1996 (7) TMI 82 - HC - Income Tax

Court affirms decisions on income & wealth tax assessments, excludes minors' trust assets.

Commissioner Of Income-Tax Versus Smt. N. Muthammal

The court affirmed the Tribunal's decisions in both the income-tax and wealth-tax assessments, holding that the income and assets transferred to minors ... Assessment Year, Net Wealth, Total Income, Wealth Tax Issues Involved:1. Inclusion of income arising to minors from properties transferred through trusts under Section 64(1)(vi) of the Income-tax Act, 1961.2. Inclusion of assets transferred to minors through trusts in the net wealth of the assessee under Section 4(1)(a)(v) of the Wealth-tax Act, 1957.Detailed Analysis:1. Income-tax Assessment: Inclusion of Income Arising to Minors from Properties Transferred Through TrustsThe primary issue was whether the income arising to the minors from properties transferred through trusts could be included in the assessee's income under Section 64(1)(vi) of the Income-tax Act, 1961. The Tribunal had previously found that the income arising to the minors from the properties transferred through the medium of trusts could not be included in the assessee's income under this section. The Income-tax Officer had reopened the assessment and included the income from three private trusts created by the assessee for her minor grandchildren, invoking Section 64(1)(vi), arguing that the term 'indirectly' applied to such transfers.The Appellate Assistant Commissioner upheld the reassessment's validity but concluded that the transfers did not attract Section 64(1)(vi), a decision later upheld by the Tribunal. The Tribunal relied on precedents from the Bombay High Court (CIT v. Framji H. Commissariat) and the Calcutta High Court (CIT v. A. N. Chowdhury), concluding that indirect transfers to grandchildren through trusts did not fall under Section 64(1)(vi).The Department's counsel argued that Section 64(1)(vi) applied to indirect transfers through trusts, citing the Calcutta High Court's decision in Sital Chowdhury v. CIT and the Supreme Court's ruling in CIT v. C. M. Kothari. Conversely, the assessee's counsel argued that the income was not directly transferred to the minors and that the trust was assessed for the income under Section 161 of the Income-tax Act, 1961. The court concluded that since the income was not directly arising to the minors in the assessment year in question, Section 64(1)(vi) did not apply.2. Wealth-tax Assessment: Inclusion of Assets Transferred to Minors Through TrustsThe second issue was whether the assets transferred to minors through trusts could be included in the assessee's net wealth under Section 4(1)(a)(v) of the Wealth-tax Act, 1957. The Wealth-tax Officer had reopened the assessment and included the assets transferred to the minors through the trusts, invoking Section 4(1)(a)(v). The Appellate Assistant Commissioner deleted the inclusion, a decision upheld by the Tribunal.The Department's counsel argued that the net wealth transferred through trusts should be included in the assessee's wealth-tax assessment, citing the same rationale as for the income-tax assessment. The assessee's counsel countered that the net wealth was assessed in the hands of the trust under Section 21 of the Wealth-tax Act, 1957, and thus should not be included in the assessee's assessment.The court concluded that since the net wealth of the minor beneficiaries was assessed in the hands of the trust, another assessment in the hands of the grandmother was unwarranted. The court found that the Tribunal's factual findings supported this conclusion, and therefore, Section 4(1)(a)(v) did not apply.Conclusion:The court affirmed the Tribunal's decisions in both the income-tax and wealth-tax assessments, holding that the income and assets transferred to the minors through the trusts were not includible in the assessee's assessments under the respective sections of the Income-tax Act, 1961, and the Wealth-tax Act, 1957. The questions referred to the court were answered in the affirmative and against the Department, with no order as to costs.