to s. 64 of the
Income.tax Act, 1961 (43 of 1961).
That section
corresponds to s. 16
of the
Income.tax Act,
1922 and cl. ( v) of s. 64 has made the position
clear by using the expression ' immediate or deferred benefit" so that even a benefit which is postponed and does not arise in the year of account
will not entitle the Department to include the
income in the hands of the trustees in the total
income of the settler. We do not, however. think
that the Act of l 961 can be taken as declaratory
of the law which existed previously ; nor can
s. 64 (v) be taken as determinative of the true
scope and effect of cl. (b) of sub-s. (3) of s. 16.
The Legislature may have thought fit in its wisdom
to widen the scope of the law that existed previous to it so as to take in deferred benefits as
well. We think that we must interpret cl. (b) of
sub-a. (3) of
the context
of the section as it
occurs in the Income-tax Act of 192:?.
We have been referred to two EogliRh decisions
Dale v. Mitcalfe (1) and }lfauray v. Gommissianer8 of
Inland Revenue ('). One of the deci~ion Dale v.
Mitcalfe ( 1 J related to s. 25 of the English Income
Tax Act, 1918 (8 & 9 Geo. V. C. 40) aud the other
related to 1;1. 20 ( l)(c) of the English Finance Act
1922 ( 12 and 13 Geo V. C. 17). Those provisions
were differently worded and appear in a different
{I) (1927) IS T. C. 41.
(2)
(19~4) 26 T. C. 91.
v.
M anilal Dl.anji,
Bombay
Das J.
~··
1962
r.1 Co..,,;,,;.,, of
,_,Bombo_,
.
v.
M..a.I DA.,.ji,
~
DuJ.
914 SUPREME OOURT REPORTS [1962) SUPP.
context and decisions of the En~Iish Courts given
on provisions differently worded and appearinl!'
in a different context are not, in our opinion, help·
fol in determining the true scope and effect of
cl. (b) suli-s.
(3) of s. 16 of the Income-tax
,Aot, 1922.
We have therefore, come to the conclusion
that on a. true constnwtion of cl. (b) of sub-s. (3)
of s. I 6, the view expressed by the High
Court
was correct anrl the sum of Rs. 410/- did not f(Jrm
part of the total income of the &BSessee. The
High Court correctly answered the first question
referred to it.
We now turn to the second question. The
rPlevant clause of the trust deed of December I,
1941 is ol. 7 which reads as follows :
"The trustees shall bold and stand
poS8688ed of the Trust Fund mentioned in
the second Schedule hereto and the accmnulations thereof referred to in clause 3 thereof
upon T111st to pay the net interest and income
thereof to the Settlt!r's son
MANILAL
for the maintenance of himself, his wife and
for the mainten&nce, education and benefit
of all his children till his death."
The queRtion before us is whetbllr under
this clause the income received by the assessee is
impressed with a trust in favour of himself, his
wife and children to whom he is accountable as a
trustee for the amount received. In other words, the
question is whether tha trust deed of December I,
1941, created two tmsts, the one requiring the
trastees to pay the income from the trust funds to
the assessee and the second requiring the assessee
to spend the income for the maintenance of himself
and his wife anrl for the maintenance, education
and benefit of his children. In cases where pro·
perty i.s given to a parent or other person standing
or regarded aa in /,ow parentia, with a direction
2 s.c.H ..
SUPREME OOURT REPORTS
915
touching the maintena.nce of .the children, the
question often a.rises whether the settler intended
to impose a. ~rust by the dirccMon or . whether the
directiein was ·only the motive of the gift. The
line between the two cmsses of casea has not been
drawn "lways very ar1X1ly;
,It is,. however, . clear
that in construing provisione Of this kind the Con rt
will not enforce .or treat as obligatory a. mere wish
or desire or hope on the pa.rt of the settler tha.t
the d.onee of the fund should or would ought to
or is expected to apply it for the benefit of other
persons ; on the other hand, the Court does regard
as binding and obligatory and does enforce a direc·
tion or trust in favour of ·third parties if such a
binding obligation can .be clearly ascertained from
th-0 document. Instances of cases where no trust is
create(l a.nil of ca.sea where. trust is created. are
detailed a.t pa.gee. $$ ~n.d $!i) of J:,ewin on Trusts
.(llitli F;dition).
.
.
We a.re un'able tohold tha.t. in the ca.se before
· ~a ol. 7 of the tl:i:ist d~d merely ~P~ssei:l a wiMi
p1 desfr:~ or ~ope9i1 tit~ f>&tt of ib:e aettier;, We
. a.r~ in :11ogreem~t with, the: l{tgh C9tirt thi!.t the
d~rectfon QOntli.itied' in cl: '7 crea.ted a trust in
fi!.Y.i:r1~.; of th& a$1e'8ee,-his wif& apd. child,ren. . The .
. etpre$1iiou ·•"for the . maintenanc(l of himself and
. his wife and for the maintenaQce, . eoucation . and .
. • benefit of au his Chilcrrerl'' i11 .not .indicative of ·a
.tii:ete d¢sif~· .or bop~: it imfci&e$ a. bi:iiding and
obliga.tocy truJ!t; In r~; · BOQ{k, .JJciitk v. Bootk f)
a. ·te$ta.toi" gli. ve · the rtlllidue of his . esta.te to bis
13x:eoutors, on tiruijt, to pay to hii! \life or permit. her
to recuive the a.nnua.l .in09me thereof'during her life,
"fqr lier use .a.nd
.benefit
and for the m&intenance a.nd
education· of my children".
It
was he.id that the wifti took the income subject to
a trui!t for the maiμtenanoe a.nd eduoa.tion of the
·. {'~1.-{1Rq4:) r: (::h. ~R1.
1161
Tht_Commi~sfuncr o/
1,.,,,,,,...,.,, Boml>'IJ'
••
Mtinilo Dha'\ii,
11 ... b'IJ'
_ DasJ.
llHll
n, CommiJsio1Wr of
l•ams-•a, Bombff1
••
JIMilal D.\oiV1
B-NJ
DasJ.
916 SUPREME COURT REPORTS [1962] SUPP.
children.
A similar view Wl\8 exprel!8ed in Raike,s
v. Ward (1) and Woods v. Woods(')
On behalf of the appellant our attention was
drawn to s. 8 of the Indian Trusts Act, lb82 (II of
1882) which states that the subject matter of a
trust must be property transferable to the bene·
ficiary and it must not be merely beneficial inter·
est under a subsisting trust. It is contended that
the asseesee held a beneficial interest in the income
from the trust funds under the trust deed of December l, 1941, and in respect of beneficial interest another trust could not be created in favour of
himself, bis wife and children. We think that this
argument prooeeds on a misconception.
The
a.ssessee did not create a second trust in respect of
the beneficial interest which he held under the
trust, deed of December I, 1914. The &SBessee's
father created two trusts by that trust deed, one
requiring the trustees to pay the trust income to the
assessae a.nrl the other requiring the 888C88ee, who
wll.8 himself a tn1stee, to spend the income for
the maintena.noe, education and benefit of his
children. It is
not disputed that by a single
document more than one trust may be created.
It is not, therefore, true to say that the subject
matter of the trust in the present case was merely
a beneficial interest under a subsisting trust.
Under s. 41 of the Income-tax Act it was
open to the Department either to tax the trustees
of the trust deed or to tax those on whose behalf
the trustees had received the a.mount. The true
position of the 8.ll8Cl!IMJO in this case was that he was
a trustee and not the eole beneficiary under the
trust deed. He held the income on trust for
himself,
bis
wife and
bis children.
The
aha.res of the beneficiaries were indeterminate and
therefore under the first proviso to s. 41(1) of tho
(I) (1842) 66 ll. R. 1106-1 Hue 44S.
(2) (1836) 4-0 I!. R. 429·1 MY&: C. R .COi.
2 S.C.R.
SUPREME COURT REPORTS
917
Income-tax Act, it was open to the Department to
levy anil recover the tax at the maximum rate
from the assessee ; but that did not entitle the
Department to include the sum _of Rs. 14,170/- in
the total income of the assessee as though he was
the sole beneficiary under the trust· deed, Mr.
Rajagopal ::lastri made it clear that the intention
of the Department was to include the sum in the
total income of the assessee in order to levy and
charge super-tax on him. This, we do not think,
the Department was entitled to do. In respect of
the sum of .Ks. 14,170/- the assessee was a trustee,
within the meaning of s. 41 of the Income-tax Act,
appointed under a trust declared by a duly executed instrument in writing and as such trustee he
had the right to contend that his assessment in
respect of the money received by him not as a
beneficiary but as a trustee could only be made
under the first proviso to s. 41 (1). We have, therefore, come to the conclusion that on the second
question also the answer given by the High Court
was correct.
The result, therefore, is that the appeal fails
and is dismissed with costs.
Appeal dismissed.
1962
1111 CommissiDnlf' of
[tJCMnl .. ffx, Bomba,
v.
M anilal Dhanji,
Bomb!!.]
DaJJ.