Clubbing of minor beneficiary's share income applies despite deferred receipt under a trust deed

Income arising to a trustee from partnership membership, where it is for the benefit of a minor beneficiary, is treated as income indirectly arising to the minor under Explanation 2A to section 64 of the Income-tax Act. The trust deed's provision postponing actual receipt until the minors attain majority does not defeat the statutory deeming fiction, because the relevant fact is the trustee's admission to the benefits of partnership and the accrual of income for the minor's benefit. On that basis, the share income was rightly clubbed in the assessee's hands and taxed accordingly.

---

---

Issues: Whether the share income of minor beneficiaries of a trust, where the trustee was a partner in a registered firm, was liable to be clubbed in the hands of the assessee under section 64(iii) of the Income-tax Act, 1961 in view of Explanation 2A to section 64, despite the trust deed providing for accumulation until the minors attained majority.

Analysis: Explanation 2A to section 64 deems income arising to the trustee from membership in a firm, to the extent it is for the benefit of the minor child, to be income arising indirectly to the minor from admission to the benefits of partnership. The postponement of actual receipt until majority does not affect the statutory deeming fiction, because the material fact is the trustee's admission to the benefits of the partnership and the consequent accrual of income for the minor's benefit.

Conclusion: The share income was correctly brought within the clubbing provision and was taxable in the hands of the assessee; the answer to the referred question is in favour of the Revenue and against the assessee.

---